SAR Quality: Practical Tips to Enhance Reports for Law Enforcement

By Joshua Fretto

The relationship between law enforcement and the financial industry has never been more important. As responsible bankers, it is not only our obligation to provide complete and accurate information within our suspicious activity reports, but the information needs to be delivered effectively. Each year, the Financial Crimes Enforcement Network receives an ever-increasing number of SARs. In 2018 alone, FinCEN received over 2.1 million SAR filings, and the 2019 filings are trending to surpass that total. Not surprisingly, depository institutions lead all industries in the number of SARs filed, and account for over 45 percent of SARs filed since 2018.

Did you ever wonder who is reading all these reports, and whether they might have some practical tips to enhance SAR quality? Or do you want to ensure that you are helping law enforcement as much as possible? The main objective of this article is to focus on bringing added value to law enforcement through SAR quality enhancements. The article will review and discuss:

• Current SAR quality guidance from the Federal Financial Institutions Examination Council and FinCEN
• SAR and BSA information dissemination processes, including new data analytics being implemented by Internal Revenue Service Criminal Investigations
• SAR writing tactics to make a SAR more attractive to law enforcement and assist in expediting investigations
• Functional guidance that may be implemented quickly without overhauling a bank’s SAR process.
  In order to support the content of this article, law enforcement agents and analysts from the Federal Bureau of Investigations, Homeland Security Investigation, Department of Justice, IRS-CI, and US Border Patrol were contacted and sent survey questionnaires. The questionnaire supplied open-ended questions and required ranking certain attributes.
• Additionally, two individuals agreed to provide more in-depth insight during a phone interview: Manny J. Muriel, special agent in charge of the IRS-CI Detroit Field Office, and Pierre Blanchard, former agent with Naval Criminal Investigative Service and IRS-CI, who is now managing director of Risk Point Consulting Group.

The importance of filing SARs

Anti-money laundering professionals are especially cognizant of the role SARs play in maintaining a robust Bank Secrecy Act program and in keeping the US financial system secure. The impact of AML professionals continues to be a focal point for FinCEN and is felt more directly from their regular interactions with law enforcement during SAR and BSA information requests.

Kenneth Blanco, director of FinCEN, highlights the importance and scope of SAR filings and BSA information:

• Nearly 500 federal, state and local law enforcement and regulatory agencies have access to FinCEN’s database of BSA records, which amounts to approximately 11,000 active users of FinCEN data.
• There are 149 SAR review teams located around the country, covering all 94 federal judicial districts.
• There were 10 million queries of BSA database by law enforcement, regulators and FinCEN analysts during the last 5 years.
• Twenty percent of FBI investigations utilize BSA data, and for some types of crime, including organized crime, the number is nearly 60 percent.
• FinCEN identifies more than 1,000 matches for potential terrorist financing every month. Higher priority matches are disseminated to law enforcement and regulators in Flash reports.

This article will later spotlight new ways BSA Information is being used to further enhance processes within the IRS-CI.

SAR quality guidance: FFIEC manual and FinCEN

Before diving into discussion on SAR dissemination processes and practical tips, it is important to review current SAR quality guidance. The information contained in this article should not be interpreted to reduce or modify your institution’s regulatory obligations when it comes to filing SARs and SAR reporting processes. The SAR quality tips are a guideline to help enhance your SAR-compliant programs.

Below are SAR quality guidelines from the FFIEC Manual and FinCEN, with which most AML professionals are familiar. The FFIEC manual states the SAR Narrative should identify the following:

• Who is conducting the suspicious activity?
• What instruments or mechanisms are being used to facilitate the suspect transactions?
• When did the suspicious activity take place?
• Where did the suspicious activity take place?
• Why does the filer think the activity is suspicious?
• How did the suspicious activity occur?

FinCEN expands on this and provides additional guidance on writing SARs, with a focus on the narrative section of the report. The narrative is critical to understanding the nature and circumstances of the suspicious activity, and the care with which the narrative is prepared may determine whether the described activity and its possible criminal nature are clearly understood by investigators.

