Since April 1, 1996, the nation’s banks, thrift institutions and credit unions have been subject to suspicious activity reporting (SAR) requirements. The centralized database of SAR filings has now attained a critical mass in which reflections of regional, national and international criminal financial activity are embedded. At the same time, a new generation of computer-driven analytic tools has been developed, making it possible to begin analyzing the underlying data for information about such activity.
The following “SAR Bulletin” is the first of a series of overviews of trends and patterns in money laundering derived from the SAR database. The SAR Bulletin Series is designed to highlight activities or issues that appear significant based on such factors as:
In no cases will information relating to particular institutions, businesses or individuals be included in any Bulletin. Whether the information in a particular Bulletin is of relevance to a particular bank, of course, depends in many cases upon that bank’s operating realities. In all cases, comments or other feedback would be welcome.
James F. Sloan Director
United States Department of the Treasury
Financial Crimes Enforcement Network
Automated Teller Machine
A review of Suspicious Activity Reports (SARs) filed from July 1997 through mid-April 1999 identified 982 reports noting a BSA/Structuring/Money Laundering violation (in whole or in part) and citing instances of Automated Teller Machine (ATM) activity in the narrative section. These reports were filed by more than 90 different banks in 39 states, plus the District of Columbia and Guam.
The narrative sections of the SARs reveal that ATMs are being used domestically and internationally to deposit and/or withdraw large sums of cash on a recurrent basis with the apparent purpose of evading detection by law enforcement.
Domestically, the SARs indicate two patterns of structuring of cash transactions to avoid the CTR filing requirement: First, customers make multiple cash deposits and/or withdrawals on the same day at different or single ATM locations. Second, withdrawals are made using a combination of same day counter and ATM activity aggregating more than $10,000—for example, cashing a $9,500 check followed by a $500 ATM withdrawal. A third pattern—reflected in over 30 percent of the SARs—involves international activity. Funds deposited as cash or wired into accounts in the United States from other nations are subsequently withdrawn within a short period of time from ATMs located in different countries (usually those having a high-risk for money laundering or drug trafficking). The size and number of the withdrawals within short time frames are indicative of potential money laundering.
The SARs filed by the banks in question serve to remind us that the precautions financial institutions take to prevent or detect money laundering must deal with ATM systems as effectively as with other parts of banking operations. Bank training programs, internal control systems, and internal anti-money laundering audits must take appropriate account of the risk of misuse of ATM systems.
For additional information, comments or questions concerning suspicious transactions involving ATMs, please call FinCEN’s Office of Research and Analysis at (703) 905-3665.
FinCEN Notice 97-1, February 1997
Clarification of Time for Designation of Exempt Persons for Purposes of 31 CFR 103.22(h)
On April 24, 1996, the Financial Crimes Enforcement Network (“FinCEN”) of the Department of the Treasury published an Interim Rule, 31 C.F.R. 103.22(h) (the “Interim Rule”), to implement the terms of 31 U.S.C. 5313(d) (and related provisions of 31 U.S.C. 5313(f) and (g)), which were added to the Bank Secrecy Act (the “BSA”) by section 402(a) of the Money Laundering Suppression Act of 1994. See, 61 FR 18204 (April 24, 1996). The Interim Rule exempts from the requirement, under the BSA regulations, to report transactions in currency in excess of $10,000, transactions occurring after April 30, 1996, between depository institutions and certain classes of exempt persons defined in the Interim Rule.
The Interim Rule imposes one condition on an institution’s exemption of currency transactions of a customer who satisfies the definition of exempt person. That condition is that a single form be filed identifying the exempt person and the institution that recognizes it as such. The identification is to be made by an institution by filing for each exempt person a single Internal Revenue Service Form 4789 (the form now used by banks and others to report a transaction in currency) that is marked (in the Form’s line 36) to indicate its purpose and that provides identifying information about the exempt person and the institution involved. See 31 C.F.R. 103.22(h)(3).
A question has arisen about the meaning of the Interim Rule’s requirement, in 31 C.F.R. 103.22(h)(3)(i), that an institution must make the exempt person designation:
on or before the later of August 15, 1996, and the date 30 days following the first transaction in currency between such bank and such exempt person that occurs after April 30, 1996.
The question is whether the quoted language permits an institution to designate as exempt under the Interim Rule for the first time after August 15, 1996, a person who was a customer of the exempting institution before May 1, 1996.
