Reporting SARs and The role of a Compliance Officer
In previous article I highlighted in detail how AML System Controls contributes to the limitation of Fraudulent activities within financial systems. Going forward, what exactly can/should be done when suspicious activities of fraud is detected in/as an ongoing trend/act in a company’s, national, financial institution or within a monetary system?
What is SAR or STR ?
In respect to monetary laws and international standards such as the Financial Action Task Force recommended standards which is internationally recognized and endorsed in 180 countries across the world to tackle money laundering, acts of terrorism and other financial crimes, any potential threat or sign of fraudulent activities by perpetrators or linked to accounts registered within an organization is expected to be reported as a “Suspicious Activity Report (SAR)” or as otherwise known as a “Suspicious Transaction Report (STR)” as stipulated in the Recommendation 20 of the FATF.
(As recommended by The FATF)
Suspicious activity/transaction reports are filed by a Compliance Officer in charge of overseeing the system programs & staff of the institutions they serve, and thereby enforced to ensure all units of the institutions they work in function with strict and detailed compliance to the Anti-money Laundering (AML) and Combating the Financing of Terrorism (CFT) policies and standards as internationally recommended & accepted.
When Do SARs & STRs Get Filed?
Different reason/factors warrant the need to file a SAR/STR. Such scenarios may include, but not limited to;
1. Lack of evidence to back up the legal status of business operation by entities involved in transactions.
2. Contradicting business narrative and affiliation in market operations. For example a car importer dealing with food importation could raise suspicion if such business has an hidden agenda such as smuggling contrabands or other illegal trade/businesses.
3. Transacting with unreasonably large sums way above expected threshold for involved client profiles and when transactions are way higher than the market value of transactions when compared with the actual market value in question.
4. Transactions that seem to have untraceable links.
5. Unusual large amount transfers or mixed transactions involving multiple accounts, banks and parties with criminal records/tendencies.
Roles of Compliance Officers in Compiling SARs/STRs
1. Compliance Officers are responsible for planning annual compliance activities which will include details of how to channel resources of the companies they work for in order to ensure compliance risks are neutralized.
2. Compliance Officers reports & advises management board of the companies they work for on how to strategically execute goals meant to ensure compliance within the company.
3. The maintenance of structures and systems aimed to enhance and sustain the compliance program in an organization is planned and overseen by the Compliance Officer, with autonomous power to make necessary precise decisions needed.
4. Compliance Officers are also responsible for educating, advising, informing and communicating the rule and values of the company and how to resolve issues relating to taking decisions in line with compliance policies and standards.
5. In cases of crisis and system defects, the compliance officer is to define the problem, risks the organization is facing and their effects through routine risk assessment, and also proceed to give directive to relevant departments and stakeholders to execute precise strategies that will fix “loopholes” and ensure the security of the system against vulnerability is sustainable in the future.
6. The Compliance officer keeps record and ensures he reports cases of irregularities in client’s profiles by filing a SAT/STR to enable work with necessary regulatory authorities in curbing high risk profiles (customers with records of irregularities) is well investigated and sanctioned in accordance to AML/CFT standards.
How to Write a detailed SAR/STR
Various institutions’ procedures may specify an exact format to follow when composing a SAR file. But in many situations as such, or when required to compose a SAR documentation from scratch, it’s better to accompany such files with a narrative.
Here are few tips to ensure a detailed communication as intended in a SAR/STR narrative documentation
I. Introduction of SAR/STR:
The first part of your documentation should give clear purpose for writing a SAR/STR. At this point, detailed answers to questions such as those listed below (but not limited to these questions) should be included:
• What is the activity?
• Why is it suspicious?
• What is the total suspicious amount involved?
• What is the date range of the activity?
• Who is involved? (for example, the parties and financial institutions involved)
• What are the accounts involved?
• Is this initial or continuing activity filing?
• Why was the case opened?
Ensuring you capture the purpose for filing a SAR/STR is very important as this will alert law enforcement, auditors, and regulators immediately about how urgent your report is, why you file in late, what triggered your suspicion, what is at stake and other core details that gives a brief, yet summarized insight into the report.
Some countries’ SAR/STR writing guidance emphasizes using keywords in your SAR as this helps law enforcement buckets your SAR correctly immediately. Hence, ensure the proper use of keywords are used as needed in filing a case as a SAR/STR. The highlights as briefly detailed into your introduction in few sentenced can then be given an elaborate or deeper explanation in the body of your SAR/STR.
II. Body of SAR/STR:
Stemming from the introduction, shed more light to explain how the events that led to the suspicion of activities has come to be.
The body if a SAR/STR narrative should give enough insight to help law enforcement bodies to track and determine the following;
The “Who” ?
Give details of parties involved in the suspicious activities. This can include the name of suspect(s), the beneficiaries of the suspected transactions, the companies involved, the financial institutions involved and the relationship of all parties in connection to the case reported. If you have the information available, include employer and occupation information, the relationship between the suspect and the financial institution for ensure more traceable details.
The “What” ?
Following the above, explain what methods, mechanisms and tools that have been used or suspected to have aided suspect(s) in carrying out the unusual transactions that attracted concern.
