We have a customer who has purchased a money order in June for $7,000 and the customer is the payee and remitter. He comes in the bank in September and cashes the money order and gets $1,000 in cash and deposits $1000 in his checking account and then purchases another money order for $5000 with him being the payee and remitter.

In webinars I understand the examiners are wanting banks to file SARs on these type of transactions. My question is what would I check for reason of filing a SAR. Would it be "Suspicious use of noncash monetary instruments".

Thanks

There are multiple legitimate reasons (well, maybe not "legitimate", but at least "legal") reasons for a person to be doing this. I certainly wouldn't be filing unless I knew why (or they refused to share why) they were doing it. Some are hiding assets, some are laundering funds (was the original $7,000 purchased with cash?), but some are "saving" because they can't trust themselves, have a significant other with a gambling problem, etc. Just like keeping cash in a safe deposit box.

If they refuse to provide information on why, then you're stuck with assumptions. The option you mentioned would seem suitable, there may be others too (no apparent/lawful purposes, transaction out of pattern may apply, etc).

Most banks have established a practice that one monetary instrument cannot be used to purchase another one. They can either cash it or deposit it or some combination of the two. They don't get to daisy chain monetary instruments and the bank doesn't have to worry about tracking, SARs, etc.