It's vital to to make sure your business contacts the local Financial Investigation Unit (FIU) by issuing a Suspicious Activity Report (SAR) if you detect potentially criminal activity. These SARs are important in the fight against financial crime, but it can be difficult to know how to do them correctly.
Regulators around the world have developed a variety of compliance requirements and processes in response to the growing threat of money laundering and other financial crimes, and financial institutions are obligated to act accordingly.
When financial institutions detect suspicious transactions, for example, they are obliged to report them to the authorities. This helps to prevent potential criminality such as money laundering, fraud, and the financing of terrorism from taking place.
Throughout Europe, suspicious activity is reported via the submission of a suspicious activity report (SAR), an official document submitted by a financial institution to the relevant authority in their jurisdiction.
What is a suspicious activity report?
A suspicious activity report (SAR) is a mechanism for reporting suspicious activity, such as potential instances of financial crime, to the authorities. SARs can be used for a variety of purposes, but they are most commonly used to report potential instances of money laundering.
Some SARs provide immediate opportunities to stop crime and arrest offenders, for example, while others help to uncover potential criminality that needs to be investigated and provide intelligence that might be useful in the future.
What is the purpose of SAR filing?
A SAR filing is the submission of a suspicious activity report. Its purpose to make the authorities aware of transactions and any other activities that are out of the ordinary and could potentially be linked to criminality, or that might otherwise threaten the safety of the general public.
Suspicious activity related to banking and finance often involves money laundering, fraud, and terrorist financing, so it’s important that regulated institutions screen for suspicious activity through processes like automated transaction monitoring and Know Your Customer (KYC).
Automated transaction monitoring is a tool used by most financial institutions for the monitoring of customer transactions at scale. It helps institutions build a clear picture of customer activity and is critical for detecting suspicious activity, reducing false positives, and capturing relevant data for completing a SAR.
When is a SAR filing required?
A SAR filing is required whenever a financial institution detects a potentially suspicious transaction or other suspicious activity with one of its clients. Circumstances that might lead to a suspicious activity report include (but are not limited to):
- Transactions over a specified value.
- Transactions that are unusually large.
- International money transfers over a certain value.
- Unusual account activity.
By way of example, let’s say that a customer deposits the same amount of money in their account at the end of each month. If that customer suddenly began depositing three or four times that amount and made more frequent withdrawals, that would rightly rouse suspicion and trigger a suspicious activity report.
Although SARs usually relate to transactions and money laundering offences, they can apply to a whole range of activity. They can, for example, arise where a financial institution believes that an employee is engaged in suspicious behavior, if a computer system is compromised, or if they receive a third-party report.
Who is responsible for creating SARs?
Although suspicious activity is usually detected by a financial institution’s automated monitoring system, it comes down to human operators to review any flagged activity and generate a report if it is deemed to be suspicious.
The critical role that human operators play in suspicious activity reporting means that employees must be trained to recognize what constitutes suspicious activity, how to complete a suspicious activity report, and how to correctly carry out a SAR filing so that it is sent to the relevant authority in a timely manner.
Generally speaking, SARs must be filed within 24-48 hours of a transaction being reviewed and determined as suspicious. This of course can vary by jurisdiction, in the US there is a greater timeframe of 30 calendar days, and the nature of a transaction also has an impact. A suspected case of terrorist financing, for example, will mean that authorities need to be notified immediately.
How to file a suspicious activity report
Due to the amount that can be at stake when it comes to SARs, larger organizations will usually have a nominated AML or compliance officer who acts as a single point of contact and is ultimately responsible for SAR filings.
This isn’t always the case, however, and employees at smaller firms may find that they cannot turn to an appointed individual for help. In such cases, employees should seek guidance from line managers and seek to complete and submit a SAR in accordance with local guidelines.
In Europe and other nations with stringent AML regulations, SARs can be submitted online through e-filing. Although the exact submission process varies by territory, electronic systems make activity reporting a quick and easy process.
In the UK, for example, SARs are submitted to the National Crime Agency (NCA) by a company’s nominated officer through the SAR Online Portal. Similarly, in the United States, FINCEN SARs are submitted through BSA e-filing.
However, if you’re operating in a jurisdiction where the local FIU uses goAML for SAR filing you can take advantage of the Sentinels API to file SARs in a matter of clicks that supply the FIU with useable information for their investigations.
Best practices for SAR filing
The prospect of submitting a SAR can seem daunting to the uninitiated, but there truly is nothing to fear. Disclosures and SARs are extremely confidential and are in most jurisdictions heavily protected by law.
Those responsible for completing and submitting activity reports should ensure that they carefully follow any guidance provided by their relevant national authority, and that reports are submitted alongside all available information that’s pertinent to the disclosure.
Some best practice tips include:
- Identifying the reason(s) for suspecting that activity is suspicious.
- Identify the suspected benefit(s) from criminal conduct involving the activity.
- Identify all parties involved and any activities deemed suspicious.
It’s always a good idea to also fully describe the reasons for your suspicion in relation to potential financial crimes such as money laundering. As a basic rule, wherever possible, try to answer the following questions to ensure your SAR is as useful as possible: Who? What? Where? When? Why? How? This can be improved by making sure you have rich client profiles available in your AML and transaction monitoring workflow to enrich your SAR filing with all the information the FIU needs.
SARs must be complete, thorough, and promptly filed by institutions. The importance of information’s accuracy and quality, and a timely submission, cannot be overstated. Inaccurate information on a SAR, or incomplete or inconsistent information, can make investigations difficult, or worse, impossible.
Find out how you can improve your SAR filings and increase the efficiency of your AML policy with our complete guide to transaction monitoring.