Money Laundering Bulletin, 24 October 2022
Suspicious Activity Reports (SARs), at their best, are crucial intelligence in the fight against illicit finance. But with AML-obliged entities filing defensively and some financial intelligence units (FIUs) flooded with reports, how can ‘good SARs’ make it to the frontline of law enforcement? Paul Cochrane investigates.
Up and up
The volume of suspicious activity reports (SARs), or suspicious transaction reports (STRs), filed is rising year-on-year. In the USA alone, the number of SARs submitted to the Financial Crimes Enforcement Network (FinCEN) crossed the 3 million mark for the first time last year (2021), with 3,069,450 filed. That figure is nearly double that of 2014’s 1.66 million, and an increase of 570,000 filings on 2020. Some 312,379 SARs were filed in September (2022), indicating this year’s total could be around 3.7 million. (1)
In the UK, 573,085 SARs were filed in 2019-2020 (the latest numbers published), up 20% on the previous period. (2) Among the Egmont Group of 166 financial intelligence units (FIUs), some 15.5 millions suspicious and unusual transaction reports were received in 2021.
“If you add all the SARs together with other intelligence, there are possibly up to 100 million pieces of financial intelligence filed around the world every year,” said John Cassara, an AML expert and former US Treasury Special Agent.
Rich ore
In his view, “It is a treasure trove of potentially useful information for all sorts of law enforcement issues, not just money laundering. But if you divide the SARs by the assets forfeited and criminals convicted, it is not a good return on investment by any metric. We’re a decimal point from failure.”
Indeed, despite the increase in SAR filing, the estimate for effectiveness is 0.1% to 1%, according to New Zealand AML specialist Dr Ron Pol, based on estimated criminal proceeds seized by authorities versus crime proceeds retained by criminals. (3)
Filing bind
Of primary concern, said Cassara, is the lack of information and analysis about how many SARs are of strategic value to law enforcement, or which content is particularly useful in solving crimes. In the USA’s case, one reason is the absence of a feedback loop between reporters and FinCEN, he said.
The US Government Accountability Office (GAO), in a 2020 report on opportunities to increase law enforcement use of Bank Secrecy Act (BSA) reports (that is SARs), noted: “FinCEN provides BSA report access to law enforcement agencies, which use those reports to support investigations. FinCEN receives limited data from law enforcement agencies on their use of BSA reports or the reports' impact on case outcomes because agencies largely do not collect such data. As a result, FinCEN cannot provide comprehensive feedback to financial institutions on the usefulness of the BSA reports they file.” (4)
It is a similar story in other jurisdictions. Tristram Hicks, an AML and criminal justice expert in the UK, said: “We have invested a lot of resources in FIUs and the private sector, and it seems well resourced, enormously so when compared to the competent authorities, yet compliance departments are judged by what law enforcement ends up recovering. This is something they don’t have a direct role in, only indirectly through filing a SAR, and we don’t have good statistics about this. Also the relationship that exists between the private and public sectors isn’t very good, partly because the competent authorities comes down to just one person in certain countries,” he said.
A better way
As a solution, Hicks, who wrote an article for MLB on the value of ‘the Good SAR’, is advocating for genuinely suspicious filings – the Good SARs - to get to the frontlines as soon as possible so it can act upon them. (5)
“We need to start with the notion that if the purpose of crime is money, then investigate the money. We will arrive at a predicate offence whatever that is, so we need someone to identify that predicate offence, and then do a criminal investigation. At the moment it is the other way around, and it’s not really working,” said Hicks. “We need to focus on criminals, and have that in the database, and follow the money from the criminal to the crime, which is easier. It is very difficult to hide the money from crime.”
FIUs typically acting as gatekeepers to SARs information, deciding what SARs to analyse further and what to pass on to law enforcement, perhaps needs to be addressed in a more effective and timely manner, said Hicks.
Officers inside the FIU
FinCEN has tried to lead by example here, embedding law enforcement representatives in the agency to have more direct access to financial information: “FinCEN to its credit made a decision a while back to empower their own customers to access the information themselves,” said Cassara.
He spoke highly of the use of SARs during his time in law enforcement, as did Kevin Sullivan, a former New York law enforcement officer now president of The AML Training Academy in the US. “We downloaded about 4,000 SARs a month, and every one was reviewed. We narrowed it down to around 150 SARs to look at. The second phase was to run some databases and then follow though, or not,” said Sullivan.