Some examples are cash deposits or withdrawals, monetary instruments such as cashiers or bank checks, and electronic funds transfers, such as wires, share drafts, gift cards, or digital currencies.
The “When” ?
Answering the question surrounding the suspicious activities needs a detailed documentation about timeline of events from the time of initial occurrence of the suspicious activity to the time of filing the report. Also include the timeline for respective phases of all transactions connected to making a profound conclusion about the suspicious activities being filed.
The “Where” ?
Locations of every event as included in the report should also be identified as well as the institutions and addresses attached to them. Examples can be multiple branches of an institution(s) involved or exploited in the scheme of the fraud being reported, ATMs, other financial institutions, or foreign jurisdictions.
The “Why” ?
To paint a bigger picture as to why you think the activities filed are suspicious, help to put the pieces of the puzzle together by connecting the dots.
State how the documentations earlier stipulated should be considered activities that need to be investigated and what cases such investigations is aimed at tackling. This way, Law enforcement organizations and officers taking up actions on the filed SAR/STR can understand what is needed and what level of damage is to be controlled.
III. Conclusion of SAR/STR:
After all the dots presenting your discovery so far about the case at hand are connected and backed up with sufficient resource of detailed information and communication efforts bring to the awareness of your readers (including authorities and security network agents) can be well understood, it’s an additional advantage to bring to summary the content and purpose of your report.
A brief summary of all discussed so far, including the detailed explanation of efforts on the part of your institution alongside the profile of your institution, contact point for obtaining supporting documentation, other officials to whom the case has been reported to, as well as any other unrelated observations or documentations you have that you believe could help with the execution of the investigation as requested should be provided.
Also note, not to make assumptions that your readers (including authorities and security network agents) are familiar with professional jargons, do well to explain procedures and acronyms used in your institution’s or sector that have been employed in your narrative.
A complete SAR/STR is to be submitted with detailed narrative and forwarded to Financial Crimes Enforcement Network or FinCEN to ensure compliance. It is important that your institution has policies, procedures, and processes in place to ensure that SAR/STR narratives provide the necessary information on a consistent basis.
Here’s a Summarized guide/sample of a SAR/STR using a case study:
Introduction:
Purpose of writing : The SAR was triggered when the bank’s compliance team detected suspicious financial transactions within the account of a long-standing customer, Mr. John Smith. The purpose of this SAR is to illustrate how financial institutions play a crucial role in identifying and reporting potential financial crimes to the appropriate authorities.
Body:
Customer Profile and Transaction Analysis: Mr. John Smith is a 55-year-old individual who has been a customer of XYZ Bank for over a decade. He holds a personal savings account and a small business account. The compliance team conducted a routine transaction monitoring review and identified a series of transactions that deviated from Mr. Smith’s typical banking behavior.
Suspicious Activity Detection: The SAR highlighted several transactions that raised concerns. These transactions included multiple large cash deposits made within a short period, frequent transfers to foreign jurisdictions with limited business connections, and numerous cash withdrawals in round amounts just below the reporting threshold. Additionally, the compliance team observed inconsistent transaction patterns, as Mr. Smith’s account had historically shown a steady flow of moderate transactions.
Additional Investigation: To gain further insight into the suspicious activity, XYZ Bank’s compliance team delved deeper into Mr. Smith’s financial history. They reviewed his business records, source of income, and personal financial statements. They also conducted an enhanced due diligence check on his counterparties involved in the foreign transfers.
AML Compliance and Reporting: Based on the findings of the investigation, XYZ Bank complied with anti-money laundering (AML) regulations and promptly filed a SAR with the Financial Crimes Enforcement Network (FinCEN). The report provided all relevant details, including transaction timestamps, amounts, and account details, along with supporting documents and the team’s analysis.
Law Enforcement Cooperation: After filing the SAR, XYZ Bank actively cooperated with law enforcement agencies to provide any additional information required for their investigation. The bank’s compliance team worked closely with the authorities, acting as a vital source of information and assistance in understanding the financial activity in question.
Conclusion:
In conclusion, this case study demonstrates the vital role financial institutions play in detecting and reporting suspicious financial activities. XYZ Bank’s compliance team’s vigilance and adherence to AML regulations led to the identification of suspicious transactions within Mr. John Smith’s accounts. By filing a Financial Suspicious Activity Report (SAR) promptly and cooperating with law enforcement agencies, the bank contributed to the efforts to combat financial crimes, including money laundering and other illicit activities. This case underscores the importance of robust transaction monitoring systems, customer due diligence, and continuous efforts to maintain the integrity of the financial system. Through such diligence, financial institutions can play a significant role in safeguarding their customers, assets, and the broader financial community.
CONCLUSION
Ensuring essential and sustainable compliance measure with core standards in the financial sector also depends on hiring competent hands, with eye for crucial details to detect fraudulent activities and the right documentation skills of reporting such suspicious activities is needed to relay clear and prompt communication to authorities necessary for continued investigations as well as prompt control of fraudulent activities.
This not only safes the institutions and the sector from some hazardous effects, but also encourages a sustained level of security over the lives and trust of the Public in the global efforts to keep the interest of the Public at the heart of operations.