A final rule based on the Interim Rule is in the last stages of preparation. The final rule will clarify the meaning of the language of 31 C.F.R. 103.22(h)(3)(i), retroactively to May 1, 1996, by stating explicitly that the necessary designation, even for existing customers, may be made after August 15, 1996, so long as it is made no later than 30 days after the first transaction in currency that is sought to be exempted from the reporting requirements under the terms of 31 C.F.R. 103.22(h). Thus, an institution may decide, after August 15, 1996, that it wishes to adopt the new exemption system for particular customers, even if it did not do so, for existing customers, before that date, so long as the necessary exemption identifications are filed within 30 days of the time the institution’s reliance on the new exemption systems is to take effect for the customers in question.
Advisory Issue 8, February 1997
Preparing Suspicious Activity Reports (SARs)
This Advisory provides guidance to financial institutions that file Suspicious Activity Reports. A Bank Secrecy Act (BSA) rule [31 C.F.R. 103.33(g)]—often called the “Travel” rule—requires all financial institutions to pass on certain information to the next financial institution, in certain funds transmittals involving more than one financial institution.
This rule became effective May 28, 1996 and was issued by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). This rule was issued by FinCEN concurrently with the new BSA recordkeeping rules [31 C.F.R. 103.33(e) and (f)) for funds transfers and transmittals of funds]. The funds transfer rules are designed to help law enforcement agencies detect, investigate and prosecute money laundering and other financial crimes by preserving an information trail about persons sending and receiving funds through funds transfer systems.
The attached guidance is intended to answer general, basic questions concerning the implementation of the new regulations. It is not meant to be comprehensive and does not replace or supersede the regulations. These questions and answers and the Travel rule should be examined in concert with the Treasury’s related recordkeeping rule concerning the transmittal of funds.
On April 1, 1996, the Suspicious Activity Reporting (SAR) system went into effect. The SAR system created, for the first time, a central repository for the reporting of certain criminal activity and suspicious financial transactions. Banks, thrift institutions, credit unions, covered affiliates and subsidiaries of bank and thrift holding companies (referred to collectively as reporting financial institutions for the purpose of this advisory) are now required to file a report when they “know, suspect or have reason to suspect” that a crime has occurred or that a transaction is suspicious (under the terms of the implementing regulations).
The information reported on the SARs is entered into a database owned by the Financial Crimes Enforcement Network (FinCEN) and the federal financial supervisory agencies (Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision and National Credit Union Association). FinCEN, in conjunction with the other owners, has examined the data provided in the first six months of operation. A report detailing the results of this examination will be available shortly as part of our continuing effort to make this system useful to both the law enforcement and financial communities.
Our analysis of the data indicates a need to provide guidance to reporting financial institutions on the completion of the SAR form. We believe the attached guidelines will enable the information to be reported more consistently. The following examples are illustrative of some of the areas where we believe the guidelines will be most useful.
• Item 9 on the SAR asks for the address of the branch or office of the institution where the suspicious activity occurred. Some of the reports, however, list the address of the main branch of the institution and not the address of the location of the suspected violation.
• In Item 37, the reporting financial institution is asked to characterize the suspicious activity from among 17 types of potential violations. Our review indicated that there was an unusually large number of SARs which designated the violation type as “other.” The review of the data indicates that most of the reports that listed “other” as the violation type could have been more appropriately placed in a different category. For example, the “other” box (Item 37r) is checked on reports in which “possible structuring” was indicated; in these instances, Item 37a (Bank Secrecy Act/Structuring/Money Laundering) could have been checked instead.
In order to clarify these and other issues, the attached guidelines were designed to assist reporting financial institutions when preparing the SAR. We will provide additional guidance as we continue to review and refine the SAR system.
FinCEN relies on reporting financial institutions to collect meaningful information because an effective program for detection and prevention of money laundering cannot succeed unless we enlist your cooperation and support.
FinCEN appreciates your assistance in the implementation of the SAR System. The more accurate and uniform the SAR data, the more useful it becomes for law enforcement investigations and for developing trends and patterns related to money laundering. And it is important to provide this information to the financial community to assist their anti-money laundering efforts.
We encourage you to make further suggestions about ways to increase the effectiveness of the SAR System.
Stanley E. Morris Director
Attachment