What you say matters as much as how you say it when filing a suspicious activity report (SAR).
The recently published FinCEN leaks have revealed a huge SAR chasm to the general public, into which millions of suspicious activity reports are filed every year. As it appears, there are too many SARs to allow authorities to properly investigate the suspicions/allegations articulated in each one.
The leaks will cause many to ponder what is taking place within an anti-money laundering (AML) regime that appears to be obsessed with reporting, gathering intelligence, and then appearing to do nothing to stop the laundering. I will save that for another day—for now, I want to focus upon the SARs, because in our world of AML compliance, this is where the rubber hits the road.
The SARs referenced by media organizations reporting upon the leaks were submitted in compliance with legal obligations by multiple international banks. In some instances, the reports have focused upon the actions taken by banks after the submission of the SARs. In others, it is the banks’ actions prior to the submission of the SAR. Having seen some of the SARs, I was struck by what was written, and in some cases I determined a SAR should not have been filed.
The leaks were illegal; nonetheless, they are now in the public domain. Thankfully, they have all been carefully redacted prior to being shown in any broadcasts or publications, and the names of no bank employees have been exposed. Some will read the redacted narratives and ponder: what does it all mean, and what did the authorities do with the information? I am unable to answer the second question but will try to address the first.
In every instance, an employee of the bank submitted the SAR because he/she suspected a crime was connected to the funds, customer, account, related parties, or a combination of these factors. Within one particular SAR, the AML investigator/analyst asserted he/she could identify no lawful purpose for the transactions and suspected fraud. These were bold and direct assertions. In another SAR, the writer suspected the transactions were part of a layering process, and in another instance the funds appeared to be round-tripping from an account through other accounts and back to the originating account.
Whereas fraud is a crime, layering and round-tripping are not. So, what’s the issue? It’s all about the wording, and to some extent the investigation of the activity which gave rise to the SAR. The key word is suspicion; more pointedly, suspicion of a crime. I hear some readers immediately challenge, “When do legitimate businesses engage in layering and round-tripping?” And there are a number of answers to this, many of which are logical and reasonable. Thus, I contend there are times when it is necessary to ask the customer questions.
Now I hear readers screaming in alarm because someone is proposing we ask a customer questions about a suspicious transaction. There are times when it is both good and necessary to talk to customers about unusual transactions. Moreover, it is important to ensure we use the correct words in the right way when drafting a SAR. We must always articulate suspicion of a crime; after all, this is the very essence of the SAR and the wider AML regime.
Thus, if we are uncertain, we should seek to find some certainty, even if this means talking to the customer, or more likely having the relationship manager talk to the customer. It is not a case of precisely which crime we suspect, albeit there will be times when this is almost obvious, such as the fraud referenced above. By way of example, it is always difficult to know the exact criminal origins of money flowing out of Russia, but at a minimum, there is likely to be some form of tax evasion. In the event you determine to allege another crime, such as drug trafficking, ask yourself how you have made and can later justify such a determination.
Understand what words mean. In a famous case in the United Kingdom, Shah v HSBC, the person completing the SAR stated he was not aware of the origins of the funds, but lack of awareness is not necessarily a basis for suspicion. Right now, I am not aware of my wife’s precise whereabouts, but I have no suspicions about her. Words are very important, because as the leaks demonstrate, one day they may be read by many people, including your customer.
So be bold; endeavor to be accurate; and do make reference to characteristics and features which fuel your suspicion. If you are unable to find a Website for a corporate customer with a busy account, say so. Keep in mind that one day, as in the case of Shah v HSBC, you may be cross-examined about your actions and words. The correct use of words can avoid a lot of challenges and doubt at some later stage.
If suspicion has arisen because a regulator contacted the firm/bank and made enquiries about a customer, raise an alarm. This will expedite the AML process by ensuring the SAR is quickly routed to the same regulator. Try to adhere to the facts, numbers, names, and addresses without expressing emotions or colorful opinions. Often, less is more when writing a SAR, thereby facilitating the accurate, expedient, and succinct delivery of important financial crime intelligence while simultaneously protecting the author from unwanted and unjustified scrutiny at some time in the future.