I. FINCEN GUIDANCE
A. Requests by Law Enforcement to Keep Accounts Open
FinCEN issued guidance for financial institutions with regard to requests by a law enforcement agency to keep particular accounts open, notwithstanding suspicious or potential criminal activity in connection with the account. Ultimately, the decision to maintain or close an account should be made by a financial institution in accordance with its own standards and guidelines. Although there is no requirement that a financial institution maintain a particular account relationship, financial institutions should be mindful that complying with such a request may further law enforcement efforts to combat money laundering, terrorist financing, and other crimes.
If a law enforcement agency requests that a financial institution maintain a particular account, the financial institution should ask for a written request. A written request from a federal law enforcement agency should be issued by a supervisory agent or by an attorney within a United States Attorney’s Office or another office of the Department of Justice. If a state or local law enforcement agency requests that an account be maintained, then the financial institution should obtain a written request from a supervisor of the state or local law enforcement agency or from an attorney within a state or local prosecutor’s office. The written request should indicate that the agency has requested that the financial institution maintain the account and the purpose of the request.
For example, if a state or local law enforcement agency is requesting that the financial institution maintain the account for purposes of monitoring, the written request should include a statement to that effect. The request should also indicate the duration for the request, not to exceed six months. Law enforcement may issue subsequent requests for account maintenance after the expiration of the initial request. Although there is no recordkeeping requirement under the Bank Secrecy Act for this type of correspondence, FinCEN recommends that financial institutions maintain documentation of such requests for at least five years after the request has expired. If a financial institution is aware – through a subpoena, 314(a) request, National Security Letter, or similar communication – that an account is under investigation, FinCEN recommends that the financial institution notify law enforcement before making any decision regarding the status of the account.
Financial institutions are reminded that, as part of their Bank Secrecy Act/Anti-Money Laundering compliance program requirement, they are required to have written policies, procedures, and processes that, among other things, address the identification and reporting of suspicious activity. If the financial institution chooses to maintain the account, it is required to comply with all applicable Bank Secrecy Act recordkeeping and reporting requirements, including the requirement to file Suspicious Activity Reports, even if the bank is keeping an account open or maintaining a customer relationship at the request of law enforcement.
B. Suspicious Activity Report Supporting Documentation
1. Disclosure of Supporting Documentation to FinCEN and Appropriate Law Enforcement or Supervisory Agencies
When a financial institution files a SAR, it is required to maintain a copy of the SAR and the original or business record equivalent of any supporting documentation for a period of five years from the date of filing the SAR. Financial institutions must provide all documentation supporting the filing of a SAR upon request by FinCEN or an appropriate law enforcement or supervisory agency.
When requested to provide supporting documentation, financial institutions should take special care to verify that a requestor of information is, in fact, a representative of FinCEN or an appropriate law enforcement or supervisory agency. A financial institution should incorporate procedures for such verification into its BSA compliance or anti-money laundering program. These procedures may include, for example, independent employment verification with the requestor’s field office or face-to-face review of the requestor’s credentials.
Disclosure of SARs to appropriate law enforcement and supervisory agencies is protected by the safe harbor provisions applicable to both voluntary and mandatory suspicious activity reporting by financial institutions. The BSA provides protection from civil liability for all reports of suspicious transactions made to appropriate authorities, including supporting documentation, regardless of whether such reports are mandatory. Specifically, the BSA provides that a financial institution, or a director, officer, employee, or agent of a financial institution, that makes a “voluntary disclosure of any possible violation of law or regulation to a government agency” shall not be liable to any person under “any law or regulation of the United States, any constitution, law, or regulation of any State or political subdivision of any State, or under any contract or other legally enforceable agreement (including any arbitration agreement), for such disclosure or for any failure to provide notice of such disclosure to the person who is the subject of such disclosure or any other person identified in the disclosure.”
2. What Constitutes Supporting Documentation
“Supporting documentation” refers to all documents or records that assisted a financial institution in making the determination that certain activity required a SAR filing. A financial institution must identify supporting documentation at the time the SAR is filed, and this documentation must be maintained by the institution as such. The manner in which a financial institution maintains supporting documentation may vary from institution to institution, but each institution should prescribe its own method in its anti-money laundering program written procedures. For instance, a financial institution’s procedures may require that all supporting documentation for a particular SAR be segregated in a single file folder or scanned and maintained in a data file.
What qualifies as supporting documentation depends on the facts and circumstances of each filing. As indicated in each of the SAR forms, financial institutions should identify in the SAR narrative the supporting documentation, which may include, for example, transaction records, new account information, tape recordings, e-mail messages, and correspondence. While items identified in the narrative of the SAR generally constitute supporting documentation, a document or record may qualify as supporting documentation even if not identified in the narrative.