Value confirmation
The GAO report backs up such views, arguing that SARs have intrinsic value. Its survey of six federal law enforcement agencies “found that more than 72 percent of their personnel reported using BSA reports to investigate money laundering or other crimes, such as drug trafficking, fraud, and terrorism, from 2015 through 2018.” The survey also found that “93 percent of law enforcement personnel who used BSA reports to start investigations almost always, frequently, or occasionally found relevant reports to identify potential subjects or networks from which a new investigation might be initiated.”
The GAO report did, however, note that access to the BSA database was only available to 54 percent of state law enforcement agencies in 2018, and less than one percent of local law enforcement. The research found that 21 of the 50 largest local police departments did not have direct access to the database.
Access is restricted, according to FinCEN, to manage “oversight costs and to protect against improper access to BSA reports.” (Stringent criteria must be met before granting a law enforcement agency access, covering number of staff, potential number of BSA database searches, location and agency priorities.) But such access could be expanded, said Sullivan, to include the 87 percent of large local police departments and 24 percent of smaller local police departments that have designated personnel to investigate financial crimes, according to Department of Justice data. The GAO reports that “from 2015 through 2018, FinCEN denied approximately 39 percent of the 103 applications it received. To help ensure BSA reports are accessed only by authorised uses for authorised purposes, FinCEN conducts annual inspections of law enforcement agencies with direct access. FinCEN also monitors searches to identify any irregular use.”
“We need a huge database that law enforcement can access. The information could lead to evidence used for convictions,” said Sullivan.
The GAO has recommended that FinCEN establish “a mechanism through which law enforcement agencies may provide regular and institution-specific feedback on BSA reporting”. It also called on FinCEN to “more consistently and publicly provide summary data on the usefulness of BSA reporting.” Yet while FinCEN committed to implementing a strategy to better communicate results and on the value of BSA reporting, as of April (2022), “GAO had ongoing work following up on this issue,” said its report. (4)
On the inside
Follow-up on what works and doe not should also extend to interviewing criminals, said Hicks: “We don’t record the number of people we froze assets from, and we don’t ask them if it made a difference. We could do research and ask criminals what works, but we choose not to.”
More useful SARs might also result from re-launching meetings between law enforcement and the private sector, which used to be common practice, said Sullivan. “The best thing that came out of the meetings we had was networking. We got to know each other, and could pick up the phone and talk about (financial crime) issues. It was worth its weight in gold. I highly suggest ‘Know Your Law Enforcement’ and ‘Know Your Financial Institution’, as if they both do that, then they can know what they’re looking for in a SAR. There are a lot of things today that are not picked up on,” he said.
Capacity and growth
Getting more SARs to law enforcement, however, depends on more analysis, which becomes ever harder as the number of SARs filed builds up, said Cassara: “There are not enough people to go through them and analyse them. For FinCEN, with a staff of 200 to 300 people, of which only a dozen are analysts, it’s impossible.”
The workload pressures are clear: the number of SARs - from just banks – to be analysed per FinCEN employee went from 2,000 in 2005, to around 3,800 in 2019, according to the agency.
“The problem is not so much with the production of financial intelligence but enforcement, and lack thereof. It has been easier for policymakers to mandate the financial industry to do this or that, than to say we need a budget to beef up enforcement,” said Cassara.
Could some of the needed funds come from the fines incurred by banks for violating AML requirements, with regulators issuing US$2.73 billion in fines worldwide in 2021, according to a report by Kyckr? (7) “I would love to see a reckoning of where all the fines go. Maybe the fines should be used to supplement money laundering investigations - just a crazy suggestion,” said Sullivan.
Notes
1) fincen.gov/reports/sars-stats
2) https://nationalcrimeagency.gov.uk/who-we-are/publications/480-sars-annual-report-2020/file
3) Ron Pol estimates that AML policy intervention has less than 0.1% impact on criminal finance. https://www.tandfonline.com/doi/full/10.1080/25741292.2020.1725366
4) https://www.gao.gov/products/gao-22-105242
5) The Good SAR, Tristram Hicks
https://www.moneylaunderingbulletin.com/moneylaundering/reporting/the-good-sar-151774.htm?origin=internalSearch
6) https://www.gao.gov/products/gao-19-582
7) https://www.kyckr.com/resources/aml-fines-2021
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