• Filers must provide a clear, complete, and concise description of the activity, including what was unusual or irregular that caused suspicion.
• The narrative description should encompass the information provided within required data sections of the SAR Form and should include any other information necessary to explain the nature and circumstances of the suspicious activity.
• Filers should provide any information they believe necessary to better enable investigators to understand the reported suspicious activity.

Additional references and resources are provided at end of article.

Dissemination processes—from financial institution to law enforcement

Understanding how a SAR “graduates” from a FinCEN submission to an investigation is important. Manny J. Muriel, SAC of IRS-CI Detroit Field Office, provided an inside look into this process. Although Special Agent Muriel is focused on the process within the State of Michigan, it is representative of dissemination processes across other federal agencies and jurisdictions. He discussed three primary distribution channels, which are:

• SAR Task Force
• Agent Query and Identification
• Special Project Teams

The SAR Task Force consists of agents from major federal law enforcement agencies, such as IRS-CI, DOJ, HSI and Postal Inspection Service. SAC Muriel explained that the State of Michigan has two SAR review teams; one for each judicial district. The SAR review team combs through SARs filed and submits them to the SAR Task Force based on specific targeting criteria. The targeting criteria helps the task force identify the “best and most actionable cases.” The review team provides otherwise unidentified leads to law enforcement and is an additional resource for ongoing investigations.

The special agent in charge further explained that his agents have query access to the FinCEN database. This supports their ongoing investigations and helps identify suspicious activities trending within certain regions and industries.

Lastly, SARs may be funneled to investigators from special project teams. Project teams will focus on specific compliance challenges within a region or jurisdiction. For example, activity related to a FinCEN Geographic Targeting Order on Title Insurance Agencies in Miami-Dade County.

SAC Muriel further accentuated the importance of BSA and SAR information when he revealed the recent launching of the Nationally Coordinated Investigations Unit. The NCIU relies heavily on data analytics for case identification and selection. The IRS-CI division has 1 billion records and is using data analytics tools and the NCIU to mine them for high-quality leads.

They have been collecting data from whistleblowers, the Swiss bank program, voluntary disclosures, the Foreign Account Tax Compliance Act disclosures, and its foreign-posted attachés. IRS-CI is using data analytics tools and the NCIU to build models and algorithms to identify potential areas of noncompliance and identify more actionable cases.

Survey questions and response

Here’s what our experts had to say in response to the survey.

Question 1. How do you review/examine the actual SAR form? What SAR form parts are most valuable to you? The responders were asked to rank the following sections and/or sub sections of the SAR form, based on order of most valuable to least valuable in an investigation:

• Part I—Subject Information
• Part V—Narrative
• Part II—Suspicious Activity Information (dates and amount sub-parts)
• Part II—Suspicious Activity Characterization (structuring, money laundering, fraud, etc.)
• CSV File—Data and Excel Attachments

Answer 1. Consolidated Results (Most Valuable to Least Valuable):

• Part I—Subject Information
• Part V—Narrative;
• Part II—Suspicious Activity Information (dates and amount sub-parts)
• Part II—Suspicious Activity Characterization (structuring, money laundering, fraud, etc.)
• CSV Attachments

Pierre Blanchard was not surprised with the outcome. He emphasized that Subject Information and Narrative are critical for lead development and deepening investigations. An enforcement specialist with the U.S. Border Patrol further elaborated on the importance of the narrative section, disclosing that many SAR readers are not necessarily trained in the vernacular and process of financial crimes, rather they have a basic understanding of it. Therefore, the narrative needs to provide enough details and reasoning behind the author’s inclination to submit the report. This helps the reader understand why it was important to file, and what specific activity is unusual to the author.

Question 2. What characteristics of a narrative make it more valuable or less valuable? The responders were asked to label the following attributes of the SAR Narrative as “Very Valuable,” “Valuable” or “Less Valuable.”

