Suspicious activity reporting is easily one of the most underrated (yet crucial) aspects of compliance.
It is the foundation of a robust AML program and can be the downfall of an institution with regulators. Oh…and by the way…
Getting it wrong can cost millions.
This blog highlights important regulatory responsibilities that every compliance officer should know.
Let’s jump in!
What you’ll discover:
- Why Suspicious Activity Reporting Matters
- The Core Regulatory Obligations
- Customer Due Diligence: The Foundation Of SAR Filing
- 5x Common SAR Filing Mistakes To Avoid
- How To Build A Stronger Reporting Program
Why Suspicious Activity Reporting Matters
Suspicious activity reports (SARs) are the front line in the fight against financial crime.
Why? Because SARs are the main method financial institutions use to report suspicions of money laundering, fraud and terrorist financing to regulators. Once a SAR is filed correctly, law enforcement has the information they need to pursue criminals.
And as you know…
Better reporting = Stronger financial system.
Let’s crunch some numbers. According to FinCEN, financial institutions file about 4 million SARs every year. It takes close to 2 hours of compliance staff time to complete each SAR. This is a huge burden.
If SAR filing is treated as a “tick box” exercise, the institution is already behind the game. Regulators don’t want quantity, they want quality.
Enter effective AML solutions that empower compliance teams to identify suspicious activity swiftly. New customer due diligence workflows seamlessly integrate with SAR filing decisions. When done correctly, this is what defines compliant businesses vs. those making the news.
The Core Regulatory Obligations
Alright onto the actual regulations themselves. Here are some that every compliance officer should know backwards and forwards.
File On Time
Time begins as soon as suspicious activity is detected. In the United States the rules are:
- 30 days from initial detection to file the SAR
- An additional 30 days if a subject has not been identified
- 90 days for continuing activity reports
Miss the deadline? Penalties are coming.
Keep It Confidential
This is absolute policy. SARs are confidential documents. A customer cannot be told that one has been filed. Tipping the customer off is a crime.
Maintain Records
Retention Requirements: All SARs submitted must be retained for 5 years with all supporting documentation. Including:
- Transaction records
- Customer correspondence
- Internal investigation notes
- Decision-making rationale
If an examiner shows up tomorrow, the full file should be ready in minutes.
Report Without A Dollar Threshold
Incorrect. Although Currency Transaction Reports are filed at $10,000, SARs do not have a minimum. If something looks suspicious, file it.
Customer Due Diligence: The Foundation Of SAR Filing
This is where most compliance programs either succeed or fail.
Because, without knowing the customer, suspicious activity cannot be identified. Customer Due Diligence is the foundation the rest of the SAR process is built on. Without robust customer due diligence efforts, the team is flying blind.
Think about it…
If the institution doesn’t know:
- Who actually owns the account
- Where the funds come from
- What the customer’s business actually does
- Whether the activity matches the customer’s profile
…there is no way to know if a transaction is suspicious or not.
Customer due diligence is one of five “pillars” of an effective BSA/AML program, and it is heavily scrutinized by regulators at exam time.
Note: EDD applies when dealing with higher-risk customers, such as Politically Exposed Persons and High Risk Country Customers. These customers require additional scrutiny.
5x Common SAR Filing Mistakes To Avoid
The top mistakes examiners see when reviewing SARs and how to avoid them.
Mistake 1: Defensive Filing
Institutions sometimes file borderline cases “just in case.” Seems prudent, but it’s not. Defensive filing dilutes the value of what gets sent to FinCEN. Regulators want meaningful reports, not volumes of fluff.
Mistake 2: Weak Narratives
Story telling is the single most important element of the SAR. Without a strong narrative the report is worthless.
A strong narrative includes:
- Who was involved
- What the activity was
- When it happened
- Where the funds went
- Why it looks suspicious
Don’t just dump transaction data. Tell the story.
Mistake 3: Missing Continuing Activity Reports
If activity continues to appear suspicious after the initial SAR, a continuing report must be submitted every 90 days. Many compliance teams forget this. Create automatic reminders.
Mistake 4: Ignoring Red Flags
Red flags exist for a reason. Common ones include:
- Sudden changes in transaction patterns
- Large cash deposits inconsistent with the customer profile
- Wire transfers to high-risk jurisdictions
- Reluctance to provide identifying information
When they show up, act on them.
Mistake 5: Poor Internal Communication
Front-line staff are usually where suspicious activity is spotted first. But if reporting channels are poor, that information will never make it to compliance. Develop clear escalation channels and train staff to recognize red flags.
The Cost Of Getting It Wrong
The consequences of inadequate SAR programs are significant. Recent enforcement actions speak loudly.
In October 2024, TD Bank was hit with record $3 billion fines for critical weaknesses in its AML program. This included ineffective transaction monitoring and lack of customer due diligence — topics discussed in this article.
It’s not just America. In 2024, Starling Bank was fined £28.9 million by the FCA for failures in financial crime controls. FCA investigators found the bank had opened more than 54,000 accounts for high-risk customers even after they were instructed not to do so.
The lesson? Regulators are watching, and they will fine institutions when controls fail.
How To Build A Stronger Reporting Program
Ok, but how do you create a SAR program that will pass regulatory muster? Follow these steps.
Buy technology. Manual SAR filing isn’t fast enough to keep up with the amount of data most institutions receive. Transaction monitoring software uncovers suspicious activity quicker.
Train employees frequently. Annual training sessions aren’t sufficient. Conduct quarterly reviews so the staff can identify potential problems.
Test-drive the program. Have the SAR program reviewed by an outside party annually. Find the holes before the regulators do.
Document everything. If it’s not in writing, it didn’t happen.
Create a culture of compliance. Lead by example from the top down, and everything else becomes easier.
Final Thoughts
Suspicious activity reporting is the bloodstream of an effective AML program. Done correctly, the institution and its customers are safeguarded. Done incorrectly, fines, reputational harm, and possible criminal liability are the result.
To quickly recap, every compliance officer should know:
- The filing deadlines and confidentiality rules
- That customer due diligence is the foundation of good SAR filing
- The most common mistakes to avoid
- The serious cost of getting it wrong
Suspicious activity reporting isn’t going to get easier. Regulators keep raising the bar.