A Guide to Anti-Money Laundering for Crypto Firms

What can SAR filing trends tell us about the state of financial crime in 2022?

Regulation Knowledge & Training

In 2021 ComplyAdvantage surveyed compliance leaders globally to build an assessment of the state of financial crime in the year ahead. One of the key questions we asked in the survey was: How has the number of suspicious activity reports (SARs) that your organization has filed changed? The results we received were consistent with the previous year’s findings: SAR filings are going up.

In the 2021 survey, 80% of firms said they filed more SARs in 2021, compared to 70% who said the same in 2020 (Figure 1). Almost a third of respondents (31%) said they filed 10-20% more SARs in 2021 compared to 2020. A number of underlying factors can be attributed to this trend, including the growing volume and variety of payment channels consumers are using across mobile money, SWIFT, instant payments, crypto and distributed ledger technology – all underpinned by a wider shift toward remote and hybrid working environments. The 2020s have also been characterized by a high degree of instability, increasing the risk of various financial crimes including trade-based money laundering, terrorist financing and wildlife trafficking. 

Chart by Visualizer

Figure 1

The trends that are driving the rise in SAR filings globally year-on-year show no sign of abating in 2022, meaning it could become another record year. 

What does this mean for the state of financial crime in 2022? And what should compliance teams expect to see more of when it comes to the filing and analysis of SARs this year? 

Here are our top five SAR trends for 2022: 

Bribery and corruption are the typologies firms are most concerned with

In our 2021 survey, we also asked firms what typology/ies they are most concerned with when submitting suspicious activity reports (Figure 2).

Chart by Visualizer

Figure 2

Bribery and corruption was the most cited answer, selected by 42% of firms globally. The issue was given particular attention in 2021 with the release of US Financial Intelligence unit (FIU) FinCEN’s first government-wide national AML/CFT priorities. Corruption was identified as a key issue, with FinCEN arguing it represents a national security threat. Advisories related to corruption were issued on senior political figures in countries including Nicaragua, South Sudan and Venezuela.

38% cited trade-based money laundering, making it the second most common answer. As global supply chains continue to contend with the fall-out from COVID-19, this is a typology that is likely to top the agenda in 2022. In China, for example, cities and ports have found themselves in quarantine for up to seven weeks, with further controls likely in the first half of 2022. The “Covid-Zero” strategy also applies in Hong Kong, leading freight delivery firm FedEx to announce in November 2021 it would be shutting down its base in the region, and relocating personnel to California.

Regulators will analyze SARs to raise awareness of emerging typologies

In 2021, FinCEN also issued several pieces of landmark guidance based on SAR filing trends to help raise awareness of emerging financial crimes and typologies. These reports received significant attention, and as intelligence sharing improves further (see trend three) other regulators may produce more content like this. Two key reports from FinCEN called out trends likely to grow further in 2022:

  • Ransomware: Assessing patterns in SAR filings in the first half of 2021, FinCEN found the number of SARs related to ransomware was 30% higher than the total for the whole of 2020. It said that anonymity-enhanced cryptocurrencies, centralized convertible virtual currency exchanges and threat actors avoiding the reuse of wallet addresses all emerged as typologies related to ransomware as a result.
  • Wildlife trafficking: FinCEN also analyzed SARs filed between 2018 and October 2021 to assess wildlife trafficking trends. It warned the crime was on the rise, and firms were not currently capturing the full extent of it. The report also highlights factors firms have used to distinguish between legal and illegal wildlife trading. 

Intelligence sharing practices will continue to improve

Regulators in Asia Pacific in particular have been driving improvements in data sharing practices between financial institutions and regulators, and between financial institutions themselves. In an August 2021 keynote speech the Assistant Managing Director of the Monetary Authority of Singapore (MAS) noted that the regulator ”leverages STR [Suspicious Transaction Reports], intelligence and other data points to perform network link analysis to detect emerging threats or suspicious activities.” Alongside this analysis, she said that better collaboration between institutions was needed, stating that technological advances here could “bring us closer to a turning-point.”

The Fintel Alliance, established by Australia’s regulator, AUSTRAC, is another public-private partnership that has continued to develop its approach. In its 2021 Fintel review, AUSTRAC highlighted that 5,258 SARs were lodged relating to the focus areas for Fintel. Its 2020-2023 operational strategy also looks at improving approaches to information sharing through supporting technology-based infrastructure. AUSTRAC notes that this platform has been key to continuing information sharing through the pandemic. Going forward, the focus will be on enabling higher classification information to be shared.

In 2022 innovative regulatory initiatives like those championed by MAS and AUSTRAC are likely to continue.

