What is Suspicious Activity Report (SAR)?

What is SAR?

Financial institutions and other covered entities use Suspicious Activity Reports (SARs) as a vital tool to help identify and stop financial crimes like fraud, money laundering, and financing of terrorism. These organisations alert regulatory bodies to anomalous or possibly illegal activity by submitting a SAR. Beyond just ensuring compliance, a SAR helps protect the global financial system from criminal exploitation. 

Who Is Required to File a SAR?

In accordance with jurisdictional AML regulations, a variety of entities from a variety of industries must file SARs. These consist of: 

Credit unions and banks 

Banks and credit unions, important participants in the financial ecosystem, are frequently the first to spot questionable activity. They keep an eye on transactions to look for any possible warning signs, such as odd account activity or money laundering schemes. 

Payment service providers, such as P2P transfer platforms and digital wallets.

These consist of peer-to-peer transfer services like Venmo, PayPal, and others. These providers are under more and more pressure to identify and report suspicious activity in order to prevent fraud and financial crimes as online payments become more common. 

Exchanges of cryptocurrency 

Exchanges are essential in keeping an eye out for anomalous activity, like big, inexplicable transfers or transactions connected to high-risk wallets, because cryptocurrency transactions are pseudonymous. 

Fintech Businesses 

As they introduce new financial services to the market, cutting-edge financial technology companies, from lending platforms to robo-advisors, are also bound by reporting requirements.

Gaming establishments and casinos 

Casinos are frequently at risk of being used for money laundering because of the large volume of cash transactions. They must keep an eye on gaming activity and report any odd trends. 

Law firms and accountants (in some jurisdictions) 

Professionals like accountants and solicitors may also be required in some areas to report suspicious transactions, particularly if they involve substantial sums of money or seem to support unlawful activity. 

Jurisdictions have different SAR requirements. For instance: 

• United States: SARs are submitted to the Financial Crimes Enforcement Network (FinCEN), a division of the Treasury Department that is in charge of protecting the financial system from unauthorised use.
• United Kingdom: The National Crime Agency (NCA), which looks into financial crimes and attempts to dismantle criminal networks, receives SARs. 
• European Union: Financial Intelligence Units (FIUs) that are country-specific oversee SARs and coordinate efforts to identify and stop terrorist financing and money laundering in all EU member states. Every country has a unique FIU that is adapted to its unique regulatory environment. 
• Maintaining compliance requires knowing if your company is subject to SAR requirements. 

Top Reasons Why SARs Are Used

To identify and stop money laundering 

By exposing odd patterns and transactions, Suspicious Activity Reports (SARs) are essential in detecting and thwarting money laundering. They facilitate the tracking of activities like:

• Smurfing or structuring: Dividing big transactions into smaller sums in order to avoid detection. 
• Unusual transaction volumes: Notable departures from the typical financial patterns of a client. 
• Using several accounts: Using several accounts from different institutions to hide the source or final destination of funds. 

To Report Deals Without Economic Rationale 

Customers raise red flags that need more investigation when they make transactions that don't seem to fit their stated financial history, business profile, or source of funding. 

• A retail customer sending large amounts of money abroad without a clear reason or track record of doing so, for example, might merit further investigation. 
• SARs frequently draw attention to trigger terms that may imply attempts to hide illegal activity, such as "unexplained wealth," "non-cooperative behaviour," or the involvement of "shell companies."

To Report Insider Abuse or Fraud 

SARs are essential for spotting internal wrongdoing and external fraud that could jeopardise the financial system. SARs are used by financial institutions to report events like: 

• Check fraud: False or altered checks used to make illegal withdrawals. 
• Account takeovers: When someone gains unauthorised access to a customer's account in order to steal money or information. 
• Identity theft: This is financial fraud committed and stolen or forged identification documents are used. 
• Internal misconduct consists of things like collusion with outside parties, unauthorised transactions, and rogue employee behaviour. 

