Dancing with the SARs - an Investigator's Guide to Suspicious Activity ReportsAML Expert Kevin Sullivan Shows What Happens to a SAR - and to the Money Launderers who are Prosecuted
Yes SAR No SAR
You may ask yourself every time you complete a SAR, "Why am I doing this?" "Who reads this and what happens to it next?" Let's follow that route and see where it takes us.
Assuming a financial institution has decided to complete a SAR within 30 days of first observing the suspicious activity, it will be sending this form (either electronically or via conventional mail) to the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN). FinCEN stores all the SARs and various other reportable forms. It further breaks down, categorizes and analyzes SARs based on the various check boxes that the reporter filled in. FinCEN looks for various trends and patterns based upon the information that is provided. FinCEN publishes a downloadable file, for public consumption, several times a year called the SAR Activity Review. This report details the statistics and results of its findings. This is just a small part of FinCEN's duties and responsibilities, which entail protecting the financial system via administration of the BSA. For this article we are concerned only with the path of the SAR.
FinCEN makes SARs available to certain federal, state and local law enforcement agencies. Just as the confidentiality of the SAR is mandated at the financial institution level, so it is at the law enforcement level. There, officials are allowed to discuss the SARs with each other only under certain circumstances. Those would be for the purposes of investigating money laundering, terrorist financing or other crimes. Once a SAR is in law enforcement's hands it is considered a confidential document and is not to be disclosed to the subject listed on the SAR or to another financial institution.
Even if a SAR isn't useful at the moment, it could still come in handy later:
- 1) Perhaps law enforcement is investigating the subject based upon a SAR from another institution you aren't aware of. While your SAR might not have originally been a top selection for investigation, it might help indicate a pattern or furnish additional information about the subject.
- 2) Trends and patterns might be observed based on the type of crime or geography.
- 3) A name, business or address in the narrative section might relate to another SAR or investigation.
In various geographical areas, law enforcement agencies gather together to discuss SARs that relate to their particular concerns. This is normally referred to as a SAR review meeting. Such meetings are held periodically and are usually attended by representatives of law enforcement agencies at the federal, state and local levels and by federal and state prosecutors and regulators. Since approximately one million SARs are completed each year, the need for a vetting and filtering process is paramount.
Each jurisdiction has its own methods of review. I will describe the process followed at the El Dorado Intelligence Center of New York's High-Risk Money Laundering and Related Financial Crimes Areas (HIFCA.).
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Currently in New York, over 4,000 BSA-related SARs are downloaded each month. No advanced technology, million-dollar systems or sophisticated SAR software is used at this level. The reason for this is that while there is uniformity in the reporting methods for pages 1 and 2 -- which is basically fill in the boxes -- the narrative section is quite different. Most of you have never seen a SAR written by an institution other than your own, but I have reviewed SARs from hundreds of different institutions. Each narrative is constructed differently, and none follows a uniform pattern. It would therefore be difficult to simply process through a rules-based software system. Each SAR needs to be read and reviewed by human eyes. Those eyes must have a comprehensive understanding of money laundering, the latest trends and patterns, law enforcement methods and prosecutorial guidelines. There is little black and white in the narrative ï¿½ gray is the color of the day. Each SAR must be filtered through those human eyes with an initial assessment as to whether that SAR has the potential to become a case or actionable intelligence. Is the SAR an obviously defensive filing? Does the reader agree the activity is suspicious? Does the narrative have a usual or unusual pattern that may have been seen before? Is the SAR similar to other SARs from different institutions? For the reviewer, the narrative section is completely subjective, and case development will be based upon the reader's knowledge, skill, understanding and experience in AML and law enforcement.
A fundamentally good SAR narrative should contain the following:
- For example: Mr. X made 27 deposits, each under $10,000, on separate days between April 1 and May 15, 2007.
Desktop bounty hunting
The initial reading of the SAR is only the first bite at the apple. If the SAR passes through this review, it goes to the next level, where due diligence is performed. The subject of the SAR is checked for other financial reports (i.e. other SARs, CTRs, FBARs, 8300s, CMIRs). The subject is checked for foreign travel and criminal history. Then the SAR is reviewed again. If it still appears to have potential, then High-Risk Money Laundering and Related Financial Crimes Areas (HIFCA) will perform additional or enhanced due diligence. Those checks consist of a complete array of database checks, some that are open source, others that are law enforcement only. I call this process of investigation by computer, desktop bounty hunting.
HIFCA may contact the author of the SAR and request the SAR supporting documents. Additionally, a subpoena for the records may be sought, and 314A requests completed. The SAR is reviewed again and a determination made regarding its value as actionable intelligence. A written report of all findings and results is completed.
The final phase of the process is the SAR review meeting, described above. At this point an individual law enforcement or regulatory agency may adopt the case.
From there, the SAR and all of HIFCA's related work would be transferred to that adopting agency. The adopting agency would then decide to complete the investigation by opening a thorough field investigation, which might include surveillance, wire taps, interviews, further subpoenas, forensic accounting and good old-fashioned detective work. The desired end result would be an arrest, prosecution and perhaps asset seizure and forfeiture.
Title 31 of the Code of Federal Regulations (31CFR103.18 Availability of Information)
Institutions filing SARs are directed to maintain all "supporting documentation" related to the activity being reported. Disclosure of supporting documentation related to the activity that is being reported on a SAR does not require a subpoena, court order or other judicial or administrative process. Under the SAR regulations, financial institutions are required to disclose supporting documentation to appropriate law enforcement agencies, or FinCEN, upon request.
Real SARS to Jail Bars
The SARS that financial institutions complete are read. Contrary to popular belief, we do not make paper airplanes out of them and fly them out the window. Not only does the New York HIFCA read SARs but, as mentioned earlier, numerous law enforcement and regulatory bodies have access to SARs and make good use of them. I cannot stress enough the importance of the information that is provided through a thoroughly completed SAR that includes a quality narrative.
Some law enforcement agencies have been reviewing SARs for years, while others are new to the game. Many are just beginning to realize the wonderful investigative tool that SARS and other financial reports can be. Financial institutions, regulators and law enforcement all have a similar goal, and that is to keep the bad guys from abusing the financial system. Cooperation, understanding and solidarity among all can give us an edge on the bad guys.
Kevin Sullivan, CAMS, is an Investigator with the New York State Police, and the state coordinator at the New York HIFCA El Dorado Task Force. Additionally, he operates the consultancy www.amltrainer.com