High profile enforcement action for SAR filing violations 

2021 saw a number of significant AML fines due at least in part to SAR filing violations, particularly in the US. Some of the most high profile enforcement actions include:

  • In January, FinCEN fined Capital One $390m for AML violations under the Bank Secrecy Act, including failing to file thousands of SARs. Capital One acknowledged failing to file a SAR even in instances when it had knowledge of criminal charges against specific customers, including a convicted associate of the Genovese organized crime family.
  • In May 2021 broker dealer GWFS was fined $1.5m due to its failure to file 130 SARs related to hackers attempting to takeover its clients’ retirement accounts. When SARs were filed, necessary details about hackers’ activity were not included.
  • Crypto trading platform BitMEX agreed to pay $100 million in August 2021 due to insufficient compliance measures. The cryptocurrency exchange had not implemented an appropriate AML/CFT compliance program and had not filed the required SARs. In its report, FinCEN noted that BitMEX had failed to file SARs on $15 million through at least 588 transactions “that exceeded the minimum threshold and were either suspicious at the time of the transaction, or became suspicious when additional information about the suspicious nature of the transactions became available to BitMEX.”

Focus on filing best practices

In addition to enforcement through fines, regulators are showing a renewed focus on providing firms with guidance on how to submit SARs – and why doing so is important.

AUSTRAC and MAS both provide detailed guidance on SAR filing. The Suspicious Transaction Reporting Office (STRO) in Singapore provides instruction on filing suspicious transaction reports (STRs) and other related filing requirements. In 2021 AUSTRAC also published guidance on common reporting mistakes firms are making. Among the common issues identified were the incorrect use of fields, address information not completed and entries transposed. 

The UK’s FIU published guidance on both SAR filing best practices, and actions taken by law enforcement in response to SARs. The regulator noted that they “have been instrumental in identifying sex offenders, fraud victims, murder suspects, missing persons, people traffickers, fugitives and terrorist financing.” 

In alignment with the findings of the 2021 ComplyAdvantage survey, AUSTRAC also stated that SAR filing volumes are on the rise globally, meaning many firms are struggling to address both quality and quantity simultaneously. By reviewing and understanding key and emerging typologies, alongside best practice guidance issues by regulators, firms can put themselves in the best possible position to optimize their SAR filing processes.

Continue to explore our survey on the State of Financial Crime in 2022 – Download today

 