To Support Investigations by Law Enforcement 

For both domestic and foreign law enforcement organisations, SARs are a vital source of intelligence. They give organisations like:

1. The FBI (USA), which looks into financial crimes like fraud and money laundering, actionable data.
2. NCA (UK): Focussing on financial misconduct and organised crime. 
3. FIU (EU/Asia): Assisting with international investigations into intricate financial crimes. 

How To Meet Regulatory Requirements in the AML Laws 

According to global anti-money laundering (AML) regulations, financial institutions are required to file SARs. Institutions that comply avoid fines and keep their operating licenses. Important rules consist of: 

• USA: SAR filing is required for suspicious transactions exceeding $5,000 under the Bank Secrecy Act (BSA). 
• The EU's Fourth, Fifth, and Sixth AML Directives emphasise openness and the fight against financial crimes in all of its member states. 
• Australia, the Anti-Money Laundering and Counter-Terrorism Financing Act requires financial institutions to keep an eye on and disclose high-risk transactions

• In Singapore, the Corruption, Drug Trafficking and Other Serious Crimes Act (CDSA) targets the money obtained through serious crimes.

Institutions support a global network of financial crime prevention by abiding by these rules. 

How to Track the Risks of Terrorist Financing?

One crucial component of international security is the detection and prevention of terrorist financing, which is made possible in large part by SARs. They assist in identifying questionable practices like: 

• Donations to charities or NGOs: These entities are often used as fronts to finance terrorist organisations. 
• Transfers to high-risk jurisdictions: Money sent to areas with a history of terrorist activity or lax financial regulation. 
• Using anonymised payment methods: To hide identities and avoid detection, payments can be made using prepaid cards or cryptocurrency wallets. 

By keeping an eye on these threats, SARs assist authorities and financial institutions in stopping the flow of money to terrorist organisations, thereby preserving both domestic and global security.

When Should a SAR Be Filed?

When there is a plausible suspicion that a transaction or account activity involves any of the following, a SAR must be filed: 

• Criminal Proceeds: Money that might come from illicit operations like drug trafficking, money laundering, or other criminal schemes. 
• Inexplicable Trends (such as odd frequency or quantities): Transfers that happen at unusually high frequencies or involve unusually large amounts without a clear explanation are examples of transaction patterns that don't fit the customer's usual behaviour. 
• Organising transactions to avoid reporting requirements: Purposeful division of transactions into smaller sums in order to evade the need to report to the government; this practice is known as "smurfing." 
• Sanctioned entities: Transactions or accounts that may violate national or international laws and are connected to people, groups, or nations that are on official sanctions lists.

Activities that raise the possibility of a connection to fraud or terrorism financing, such as the use of fictitious identities or dubious funding sources. 

Filing Deadlines: 

SARs must normally be filed within 30 calendar days of discovering suspicious activity, but if more information is needed but not available in that time, the window may be extended to 60 days while evidence is gathered. 

The filer may face regulatory penalties if these deadlines are missed. 

What Needs to Be in a SAR? 

Accuracy, focus, and objectivity are necessary to finish a SAR. A correctly submitted SAR usually consists of:

Customer Information: 

• Provide the customer's complete name, any known residential or business addresses, and specific account details, including account numbers and the kinds of accounts they own (checking, savings, and investment, for example). 
• Furthermore, include identifiable details that can be used to verify the identity of the person or entity in question, such as date of birth, Social Security or Tax ID numbers, and any other special identification numbers. 

Description of the Suspected Activity: 

• Give a thorough account that explains the nature of the suspected activity in detail, including the reasons it seems strange or suspicious. 
• Make sure the description is factual and free of speculative or subjective assumptions. Describe the activity's background, what was seen, and how it differed from expected or typical behaviour.
• Key Transaction Data: Provide all pertinent transaction information, including dates, amounts, and accounts involved. Indicate whether the activity took place across several accounts or institutions. 
• Describe the frequency, precise time stamps, and any patterns that might point to a coordinated effort or questionable behaviour if the activity involves recurring transactions. 

