This month, FinCEN released its second edition of the publication SAR Stats. SAR Stats is FinCEN’s annual review of aggregated Suspicious Activity Report (SAR) filing activity. In this edition, FinCEN examined the data from over three million unique FinCEN BSARs (Form 111) filed between March 1, 2012 and December 31, 2014. In addition to the release of SAR Stats, FinCEN also released Interactive SAR Stats, which is an application on the FinCEN website whereby users can search BSA data by sector or type, with data that is updated by month.
The second edition of SAR Stats not only includes a review of the filings by sector and geography, but also includes a narrative spotlight on crowdfunding, which is generally thought of as the use of small amounts of capital from a large number of individuals to finance a new business. Additionally, this edition highlights depository institution filings related to “Call Outs” of suspicious activity and provides analysis of trends in BSA filings and data received by FinCEN. Such trends mentioned in this edition, among others, include: prepaid fraud; e-mail fraud; adverse media; false statement; funnel account activity; flipping; and excessive activity.
With respect to FinCEN’s analysis of crowdfunding in relation to the SAR filings review, FinCEN indicates that while the mentions of crowdfunding associated with possible illicit activity are not significant, the trend is increasing. For example, the FinCEN figures demonstrate a 171% increase in mentions of crowdfunding in SAR filings between 2013 and 2015, many with a focus on rewards-based crowdfunding. FinCEN defines rewards-based crowdfunding as “a funds pooling method that relies heavily on internet campaigns to solicit contributions or ‘donations’ from a large number of individuals, most of whom are previously unknown to the campaign creator, to raise money for a specific business venture, personal cause, or project.” Kickstarter is an example of such a platform. The reporting indicates that SARs filings have identified illicit use of rewards-based crowdfunding for money laundering, fraud schemes, possible terrorist financing and other criminal activities.
FinCEN also reviewed the Depository Institution sectors use of the filings, and specifically the free text fields of such filings, to “call out” suspicious activity that could not be adequately categorized in a check box available on the filing form itself. In the second edition of SAR Stats, FinCEN reviewed the most common types of suspicious activity called out by depository institutions in calendar year 2014. Some of the most prevalent categories FinCEN found were: social security number fraud; income fraud; tax fraud; ID fraud/theft; origination fraud; scams or schemes; and cyber-related issues.
- As specialty finance, such as crowdfunding, grows and becomes more sophisticated, make sure your BSA compliance team is aware of the kinds of companies, and websites especially, that may be engaging in this business with your customers. Many of the SARs filed in this area relate to fraudulent payments to these companies from stolen credit cards and from personal bank accounts funded by multiple individuals.
- When completing the free text fields in BSA filings, avoid repetition with the check boxes already on the form and provide as much detail about the activity causing the filing to enable SAR users like FinCEN and law enforcement to identify and act upon such reports.
Locke Lord has a dedicated team of financial services regulatory, compliance and litigation attorneys with significant experience handling various aspects of banking and consumer finance. Locke Lord attorneys regularly advise financial institutions on regulatory compliance matters, BSA/AML compliance, new product development and represent clients in regulatory enforcement matters, class actions and various lawsuits in the U.S. and abroad. Visit Locke Lord’s Financial Services Regulatory Practice website or contact the author with questions.