3. No Legal Process is Required for Disclosure of Supporting Documentation
The Right to Financial Privacy Act (RFPA) generally prohibits financial institutions from disclosing a customer’s financial records to a Government agency without service of legal process, notice to the customer and an opportunity to challenge the disclosure. However, no such requirement applies when the financial institution provides the financial records or information to FinCEN or a supervisory agency in the exercise of its “supervisory, regulatory or monetary functions.” In addition, no such requirement applies when FinCEN or an appropriate law enforcement or supervisory agency requests either a copy of a SAR or supporting documentation underlying the SAR.
With respect to supporting documentation, rules under the BSA state explicitly that financial institutions must retain copies of supporting documentation, that supporting documentation is “deemed to have been filed with” the SAR, and that financial institutions must provide supporting documentation upon request.
FinCEN has interpreted these regulations under the BSA as requiring a financial institution to provide supporting documentation even in the absence of legal process.
II. SAR FORM COMPLETION TIPS
FinCEN has identified the most frequently asked questions received on its Regulatory Helpline about suspicious activity reporting for calendar year 2006. The three most frequently asked questions received during that period about completing Suspicious Activity Report forms are as follows:
A. Suspicious Activity Reporting for International Lottery Scams
Although there are several variations of the international lottery scam, these cases have most frequently involved the use of monetary instruments and overseas wires. Generally, international lottery scam operators will contact individuals via the Internet, telephone, or mail and announce that the individuals have won cash prizes in a foreign lottery. The individuals also are informed that, before they can collect their winnings, they must pay certain fees, taxes, or other expenses. To “assist” with payment of these miscellaneous fees, the lottery scam operators will mail to the individuals checks or other monetary instruments, with instructions to cash the instruments. The individuals are told that, once the instruments are cashed, the proceeds most immediately be wired to an entity or person located in another country. The lottery scam operators claim that when the proceeds have been received, the lottery scam operators will pay the individuals the supposed winnings. As is the case with most scams of this nature, there is a great sense of urgency expressed by the scam operators and the individuals are exhorted to “act now” in order to receive, and not forfeit, the winnings.
Financial institutions typically become aware of these scams when the individuals seek to deposit or cash the checks or monetary instruments or wire the proceeds. In some cases the monetary instruments presented clearly are bogus, e.g., containing obvious spelling errors or poorly created seals. In some instances, financial institutions have declined to negotiate the monetary instruments and advised the customer that the instruments are counterfeit or bogus. In other instances, the monetary instruments presented appear authentic and are cashed for the customer; later, however, the monetary instruments are returned as non-negotiable and either the bank or the customer suffers a monetary loss.
FinCEN has previously provided guidance regarding the filing of SARs on other types of scams, advising financial institutions that it was unnecessary to file SARs on “4-1-9” (advance fee fraud) scams if there was no monetary loss. However, FinCEN also advised financial institutions that they should consider filing a Suspicious Activity Report if there was a monetary loss to the financial institution or if the scam involved other illegal activity. FinCEN has reiterated the guidance for “third party receiver of funds” scams. The preceding guidance, given with regard to 4-1-9” and third party receiver of funds scams, applies to international lottery scams as well. If counterfeit instruments are received via the U.S. postal system, financial institutions may report that to the U.S. Postal Inspection Service. (If contact was initially made via the Internet, a complaint may be filed with the Internet Crime Complaint Center at http://www.ic3.gov/. Moreover, individuals who have been victimized by these scams may contact their local FBI office.)
It may be difficult to clearly identify suspects in connection with international lottery and similar scams. Generally, the customer should not be considered a suspect unless there is reason to believe that the customer knowingly cashed counterfeit monetary instruments or was otherwise complicit in the scam. In most circumstances, the customer is a victim of the scam, and unaware that participation in foreign lotteries is illegal or that the checks or other monetary instruments that they have received are counterfeit. Additionally, the names (such as the payee name) that appear on such checks or other monetary instruments typically are phony and do not indicate real suspects; however, if a Suspicious Activity Report is completed, it is recommended that the payee name be included in the Suspect/Subject field of the Form.
B. Date to Use When Correcting a Previously Filed Suspicious Activity Report
When completing a SAR to correct a previously filed SAR, the date of preparation should reflect the date of the current filing, not the date on which the prior report was prepared or filed. For example, a financial institution prepares and files an original SAR on May 15, 2006, the institution completes a SAR correcting the previously filed report. The date of preparation on the new report should be June 13, 2006 (not May 15, 2006).
C. Individual Tax Identification Numbers and Social Security Numbers
Q: Must a financial institution file a SAR if a customer provides an individual tax identification number (ITIN), and in the course of its due diligence the institution discovers that the same customer has in the past used a social security number (SSN)?
A: Because an individual cannot have both an ITIN and an SSN, the above situation could be an indicator of identity theft or fraud. The institution should review such circumstances carefully, and a SAR must be filed if applicable thresholds are met and if the institution knows, suspects, or has reason to suspect a possible violation of law or regulations. Financial institutions also voluntarily may file a SAR in instances where applicable thresholds are not met, but where similar suspicions arise.