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Suspicious activity reports: Are you using key terms?

April 23, 2013

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The Financial Crimes Enforcement Network (FinCEN) is currently completing the most recent transition for e-filing of suspicious activity reports (SARs), with a March 31 cutoff for acceptance of electronic filing of legacy SARs. Make sure your staff is trained to use the new procedures.

It’s also a good time to review your institution’s SAR policies and procedures. One detail that banks often overlook is FinCEN’s list of key terms to include in the narrative section of the SARs. Using these terms helps law enforcement officials detect fraud and money laundering more quickly, which, in turn, helps protect your bank’s customers.

E-filing

E-filing offers several benefits for banks, including enhanced security, accelerated submission of data to FinCEN and reduced compliance costs. In addition, the ability to prepare SARs using online forms makes the filing process more user-friendly. By providing interactive instructions and highlighting critical data fields, the online form helps users avoid errors and omissions.

To enhance the value of SARs, the online form contains several new data fields — including a customer’s gender, NAICS code and Internet presence (e-mail, website address). It also allows users to include spreadsheet attachments in the SAR’s narrative section.

Using key terms

From time to time, FinCEN issues advisories to provide banks with guidance on preparing SARs related to certain activities. Often, these advisories request that banks include certain key terms — such as “account takeover fraud,” “elder financial exploitation” or “foreclosure rescue scam” — in their SAR narratives. Unfortunately, many banks are unaware of these terms.

Key terms make it easier for law enforcement and regulatory investigators to search SARs and identify these activities more quickly. By including these terms in your SAR narratives, you can help accelerate the investigative process, minimizing losses to your bank and its customers. Here are a few examples:

Third-party payment processors. According to Advisory FIN-2012-A010, nonbank or third-party payment processors may present a heightened risk of money laundering, identity theft, fraud and other illicit transactions. The advisory provides guidance on detecting these transactions and lists several red flags, such as payment processors that maintain accounts at more than one financial institution or experience a high number of consumer complaints.

When reporting suspicious activities involving third-party payment processors, banks should 1) check the appropriate box on the SAR form to indicate the type of suspicious activity, and 2) include the key term “Payment Processor” in both the narrative and “subject occupation” portions of the SAR.

Mexico currency restriction. Advisory FIN-2010-A007, updated last year by Advisory FIN-2012-A006, outlines certain restrictions on the ability of Mexican financial institutions to conduct transactions in U.S. currency. Banks that report suspicious activity related to these restrictions should include the term “MX Restriction” in their SAR narratives.

Commercial real estate fraud. Advisory FIN-2011-A007 provides examples and potential indicators of several types of commercial real estate fraud, including misrepresentation, misappropriation of funds, bank insider collusion and “flipping” schemes. Banks reporting suspicious activity involving commercial real estate fraud should include the key term “CREF” in their SAR narratives.

For the complete list of key terms, including links to the relevant advisories, go to http://www.fincen.gov/news_room/advisory/AdvisoryKeyTerms.html.

Review your program

To protect your institution and its customers from fraud and other illicit activities, review the SAR program you have in place. Make sure that policies and procedures for monitoring and reporting suspicious activities are sufficient in light of your bank’s particular risk profile. And include the appropriate key terms in the SARs to speed the investigative process.

For more information on this topic, please contact Angela Roberts at [email protected]

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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