We have a client who received a large insurance settlement after their house burned down. There was implications of insurance fraud but it was apparently settled. The insurance check was deposited here, then moved out from our institution to an unknown third party at another bank in a different state. Since then, the client has either received large wires or deposited checks from them (signed by the third party, the rest obviously filled in by the client). At the same time, checks on us are going out and being deposited to another bank in the area to an account in her name. The checks are all paid to the order of "cash." Our CPA firm does some compliance help and recommended we file a SAR due to there being no apparent business purpose and this activity is fairly new and hasn't been done by this client before. I checked FinCEN's red flag list and I can check off several of the red flags listed under their Funds Transfer section. Some of our managers don't want to file a SAR claiming there isn't anything illegal going on. To me, the activity is highly suspicious - why do the funds need to go through our bank? Why not go directly from this third party to the other bank? Either way, if you have any input on whether or not this appears to be money laundering or anything else illegal I'd greatly appreciate it! My plan is to file a SAR regardless of what the other managers think.

Just a suggestion, start with the simpler question "Is this unusual?" based on the investigation, then move on to "Is this suspicious?"

Your co-workers must be very insightful in order to "know" that nothing illegal is going on. As for me, I don't believe I fully understand the cycle of funds so I would ask the customer what's happening and go from there.

Your CPA firm is correct; the inability to figure out what the customer is doing is an adequate basis for filing. From the SAR instructions:

the financial institution knows, suspects, or has reason to suspect that the transaction or pattern of transactions of which the transaction is a part:

[abridged]

Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction...

Since then, the client has either received large wires or deposited checks from them (signed by the third party, the rest obviously filled in by the client). At the same time, checks on us are going out and being deposited to another bank in the area to an account in her name.

How often - enough for a kiting arrangement?

Thanks everyone for the replies - I really appreciate all your help!

rlcarey - Kiting had crossed my mind as well since she's had a negative average available balance and the funds seem to either clear on the same day or one day apart, but it seems that the funds are just flowing through us from the third party to the other bank. Nothing from the other bank is coming back in. We've been returning all checks if funds aren't available. I suppose it's possible that funds are flowing back to the third party - any insight on that?

A kite now-a-days needs more than two banks. Close the account. Not sure why this would even be a discussion.

Thank you!