Suspicious Activity Reports: Not Just for Law Enforcement

FinCEN?s mission, in simplest terms, is to protect the national security and safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering and other illicit activity. Using the authority of the BSA, we strive for an appropriate level of transparency in the U.S. financial system so that illicit activities can be deterred, detected, and prosecuted. While no one disputes the merits of protecting the financial system from abuse, everyone understands that there are costs and benefits associated with the imposition of any kind of requirement, both for the private sector and for the government. FinCEN?s role is to strike an appropriate balance. The burdens imposed on the financial system have to be justified in light of the benefits gained. The transparency we strive for must be achieved while protecting the privacy of individuals as well as the equities of the institutions providing financial information.

One of our most urgent priorities is to better communicate the benefits of regulatory recordkeeping and reporting requirements and the use made of collected data. To help achieve our goal, this article, the first in a series, will provide an overview of the many and varied uses of SARs and the growing number of analytical tools at our disposal.

It is important to acknowledge that not every piece of data has to relate to a particular law enforcement action to be useful. Much of our analytical work depends on how the data fits together as a whole. Law enforcement and intelligence communities use SAR data in combination with other information collected through their investigations to link individuals and their activities, hinder activities, and prosecute the perpetrators. SARs have helped law enforcement uncover webs of criminal activity by linking ongoing investigations in multiple jurisdictions, as well as identifying activity associated with geographic areas of interest.

However, the value of data collected from SARs and other BSA data extends beyond simply alerting law enforcement to possible money laundering activities, terrorism financing, or other violations of law. The information collected is used to improve the effectiveness of SAR reporting, measure the impact of regulations on a particular industry, identify emerging trends and industry vulnerabilities, and determine appropriate action for non-compliance.

Law Enforcement Support
With sophisticated data mining capabilities and strategic analysis, FinCEN can focus on specific reporting patterns and issues or analyze SAR data on a wider scale. FinCEN has used these capabilities to identify patterns in a geographic area, helping law enforcement identify ?hot spots? where they can focus their resources. Access to this type of information can alert law enforcement to potential problems in that area and help them allocate their resources accordingly.

FinCEN has also partnered with foreign Financial Intelligence Units to share knowledge and information about money laundering and terrorist financing. One example of this global cooperation occurred after the Madrid bombings in March 2004. A Financial Institution Hotline tip received after the bombing led to an investigation of wire transfers in the U.S. and abroad conducted by two individuals thought to be suspects. The resulting SAR led to an exchange of information between FinCEN and its Spanish counterpart.

Through calls received on FinCEN?s Financial Institution Hotline and the work of the Counter Terrorism SAR Review Team, FinCEN?s Office of Law Enforcement Support helps expedite notification to law enforcement of suspected terrorism related activities by reviewing SARs and proactively developing cases for referral to law enforcement agencies. The team is knowledgeable about geographic regions and interpreting data to recognize patterns and trends and identify related activities. In analyzing SARs for potential terrorism financing activities, key word searches are performed to identify potential indicators or certain geographic areas that have been identified as linked to terrorism financing. Indicators of terrorism financing activities may be obvious, such as attempted transactions involving Hezbollah, but they are more likely to be identified through one of the standard >
Identifying suspicious activity, and providing support to law enforcement, is critical to FinCEN?s mission to safeguard the nation?s financial network. The ability to analyze data to identify issues, trends and patterns in SAR reporting, and educate financial institutions and regulatory partners, is equally critical to our mission. The information gained through SARs is key to carrying out that mission.

Regulatory Analysis
The work done by FinCEN?s Office of Regulatory Analysis is critical to administering the Bank Secrecy Act. Their work enables the agency to identify financial institutions with deficiencies in their SAR filings; understand emerging issues and trends; identify new methodologies; and shape the agency?s strategic planning. Through robust data mining capabilities, FinCEN can analyze SAR filings for a particular financial institution, type of activity, or geographic area. FinCEN also monitors the quality of data by focusing on the SAR forms? critical fields. This type of analysis identifies institutions with filing problems, such as missing information or incomplete narratives. Analyzing data to look for key words in the narratives also helps identify new issues or trends. When conducting a study of money services businesses, for example, analysts might search narratives for key words such as ?unregistered? or ?unlicensed.? Through further analysis of the SARs that matched on these key words, analysts can focus on those related to MSBs to look for compliance and money laundering and terrorist financing trends, patterns and vulnerabilities.

FinCEN has recently begun to go public with some of its own analytical work based on BSA information, issuing studies on mortgage loan fraud, use of shell companies in money laundering, and money laundering in the commercial real estate sector. Each of these was supported by data provided under the BSA by financial institutions. FinCEN intends to continue sharing, wherever possible, our analysis of BSA data to demonstrate the general utility of the data and the use of the data in pursuing specific offenders.

FinCEN analysts also perform comparative SAR samplings. This type of analysis enables FinCEN to uncover issues associated with a specific geographic area for trends and patterns related to both criminal activity as well as compliance issues. FinCEN also employs comparative SAR sampling to search for inconsistencies in reporting. This can reveal issues related to the nature of the activity reported. This type of analysis can also identify whether a particular financial institution is reporting activity that is being reported by other financial institutions in the area, and thereby help assess an emerging threat to that geographic area and provide targeted and proactive reporting to law enforcement and the intelligence communities.

When FinCEN issues new regulations that impact a particular industry, such as the recent rules for insurance companies, FinCEN analysts review SAR activity before and after promulgation of the rules. This allows FinCEN analysts to determine the impact of the rule as well as assess the need for industry outreach. In conducting studies of a particular industry, FinCEN analysts review patterns and trends in the method of detection of suspicious activities employed by financial institutions. Analysts then conduct detailed reviews of SAR narratives to support their analysis and show the potential impact to or on a particular industry. Through this analysis, FinCEN can determine if the number of filings has changed, if they are being filed appropriately, and whether they are effectively identifying the risks and suspicious activity inherent in a particular industry.

BSA Compliance and Industry Outreach
FinCEN?s Office of Compliance works with federal and state regulators to track performance as well as to identify and monitor institutions with significant BSA violations. During a compliance review of a financial institution, FinCEN works with regulators to analyze the appropriateness of an institution?s SAR filings as a part of an overall assessment of its AML program. The ability to collect and analyze SAR data enables FinCEN and other agencies to provide detailed guidance to financial institutions, including targeted guidance to specific industries, and develop more effective compliance examinations. For example, targeted outreach to industries potentially at risk of being exploited by criminals, such as mortgage lenders and unregistered MSBs, has resulted from identifying trends in data.

FinCEN also conducts data quality studies to improve the quality of the SAR filings and gain information that can be used for industry guidance and outreach. In addition, the Office of Compliance studies SARs filed to look for errors in critical fields. These studies identify areas of the form that are being completed incorrectly, contain incomplete narratives, or indicate a potential software or electronic filing issue. Identifying filing problems helps the office evaluate changes that may be needed when a form is revised or for drafting an advisory or guidance to financial institutions to reduce the occurrences of the filing errors.

When making a determination of whether or not to take enforcement action, FinCEN looks at SAR data as part of its overall assessment of an institution to recognize patterns within the institution, such as the number, quality and timeliness of filings. Comparative analysis of SAR filings, such as whether there are sudden increases or reductions in filings, can identify emerging or potential problems and vulnerabilities.

Excerpted from SAR Activity Review Issue 11, page 39