In 2021 ComplyAdvantage surveyed compliance leaders globally to build an assessment of the state of financial crime in the year ahead. One of the key questions we asked in the survey was: How has the number of suspicious activity reports (SARs) that your organization has filed changed? The results we received were consistent with the previous year’s findings: SAR filings are going up. In the 2021 survey, 80% of firms said they filed more SARs in 2021, compared to 70% who said the same in 2020 (Figure 1). Almost a third of respondents (31%) said they filed 10-20% more SARs in 2021 compared to 2020. A number of underlying factors can be attributed to this trend, including the growing volume and variety of payment channels consumers are using across mobile money, SWIFT, instant payments, crypto and distributed ledger technology - all underpinned by a wider shift toward remote and hybrid working environments. The 2020s have also been characterized by a high degree of instability, increasing the risk of various financial crimes including trade-based money laundering, terrorist financing and wildlife trafficking.  [visualizer id="58219"] Figure 1 The trends that are driving the rise in SAR filings globally year-on-year show no sign of abating in 2022, meaning it could become another record year.  What does this mean for the state of financial crime in 2022? And what should compliance teams expect to see more of when it comes to the filing and analysis of SARs this year?  Here are our top five SAR trends for 2022:  Bribery and corruption are the typologies firms are most concerned with In our 2021 survey, we also asked firms what typology/ies they are most concerned with when submitting suspicious activity reports (Figure 2). [visualizer id="58681"] Figure 2 Bribery and corruption was the most cited answer, selected by 42% of firms globally. The issue was given particular attention in 2021 with the release of US Financial Intelligence unit (FIU) FinCEN’s first government-wide national AML/CFT priorities. Corruption was identified as a key issue, with FinCEN arguing it represents a national security threat. Advisories related to corruption were issued on senior political figures in countries including Nicaragua, South Sudan and Venezuela. 38% cited trade-based money laundering, making it the second most common answer. As global supply chains continue to contend with the fall-out from COVID-19, this is a typology that is likely to top the agenda in 2022. In China, for example, cities and ports have found themselves in quarantine for up to seven weeks, with further controls likely in the first half of 2022. The “Covid-Zero” strategy also applies in Hong Kong, leading freight delivery firm FedEx to announce in November 2021 it would be shutting down its base in the region, and relocating personnel to California. Regulators will analyze SARs to raise awareness of emerging typologies In 2021, FinCEN also issued several pieces of landmark guidance based on SAR filing trends to help raise awareness of emerging financial crimes and typologies. These reports received significant attention, and as intelligence sharing improves further (see trend three) other regulators may produce more content like this. Two key reports from FinCEN called out trends likely to grow further in 2022:
  • Ransomware: Assessing patterns in SAR filings in the first half of 2021, FinCEN found the number of SARs related to ransomware was 30% higher than the total for the whole of 2020. It said that anonymity-enhanced cryptocurrencies, centralized convertible virtual currency exchanges and threat actors avoiding the reuse of wallet addresses all emerged as typologies related to ransomware as a result.
  • Wildlife trafficking: FinCEN also analyzed SARs filed between 2018 and October 2021 to assess wildlife trafficking trends. It warned the crime was on the rise, and firms were not currently capturing the full extent of it. The report also highlights factors firms have used to distinguish between legal and illegal wildlife trading. 
Intelligence sharing practices will continue to improve Regulators in Asia Pacific in particular have been driving improvements in data sharing practices between financial institutions and regulators, and between financial institutions themselves. In an August 2021 keynote speech the Assistant Managing Director of the Monetary Authority of Singapore (MAS) noted that the regulator ”leverages STR [Suspicious Transaction Reports], intelligence and other data points to perform network link analysis to detect emerging threats or suspicious activities.” Alongside this analysis, she said that better collaboration between institutions was needed, stating that technological advances here could “bring us closer to a turning-point.” The Fintel Alliance, established by Australia’s regulator, AUSTRAC, is another public-private partnership that has continued to develop its approach. In its 2021 Fintel review, AUSTRAC highlighted that 5,258 SARs were lodged relating to the focus areas for Fintel. Its 2020-2023 operational strategy also looks at improving approaches to information sharing through supporting technology-based infrastructure. AUSTRAC notes that this platform has been key to continuing information sharing through the pandemic. Going forward, the focus will be on enabling higher classification information to be shared. In 2022 innovative regulatory initiatives like those championed by MAS and AUSTRAC are likely to continue. High profile enforcement action for SAR filing violations  2021 saw a number of significant AML fines due at least in part to SAR filing violations, particularly in the US. Some of the most high profile enforcement actions include:
  • In January, FinCEN fined Capital One $390m for AML violations under the Bank Secrecy Act, including failing to file thousands of SARs. Capital One acknowledged failing to file a SAR even in instances when it had knowledge of criminal charges against specific customers, including a convicted associate of the Genovese organized crime family.
  • In May 2021 broker dealer GWFS was fined $1.5m due to its failure to file 130 SARs related to hackers attempting to takeover its clients’ retirement accounts. When SARs were filed, necessary details about hackers’ activity were not included.
  • Crypto trading platform BitMEX agreed to pay $100 million in August 2021 due to insufficient compliance measures. The cryptocurrency exchange had not implemented an appropriate AML/CFT compliance program and had not filed the required SARs. In its report, FinCEN noted that BitMEX had failed to file SARs on $15 million through at least 588 transactions “that exceeded the minimum threshold and were either suspicious at the time of the transaction, or became suspicious when additional information about the suspicious nature of the transactions became available to BitMEX.”
Focus on filing best practices In addition to enforcement through fines, regulators are showing a renewed focus on providing firms with guidance on how to submit SARs - and why doing so is important. AUSTRAC and MAS both provide detailed guidance on SAR filing. The Suspicious Transaction Reporting Office (STRO) in Singapore provides instruction on filing suspicious transaction reports (STRs) and other related filing requirements. In 2021 AUSTRAC also published guidance on common reporting mistakes firms are making. Among the common issues identified were the incorrect use of fields, address information not completed and entries transposed.  The UK’s FIU published guidance on both SAR filing best practices, and actions taken by law enforcement in response to SARs. The regulator noted that they “have been instrumental in identifying sex offenders, fraud victims, murder suspects, missing persons, people traffickers, fugitives and terrorist financing.”  In alignment with the findings of the 2021 ComplyAdvantage survey, AUSTRAC also stated that SAR filing volumes are on the rise globally, meaning many firms are struggling to address both quality and quantity simultaneously. By reviewing and understanding key and emerging typologies, alongside best practice guidance issues by regulators, firms can put themselves in the best possible position to optimize their SAR filing processes. Continue to explore our survey on the State of Financial Crime in 2022 - Download today  

Originally published February 18, 2022, updated February 18, 2022

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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