We have two convenience store customers that cash checks. They have supplied their check cashing policy to the bank. However, on occasion, they cash checks that violate their provided policy. For example, one of the customer states that they will not cash personal checks. In the deposit is a personal check payable to another person. Is this activity something that a SAR should be filed on?

Why?

Just because they are not following their policy. I think one should not be filed, but I don't want to let the activity continue without filing one if necessary.

Just because your customer violated their own policy doesn't require the filing of a SAR.

A violation of (or in this case I'd call it an exception to) policy does not equate to a violation of law. Nor does it automatically make the exception suspicious.

I would focus on the item. Is it suspicious? Do you think there is some kind of fraud being committed or a drug dealer has written a check to a mule to have it cashed and then bring the cash back to him? Is it even large enough that you should even be looking at it to make a determination?

Also, if you don't want them to do this, just tell them that the next time on shows up in their deposit, you are going to close their account. MSBs have a hard time finding banks to bank them. They will quit. Myself, if the customer is credit worthy to cover any returns, what different does it really make?

Frankly, I'd be more concerned with the check cashing stores that cash checks payable to businesses. It's banned in several states, but not in all (and I have no idea how well the ban is observed). These checks, along with third-party checks (at the time they're cashed) carry the largest potential for fraud and delayed chargebacks, I think.