• Chronological Order: Narrative is written in chronological date order.
• Crime Identification: Author indicates the potential crime or violation of law observed.
• Explanation of Banking Products or Processes: Banking products and/or services used by the customer are described and explained.
• Follow the Money: Narrative follows the money within the institution and tracks other originators or beneficiaries and persons and institutions.
• Concise: Narrative is to the point and factual.
• Clarity: Narrative provides a clear description of the activity and limits irrelevant information.
• Lots of Detail: Narrative contains lots of relevant detail; such as dates, dollar amounts, check numbers, routing numbers, customer names, and counterparty names.
• Key Terms: Narrative uses key terms to quickly capture the banks most relevant concerns, i.e. “tax refund fraud,” “unregistered MSB,” “elder financial exploitation.”
• Consistent: Narrative is consistent with the data and information within the SAR form.

Answer 2. Consolidated Results:

• Very Valuable—Concise, Consistent, Key Terms, Clarity, Chronological Order
• Valuable—Follow the Money
• Less Valuable—Explanation of Banking Products, Crime Identification, Lots of Detail

The list above represents the consolidated results, however, several outlier rankings existed dependent upon the agency sourced.

For instance, an agent from the U.S. Border Patrol responded that “Explanation of Banking Products” was very valuable, while all others identified it as valuable or less valuable. Moreover, agents from the IRS responded that “Lots of Detail” was very valuable, while other agencies simple noted it as valuable or less valuable. These outlier responses indicate certain data may be more valuable to one agency or versus another. Essentially, SAR authors may need to consider which law enforcement agency may be interested in their SAR, and tailor the SAR to enhance value.

Pierre Blanchard added additional commentary on the “Crime Identification” characteristic. He explained, while FinCEN guidance is clear that banks are not obligated to investigate or confirm the underlying crime, it is important that the author clearly communicate the characteristics of the suspicious activity so that law enforcement understands what the underlying crime may be. He unfolded this further, noting that if an author is having a difficult time articulating the characteristics of the suspicious activity, leading phrases such as “appears to be…” or “potentially related to…” may be useful and may clarify why the author feels this activity is suspicious.

Question 3. What additional practices can FIs adopt to enhance their SARs programs so law enforcement may execute faster?

Answer 3. Common responses received:

• Include customer statements or observed activity whenever possible. This type of detail is very valuable when trying to prove the customer’s intent.
• Include bank or FI contact information (phone number or e-mail) within the SAR narrative. Law enforcement officials stated this is very helpful in expediting their investigations. They noted the practice is becoming more widely followed but not all FIs have adopted it.
• Lastly, provide complete and timely responses to the document requests. Since the four corners of the SAR are not admissible in court, the complete and timely response to a document request is critical. It is these documents and not the SAR which will eventually lead to prosecution and ultimately conviction.
• SAC Muriel and a special agent from HSI noted that FIs with an individual designated as a law enforcement liaison provide more comprehensive and timelier responses.

Question 4. What are some of your pet peeves when it comes to SAR quality?

Answer 4. This question received the most consistent responses. All law enforcement officials agreed that rambling or run-on narratives containing irrelevant details and facts are challenging. Pierre Blanchard provided insight into this challenge. He explained that most AML professionals are keenly aware of false positive alerts and the negative impact on a financial institution’s BSA program. He likened a rambling, run-on narrative as the law enforcement equivalent of a false positive alert.

He stated that a well-written SAR—whether actionable or not—allows the investigator to make an informed decision. Highlighting the importance of quickly identifying what warrants investigation and what does not. A rambling, run-on narrative does not allow the investigator this opportunity. SAC Muriel echoed this perspective, additionally noting that diluted facts or information not pertinent to the activity of concern make the narrative hard to follow. This type of narrative is unproductive for law enforcement and is drain on resources. For an example of a well-written SAR, please see page 41 of The SAR Activity Review, published by the BSA Advisory Group in October 2012.

Conclusion

The relationship between AML professionals and law enforcement has never been more important. The last few years have brought expanded trust, reliance, and synergy between these two groups. Both groups face challenges related to resource allocation, but AML professionals are positioned to assist law enforcement with their piece of the challenge. Regardless of dissemination channel, law enforcement needs to identify the best most actionable cases, as those have the best chance of successful prosecution. AML professionals can assist in this process by enhancing the usefulness and effectiveness of their SARs by incorporating the tips and advice discussed here into their everyday reporting.

Joshua Fretto is an EVP at Lone Star National Bank, where he leads the financial intelligence department and is the bank’s designated BSA/AML/OFAC officer.