Since the passage of the USA PATRIOT Act in 2001, filings of Suspicious Activity Reports (SARs) with the Financial Crimes Enforcement Network (FinCEN) have increased dramatically. According to FinCEN's data, a total of 204,915 SARs were filed in 2001; in 2006, 1,078,894 reports were filed.

The strength of this trend is clear even when certain financial institutions that began reporting after 2001 - including money services businesses and participants in the securities and futures industries - are excluded from the overall data. For example, SARs submitted to FinCEN by depository institutions jumped nearly threefold from 203,538 in 2001 to 567,080 in 2006.

This increase in SARs is in part due to the lowering of thresholds that automatically trigger the filing requirement. It also reflects a heightened commitment in the financial services industry to play a constructive role in the identification of potential criminal activity, including money laundering, terrorist financing, and violations of the Bank Secrecy Act and PATRIOT Act. However, this upsurge in filings has also been accompanied by an increased number of reports containing errors, incomplete information and other inaccuracies.

Since SARs are instrumental in helping law enforcement officials, regulatory bodies and intelligence agencies identify patterns of suspicious activity, accurate and detailed information is essential. Inaccurate information can lead to pointless investigations into legal activities and transactions; conversely, it can also prevent law enforcement agencies from acting on actual criminal behavior. In either case, reporting errors waste time, resources and manpower, and may lead to sanctions against reporting institutions.

Recently, FinCEN issued a "Top Ten" list of the most common errors made in SARs filings. The agency identified the following three areas of particular concern: SAR narratives, critical-value fields, and identification of the type, category and character of the suspicious activity.

SAR Narratives

An effective SAR will provide a complete picture of the suspicious activities being reported. To accomplish this, each type of SAR form includes a section in which the reporting party can provide a written description of the questionable activities and the individuals or businesses involved. In the form for depository institutions, this is Part V, "Suspicious Activity Information Explanation/Description." In the forms used by other financial services businesses, this is Part VI, "Suspicious Activity Information – Narrative."

The following are common errors relating to the SAR narrative field:

Error #1 – Empty Narrative Field. Occasionally, a reporting party may fail to include any description of the suspicious activity. While the person completing the SAR may believe that the data included in the more "informational" sections of the form is sufficient for law enforcement and agency review, this is simply not the case. The narrative description of the activity not only explains why the activity is questionable, it also helps law enforcement and other officials understand what has happened in the context of the products and services provided by peer institutions and the typical activities of similar customers.
Error #2 – Over-Reliance on Supporting Documents. Any documentation supporting a SAR must be maintained by filers for five years and be made available to authorized investigating parties on request. Filers may depend on this supporting documentation to provide background information on a suspicious activity rather than providing a complete description in the narrative field of the SAR form. However, supporting documents cannot be uploaded into FinCEN's database; therefore, any important information should be included in the written narrative.
Error #3 – Inadequate Narratives. Any narrative that does not accurately and completely explain the nature and circumstances of the suspicious activity can be considered an inadequate narrative. When a narrative is inaccurate or incomplete, FinCEN staff cannot accurately determine the nature and circumstances of the reported suspicious activity.
Responses in Critical-Value Fields

Fields of critical value are marked by an asterisk (*) in most SAR forms. Responses in these fields are examined to track specific types of activities and to allow for follow-up on any leads generated by the SAR. Several common errors occur when completing these fields, including:

Error #4 – Inaccurate Special Responses. In the instructions that accompany the SAR forms, filers are reminded that, in the case of missing or unavailable information or for items that do not apply, most fields should be left blank. If no subject information is available at all, filers can also indicate that the fields have been purposely left blank by checking a box at the top of the form that says "subject information unavailable." In no case should terms such as "N/A" or "Same as above" be used; these are taken as real data and distort SAR statistics.
Error #5 – Missing or Incomplete Filer Employer Identification Number (EIN). EINs permit regulators and law enforcement to follow transactions through entities that report them. EIN entries of "000000000" and "999999999" are examples of invalid entries. Incomplete EINs have fewer than nine digits.
Error #6 – Missing Filer Telephone Number. SAR information users must be able to contact the SAR filer in order to pursue leads relating to criminal activity. The telephone numbers of the SAR filer, including the specific transaction location, must be included in any SAR filing.
Error #7 – Invalid Subject Social Security Number (SSN). SAR forms and manuals provide specific instructions regarding acceptable entries when the required identification number is unknown. As with inaccurate EIN numbers, SSN entries of "000000000" and "999999999" are invalid and of no value to those who utilize SAR information.

Note: Hyphens should not be included in critical fields, as they may result in accurate or incomplete information. For example, when a hyphen is used in the EIN field, it will cause the last digit of the EIN to disappear.

Error #8 – Incomplete Subject Information and Government-Issued Identification. The method used to identify the subject should be as complete as possible. A driver's license or passport can provide law enforcement with the information necessary to identify a subject and his or her location. If a government-issued identification card or document was used during the transaction, then both the number and issuer should be provided.
Suspicious Activity Information

Inaccurate or incomplete information regarding the type, category or character of the suspicious activity can also prevent or hinder a proper law-enforcement response. The following are common data errors found in SAR fields that identify the nature of the suspicious activity:

Error #9 - Missing Category, Type or Characterization of Suspicious Activity. Law-enforcement officials, regulatory agencies and other information users must understand why the suspicious activity is being reported and how the activity may relate to ongoing investigations. As such, the fields identifying the category, type, or characterization of the activity should never be blank. If none of the available options appear to apply to the particular activity, then check "other" and give a brief and informative description. Institutions should never create their own responses or use the above-mentioned "N/A" or "Same as above."
Error #10 – Incorrect Characterization of Suspicious Activity. The characterization of the suspicious activity should correspond to the information provided in the narrative description; together, they can provide a clear picture of why and how suspicions have been raised. If, for example, a SAR filer reports that a customer could be "structuring" transactions due frequent purchases of monetary instruments below the $3,000 recordkeeping threshold, information in the narrative should refer to these previous transactions.
Accurate Filings Improve Law-Enforcement Efficiency

SARs are an important tool in combating financial crimes. When completed correctly, the reports provide users with incident-specific information that may be used to detect and apprehend suspected criminals and terrorists. Collected and analyzed in centralized databases, this information also enables the identification of broader criminal trends and activities. Accurate and complete SAR filings also help financial institutions mitigate their risk by strengthening their anti-money laundering programs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.