Do suspicious activity reports actually work? A recent study from the Government Accounting Office ("GAO") suggests that no one really knows.
Suspicious Activity Reports
Banks and other financial entities are required to file suspicious activity reports with FinCEN under the Bank Secrecy Act ("BSA"). A suspicious activity report (also sometimes called FinCEN Form 111) is required based upon different circumstances for different kinds of entities. Most filing requirements relate to a suspicious that a transaction was intended for money laundering purposes, based upon various "red flags" identified in FinCEN's pronouncement.
GAO Study on Suspicious Activity Reports
The 2021 National Defense Authorization Act (NDAA) directed the Department of Justice (DOJ) to provide annual statistics, metrics, and other information to the Secretary of the Treasury on agencies' use of BSA reports, including how often reports contributed to arrests and convictions. According to the GAO study, however, none of the agencies that DOJ contacted, including DOJ component agencies, were able to provide the statistics required by the NDAA.
While the statistical analysis required by the NDA would have been helpful, it looks like the government has gotten ahead of itself. If law enforcement agencies are unable to report on the usefulness of SARs, it hardly makes sense for the GAO to report to Congress on the data those agencies are unable to report.
The GAO report, while couched in the obscure language of bureaucrat-ese, is a scathing indictment of how the government uses (and fails to use) information. The BSA has been a law for more than 50 years and SAR filers devote millions in implementing and maintain the AML compliance programs required for them to comply.
Nevertheless, if the government itself is unable to track its use of SARs or the law enforcement value it derives from having the data provided by SARs. If the government is going to expand its AML compliance efforts (as the Corporate Transparency Act intends), the government needs to do a better job of tracking its use of SARs and AML data in order to justify its efforts.
About The Author
Jonathan Wilson is the co-founder of FinCEN Report Company with 31 years of experience in corporate, M&A and securities matters. He is the author of The Corporate Transparency Act Compliance Guide (to be published by Lexis Nexis in the summer of 2023) and the Lexis Practical Guidance Practice Note on the Corporate Transparency Act.