Supporting Documentation:

• Attach any pertinent records or documents, such as invoices, flagged alerts from monitoring systems, internal communications, or email exchanges, that can support the suspicion. 
• To make it easier for investigators to review, highlight specific sections of the documentation that are directly related to the suspected activity.

Suspicious Activity Examples That Set Off SAR Filing 

While suspicious financial transactions or patterns may differ by industry, some typical examples are as follows:

How and Where to Submit SAR?

Jurisdictional differences exist in effective SAR filing. Key submission channels are listed below: 

United States: 

The FinCEN BSA e-Filing System, which is a component of the Bank Secrecy Act (BSA) and is intended to prevent financial crimes and money laundering, must be used to file Suspicious Activity Reports (SARs). This system guarantees adherence to AML program requirements while streamlining the reporting process. Financial institutions must use this platform to quickly report any suspicious transactions. 

UK: 

SARs are submitted via the National Crime Agency's (NCA) SAR Online system. Financial institutions, experts, and private citizens can all report suspicious activity that might be connected to money laundering or other illegal activity using this system. In order to guarantee a strong response to financial crime, the NCA then looks into cases or refers them to the appropriate authorities. 

EU: 

Since each country's Financial Intelligence Unit (FIU) handles suspicious activity reports separately, SAR reporting requirements differ among EU nations. While some nations may have their own special platforms, others use XML-based submissions to streamline and standardise the procedure. The objective is always the same, regardless of the method: to work with national and international organisations to detect and stop financial crimes throughout the European Union. 

Entities are not allowed to notify the subject of a SAR of its existence, and SAR filings are kept completely confidential. (This behaviour is frequently referred to as tipping off, and it is frequently punishable by law.)

Suspicious Activity Report in Transaction Monitoring 

Transaction Monitoring also has an important place for Suspicious Activity Reports. Transaction Monitoring responds to companies' AML (Anti-Money Laundering), CFT (Counter-Financing of Terrorism), and KYC (Know Your Customer) requirements. Transaction monitoring generates an alarm for suspicious situations and suspicious activities. When the software issues an alarm, the transaction is automatically stopped, and the transaction is reviewed in detail by the Firm's Compliance or Risk Department. At this point, if the SAR comes into play and detects crime in the customer transaction, the suspicious transactions report to the AML, CFT, and KYC regulators.

Suspicious Activity Reporting Process

Suspicious Activity Reports are a tool provided by the BSA of 1970. SARs allow governments to identify and analyze trends and patterns that arise in a wide range of personal and organized crime. With this information, they can predict and resist fraudulent and criminal behavior before gaining a place. Even though most SAR reports come from the financial sector, institutions such as law enforcement, public safety workers, and business owners also submit a SAR report. Federal law requires that a financial institution and its managers, officers, employees, and agents reporting suspicious or known criminal violations or suspicious activities not report to any person reporting the transaction.

What Are SAR Report Requirements?

The following information sections are required to submit a SAR file:

• Information such as the names, passport numbers, birth dates, addresses, social security numbers, and phone numbers of all parties related to the suspicious event is collected.

• Dates of suspicious events that took place and documentation of suspicious activity codes are required.

• Contact information is required for the financial institution and the institution where the auspicious event took place.

• A written description of the suspicious activity event is developed.

According to NCA, every single suspicious activity must be reported immediately in regulated sector companies under  Part 7 of the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000. However, if a company in a different sector detects an abnormality that suspects money laundering, criminal property, or any kind of financial crime, it must raise SAR, too.

Where Can I Find the SAR Report Form? 

America (FinCEN) 

Form Name: FinCEN SAR (111); 

Location: FinCEN BSA E-Filing System 

Format: Online only; submissions must be made electronically. 

Note: Except in exceptional circumstances, manual or paper submissions are not accepted. 

UK (UKFIU/NCA) 

Where: SARs Online Portal 

Needed Login: Organisations are required to register, yes. 

