The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) recently issued answers to FAQs to clarify certain requirements related to suspicious activity reports (SARs). The FAQs were jointly issued with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency.
The FAQs do not establish new supervisory expectations or change existing legal requirements but instead were issued to assist financial institutions with their compliance obligations while focusing resources “on activities that produce the greatest value to law enforcement agencies.” FinCEN notes that the FAQs were “informed by feedback” from financial institutions – though it does not provide additional insight into the nature or content of the feedback.
Key clarifications
The four FAQs provide clarification on three topics: “structuring” SARs, continuing activity reviews and a financial institution’s decision not to file a SAR.
- Reporting for near-threshold transactions: Financial institutions do not need to file a SAR solely because a transaction (or series of transactions) by or on behalf of the same person is at or near the $10,000 currency transaction reporting (CTR) threshold. FinCEN clarifies that a filing is required in this case only if the financial institution knows, suspects or has reason to suspect the transactions are designed to evade CTR reporting requirements (i.e., “structuring”). FinCEN emphasizes that a financial institution’s anti-money laundering/countering the financing of terrorism (AML/CFT) program should be designed to identify and report structuring and ensure its compliance with Bank Secrecy Act (BSA) requirements “commensurate with the level of money laundering and terrorist financing risk of the specific institution, considering the type of products and services it offers, the locations it serves, and the nature of its customers.”
- Continuing activity reviews not required: After filing a SAR, a financial institution is not required to conduct a separate review of a customer or account for ongoing suspicious activity. Financial institutions instead may rely on a risk-based approach to monitoring. FinCEN issued an answer to this FAQ to clarify an industry perception (derived from an October 2000 FinCEN report) that reporting on continuing suspicious activity after a SAR filing required a separate review.
- Timeline for continuing activity reviews: FinCEN clarifies that its prior suggestion that institutions file continuing activity SARs “at least every 90 days” is not a required timeline. An institution that chooses to follow the optional timeline can file the initial SAR within 30 days of detection, treat the subsequent 90 days as the “continuing activity” period and file a follow-up SAR 30 days after that period ends.
- Documentation: A financial institution is not expected to or required under the BSA to document its decision not to file a SAR (although FinCEN has previously encouraged these filings).
What’s next
FinCEN’s guidance aims to resolve certain ambiguities regarding supervisory expectations and compliance obligations for financial institutions. More broadly, it reflects the current US presidential administration’s focus on decreasing regulatory burdens on companies. Previously, without these types of clarifications, an institution may have erred on the side of reporting (so-called “defensive SARs”). While this guidance could result in fewer SARs filings by financial institutions, examiners would also need to embrace the guidance and not hold organizations to account for not filing SARs in the above-described scenarios. In addition, the guidance does not change existing requirements related to suspicious activity reporting or other BSA requirements.