As with many things, what is right in front of us, we either don't see or we take for granted.
Also, since I have been in this space for many years (Space? Who talks like that?), I cannot be objective.
However, FinCEN's SAR Activity Review is a useful training tool, feedback mechanism, and proof that the government does work with Suspicious Activity Reports, Currency Transaction Reports, and other Bank Secrecy Act reports. (Spirit of disclosure: I helped create the Review back in 2000.)
We in the AML community frequently clamor for feedback from the government. But do we utilize what is right before us?
Looking at the May 2013 SAR Activity Review: What can we learn?
In the 23rd edition of this publication and its companion, SAR By The Numbers, there are several areas to highlight and a few that demand further review.
Elder abuse. FinCEN points out a dramatic increase in SAR filings--382% is certainly dramatic--on elder abuse after the release of a guidance by Treasury on that very topic. It is certainly logical that guidance will put an issue top of mind and should be clear evidence of the need for ongoing direction to the filers of SARs.
A further review of the elder abuse SAR narratives showed "that filers were careful to assess suspicious transactions, often questioning an elderly customer if his transactions appeared out of character." This certainly assists in preventing losses to both the financial institution and the affected customer. FinCEN's feedback here is very helpful, but more is needed.
Insider abuse. FinCEN also analyzed insider abuse. While the number of SAR filings in this area has been decreasing, certain examples from the SARs and interviews with law enforcement concluded, among other things, that SARs on officers and directors are important to investigations and have slightly increased since 2009.
Gatekeeper abuse. In another section of the Review, FinCEN researched the filings of financial institutions on accountants and CPAs, so-called "gatekeepers." The findings as well as the methodology and the relevant reporting requirements are worth noting, in part because of the explanation of how hard it is to quantify accountant misdeeds under the Bank Secrecy Act.
Examples of filing categories from the SAR narratives concerning accountants are structuring, tax evasion, embezzlement, misuse of correspondent accounts, and shell company activities.
FinCEN concluded the section with:
"As shown in the report, accountants and CPAs may be involved in all aspects of money laundering, facilitated both on their own behalf as well as in assisting others. They may knowingly participate in suspected money laundering activities, or unwittingly be used to give an appearance of legitimacy to a transaction."
Thoughts about 314 (b) and FinCEN
FinCEN correctly spends a large portion of the Review acknowledging the success of the 314 (b) information-sharing section of the USA PATRIOT Act. There are numerous examples listed here, with statistics on the trends uncovered and a description of a number of new entrants to the filings. These include broker-dealers, securities clearing firms, money services businesses, and insurance companies.
The effort clearly is a success, but I still bemoan that fact that 314 (b) was supposed to be a "two-way street." (I know, I worked on the legislation.) I question how effective the "computer intrusion" portion of the SAR in light of the ever-increasing cyber attacks we face every day.
Can we get some analysis on this?
The SAR Activity Review also contains a section on law enforcement cases--an extremely useful training tool.
The case studies offer recommendations on what to look for and can add to your current list of "red flags." FinCEN should be commended for reaching out to their colleagues, who have readily assisted in offering guidance and direction.
Two final thoughts from the Review
Ever since the start of this publication, FinCEN has permitted representatives of the private sector to author articles on topical issues, with the obvious caveat that the opinions presented do not represent those of the U.S. government.
This edition contains a thoughtful piece on the horrific crime of human trafficking, making the case to add that crime as a reportable "box" on the SAR form. The anti-money laundering community has dramatically increased its training and coverage in this area and I have written about this before.
But there is a larger issue here:
Would a checked box cause the regulators to focus on criticizing policy and procedures? Instead of encouraging rooting out and reporting this crime?
Let the debate begin ...
So, as I said, the AML community has always craved feedback.
It is here. Do you use it.
As Mick Jagger says, if you try sometime, you get what you need.
Disclaimer: John Byrne's views do not necessarily reflect those of the American Bankers Association.