Alternative: A DAML procedure based on email is accessible for filers with low volume. 

Source: NCA SARs Guidance 

European Union (country-specific) 

There is a Financial Intelligence Unit (FIU) in every EU nation. For instance:

• Germany: Access the goAML portal through FIU Germany (ZfF). 
• Italy: Through UIF's INFOSTAT-RS platform 
• France: Through the TRACFIN portal 

Australia (AUSTRAC)

Where: AUSTRAC Online; 

Name of Form: Suspicious Matter Report (SMR) 

Access: Only registered reporting entities.

Canada (FINTRAC) 

Where: FINTRAC Reporting System 

Name of Form: Suspicious Transaction Report (STR) 

Method: Online submission through registered login

Singapore (CAD)

Where: SONAR, the STRO Online Notices and Reporting Platform

Managed by: Commercial Affairs Department (CAD), Singapore Police Force 

Japan (FIU Japan)

Where: Financial institutions submit through 指定金融ヅ報機関 (Designated FIU intermediary) or FSA-compliant systems.

System: Some employ goAML derivatives, but secure B2B portals are frequently used.

Top Techniques for Successful SAR Compliance 

Institutions should take proactive measures to lower regulatory risk and streamline SAR filing in order to remain compliant: 

Frequent Staff Training: Conduct thorough training sessions to assist team members in recognising warning signs, such as odd structuring patterns, irregular transactions, or actions suggestive of suspicious activity. To keep employees informed about the most recent money laundering schemes and legal requirements, make sure that training is continuous. 

AML Monitoring Technology: To spot irregularities, monitor questionable transaction patterns, and expedite the creation of Suspicious Activity Reports (SARs), make use of sophisticated systems like Sanction Scanner or comparable AML detection tools. By automating intricate procedures, these technologies can lower human error and guarantee prompt reporting. 

Maintain Logs & Documentation: Maintain thorough records for each SAR that is filed, including timestamps, the basis for suspicion, and all corroborating information like communication or transaction logs. This paperwork acts as proof in audits and investigations and is essential for regulatory compliance. 

Designate Case Managers: Assign committed staff to oversee SARs, making sure every case is monitored from the start of the investigation to submission. This encourages uniformity in the reporting procedure, centralises accountability, and avoids delays.

Perform Internal Audits: Arrange for frequent internal audits of SARs to ensure that the right protocols are being followed and that the reports are accurate and comprehensive. These audits assist in locating compliance gaps and streamlining procedures to reduce risks in the future. 

Penalties for Not Filing SARs 

For businesses and compliance officers, not filing SARs has serious repercussions, such as: 

• Regulatory Fines: Failure to comply with regulations may result in significant fines, frequently totalling millions of dollars, which may have a negative effect on the financial stability of an organisation. 
• License Suspensions: Financial institutions that violate compliance standards run the risk of having their licenses revoked. This would risk disrupting business operations and eroding client confidence.
• Reputational Damage: If regulations are broken, a company's brand has the risk of suffering long-term harm, losing customers, and receiving unfavourable media coverage.
• Criminal Liability: Individuals within the organisation may be charged with a crime and possibly imprisoned if there is egregious negligence or deliberate breaking of the law. This would further escalate the penalties for non-compliance.

In addition to helping avoid fines, proper SAR compliance shows your company's dedication to moral behaviour.

How Can Sanction Scanner Help

As a leading AML compliance Regtech, Sanction Scanner offers a Transaction Monitoring tool to detect suspicious activities of your customers or individuals using your financial services. The product monitors every activity that your company mediates, and its machine-learning algorithm detects suspicious attempts. On the other hand, it allows you to create your own rules and rule sets and create your own scenarios according to your company's risk appetite, size, sector, etc. The rules can be adjusted for different customer groups according to their risk levels. After setting up, AML Transaction Monitoring software watches the activities of customers for your compliance team and notifies them if it detects a suspicious transaction and suspicious activity by real-time alerts. If you want to know more about our solution, you can contact us or request a demo of the product.