A Guide to Anti-Money Laundering for Crypto Firms
Why financial institutions are required to fill out Suspicious Activity Reports
Those in the financial sector are sure to be quite familiar with Suspicious Activity Reports (SARs). As their name suggests, SARs are reports made by an employee of a financial institution regarding a suspicious transaction – one that indicates potential money laundering, for instance. These reports are crucial in helping governments to compile financial intelligence, track down financial criminals, and prevent future crimes.
Several countries require that their financial institutions complete SARs as part of a comprehensive anti-money laundering strategy. In the United States, SARs must be submitted to the Financial Crimes Enforcement Network (FinCEN). FinCEN is the agency of the Treasury Department responsible for looking into suspicious transactions, gathering and analysing data regarding financial crimes, and enforcing certain counter-financial crime regulations. All financial institutions that fall under the purview of the Bank Secrecy Act must fill out SARs, and the reports must be completed within 30 days of the transaction date. Under certain circumstances (for instance, when the institution does not immediately know the true identity of the client who made the transaction) an additional 30 day extension may be granted. Without exception, no extension may be granted beyond this 60 day period after the transaction has been finalised.
SARs have proven effective, both in the US and elsewhere, at helping to find criminals and reduce their success rates. SARs are also useful in determining wider patterns and trends in criminal financial activity.
Not only banks are required to complete SARs. In fact, all financial institutions and some Designated Non-Financial Businesses and Professions must files SARs for transactions that seem suspicious.
If one of these obliged entities fails to complete a SAR in a situation where (1) doing so would have been appropriate, and (2) the transaction in question is actually linked to financial crime, they can face severe penalties. These usually take the form of fines, but involved officials may also face prison time.
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Originally published July 4, 2014, updated May 4, 2022
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