If you pay attention to the news, you may have noticed recent discussions about “suspicious activity reports.” Sometimes abbreviated SAR, a Suspicious Activity Report is a report that banks and other financial institutions must file with the Financial Crimes Enforcement Network (FinCEN) if they have reason to believe someone has engaged in white-collar crimes like money laundering or fraud. SARs are also useful for federal law enforcement agencies attempting to detect sources of terrorist financing. If something looks suspicious, the bank has a duty to report it under federal law.
Essentially, if a financial institution suspects an individual or organization is engaging in a financial crime, federal law requires the institution to file an SAR. Just because a bank files an SAR doesn’t mean a crime has occurred. Rather, federal law requires the reports as part of an effort to identify possible crimes and make it easier for the appropriate authorities to stop criminals. The financial crimes reporting system was created as part of the Bank Secrecy Act passed in 1970, and SARs have been part of the system since 1996.
When Do Banks Have a Duty to Report Suspicious Activities?
Under federal rules, banks and financial institutions are required to file an SAR any time they flag a transaction of at least $5,000 as suspicious. When a bank files an SAR, it gives the government specific information, including the name, address, date of birth, social security number, passport information, and banking details regarding the account and the person behind it. Banks have 30 days from the date of initial detection of suspicious information to file the SAR.
Additionally, the law permits banks to file an SAR even when a transaction falls below the $5,000 threshold. For example, if a bank notices a series of unusual transactions just under the $5,000 mark, it might have reason to suspect the person or entity behind the transactions is deliberately trying to avoid triggering reports.
However, what constitutes a “suspicious activity?” This distinction is where banks sometimes encounter a bit of a gray area, as the law requires them to set up internal systems and procedures that identify suspicious activities. These procedures put the burden on banks to “police” transactions and ensure their flagging systems are rigid enough to catch problematic transfers. Because banks deal with money and the personal information of their customers, reporting requirements often conflict with a banking institution’s desires to protect their customers’ privacy.
One thing that can trigger an SAR is a large number of large cash deposits in an account that would not be expected to generate these kinds of deposits. Large drug trafficking organizations use large amounts of cash, so financial institutions watch for unexplained large volumes of cash deposits. Federal drug distribution crime and federal drug trafficking crime investigations can start with or involve SARs.
However, banks can get hit with costly penalties if they neglect to file SARs. If banks fail to report suspicious activity, they can be subject to serious fines. In fact, a number of banks have been subject to fines of millions of dollars for failing to flag transactions and report them. In 2018, for example, U.S. Bancorp agreed to pay $613 million in state and federal penalties after failing to file SARs related to a payday lender that had engaged in money laundering.
When some people hear of the $5,000 threshold, they worry that banks automatically file an SAR any time someone makes a transaction greater than $5,000. Does this mean your bank is filing reports on you when you pay off a credit card or put down money on a new car?
In reality, the law only requires banks to flag suspicious activity that appears to be a financial crime like money laundering or fraud. If the transaction doesn’t look suspicious, the bank is unlikely to flag it or file an SAR. Banks often look for disruptions in a customer’s banking habits or patterns. For example, if someone who regularly deposits a paycheck of $2,000 every other week suddenly puts $100,000 in their account, this might look out of place to the bank because it’s out of the ordinary compared to the customer’s usual banking activities.
People sometimes wonder how they will know if they’ve been the subject of an SAR, or what to do about it if they are. Because federal law prohibits banks from disclosing the existence of an SAR, except to appropriate law enforcement agencies, it is unlikely anyone would be able to tell if he or she has been the subject of one.
Currency Transaction Reports
Besides SARs, banks must also file another type of report for transactions greater than $10,000. Per federal law, certain types of transactions over $10,000 trigger a Currency Transaction Report (CTR). The law exempts certain entities from the CTR requirements. These exemptions apply to banks, government agencies, and corporations whose stock is traded on major stock exchanges.
Under federal law, banks aren’t required to notify customers when they file a CTR unless the customer asks about it. Additionally, if a customer decides to halt the transaction due to the CTR, the bank is allowed to stop the transaction, but must then file a SAR. Also, if a customer tries to avoid a CTR by reducing the transaction to $9,999, the bank is required to proceed with the $10,000 amount. In other words, customers aren’t permitted to “game the system” by routinely making transactions just under $10,000.
If you have been charged with a financial crime, contact skilled criminal defense lawyer John Helms to discuss your case.
Dallas Criminal Defense Lawyer John Helms