I have been doing some work recently on suspicious activity reporting under the Bank Secrecy Act (“BSA”) and for me that always raises the issue of what is meant by “suspicious.” The BSA regulations require every bank to file a Suspicious Activity Report (“SAR”) when they detect certain known or suspected violations of federal law or suspicious transactions related to a money laundering activity or a violation of the BSA. A SAR filing is required for any potential crimes:
- involving insider abuse regardless of the dollar amount;
- where there is an identifiable suspect and the transaction involves $5,000 or more; and
- where there is no identifiable suspect and the transaction involves $25,000 or more.
A SAR filing also is required in the case of suspicious activity that is indicative of potential money laundering or BSA violations and the transaction involves $5,000 or more.
A bank is required to report whenever it “knows, suspects or has reason to suspect” activity that is suspicious. Additionally, the bank is required to regard as suspicious any “transaction that has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage.”
For example, I have had accounts with my bank for about 20 years. To my knowledge I have never deposited cash into one of my accounts. My wife has never let me have enough cash that it was worthwhile to deposit. If I were to deposit a significant amount of cash it should raise the eyebrows of my banker. The first time maybe the deposit isn’t suspicious but if I were to continue to deposit cash, at some point fairly early on, it becomes suspicious. At that point, my banker has to ask me where the cash is coming from and determine that there is a reasonable business purpose for the transactions or file a suspicious activity report.
We frequently get calls from bankers wherein he or she details a series of transactions with a customer and then ask us whether we believe it is suspicious. The question is not whether we believe it is suspicious, the question is whether the banker believes it is suspicious. If the transactions raised enough suspicion that the banker called us, then the banker is suspicious. At that point, the banker should either file a SAR or question the customer about what is going on, and if the customer cannot allay the banker’s fears, then a SAR must be filed.
SAR reporting covers every activity that a bank might be involved in. For example, if I provide my bank my financial statement in support of my loan request and I am a little aggressive in estimating the value of my home that is not necessarily suspicious. But if I claim assets I do not own or if I fail to state obligations that I owe, then I have committed a crime in providing a financial institution a false financial statement and my bank must file a SAR.
I read about a banker who was in collusion with a group that had a plan to embezzle money from the banker’s bank. As the plan was being put into effect the banker realized that he would be caught and rather than face the music, committed suicide and left a written confession detailing the plan and naming his fellow conspirators. The story was the headline of the local paper for several days. The FBI investigated and arrested the other people involved. The bank decided that the FBI certainly knew about the plot and knew more details than the bank did so the bank did not file a SAR. Bad decision.
One of the most difficult circumstances is when a bank employee is involved and the amount is small. For example, a teller steals $100 from his or her cash drawer. The theft is discovered, the money is returned and the person is dismissed. Everyone liked the person and no one wants to make his or her life more difficult. Nonetheless, file the SAR. First, if it is for a small amount it is not going to ring any bells at FinCEN and no one there is going to do anything about it. On the other hand, if you do not file, there are serious penalties for a willful failure to file.
BSA, like the flood insurance requirements, to my thinking, has no purpose other than to assist the government. When a regulation has only a government purpose, examiners may be more diligent in finding violations and more aggressive in the fines that they levy. The BSA contains a safe harbor from liability for SAR filings by banks and bankers from the bank’s customer. All of that said, banks should be on the aggressive side in filing SARs when they detect activity that smells of suspicion. It is far better to err on the side of filing.