SAR and Reporting Thresholds

Issue/Inquiry

What are the SAR reporting thresholds for fraudulent transactions?

Response Summary

The SAR reporting thresholds do not specify fraudulent transactions, but concern criminal violations or activities involving money laundering or other illegal activity, activity that is intended to evade BSA requirements, or activity that has no apparent legal purpose. The amount of the threshold is determined based upon whether the person suspected is an insider or can be identified.

Response Detail

The Bank must file a Suspicious Activity Report (“SAR”) with the Financial Crimes Enforcement Network (“FinCEN”) under the following circumstances:

1. Criminal violations involving insider abuse in any amount
2. Criminal violations aggregating $5,000 or more when a suspect can be identified
3. Criminal violations aggregating $25,000 or more regardless of whether a potential suspect can be identified
4. Transactions conducted or attempted by, at, or through a bank (or an affiliate) and aggregating $5,000 or more, if the bank or affiliate knows, suspects, or has reason to suspect that the transaction:
   • Involves funds derived from illegal activity, or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation (e.g., money laundering, terrorism financing)
   • Is designed to evade the BSA or its implementing regulations, as through structuring or other means (refer to Appendix G [“Structuring”] for additional guidance)
   • Has no business or apparent lawful purpose, or is not the type of transaction that the particular customer would normally be expected to engage in, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction. 12 CFR §353.3(a).

These thresholds do not specify fraud, but concern whether the activity in question is a criminal violation or other illegal activity, whether the activity involves potential money laundering or is intended to avoid BSA requirements, or whether there is no apparent lawful purpose for the activity. In addition, the amount of the thresholds is affected by whether the person suspected is an insider or can be identified.

In filing an SAR, a bank is provided with a safe harbor under the provisions of 31 U.S.C. 5318(g), which exempts any bank that makes a disclosure of any possible violation of law or regulation from liability under any law or regulation of the United States, or any constitution, law, or regulation of any state or political subdivision, and covers all reports of suspected or known criminal violations and suspicious activities to law enforcement as well as financial institution supervisory activities.

It is unlikely that a bank would face liabilities due to a customer’s actions, unless the institution had actual knowledge that such actions were criminal in nature and withheld that information from the appropriate authorities, was grossly negligent in recognizing the true nature of the customer’s actions, or was colluding with the customer in those activities. Otherwise, the bank would be subject to vicarious liability only if the customer was, in effect, the bank’s agent, such that the bank had the right to control the customer’s actions.

Nevertheless, the Bank should be aware of the risk to its reputation posed by a customer conducting criminal activities and using its relationship with the Bank to further those activities. If its suspicions are such that this is a real possibility, the Bank should consider bringing the relationship with this customer to an orderly conclusion.

In addition, the Bank would be well advised to consult with outside counsel as to its risks and liabilities in a relationship.

This entry was posted on Tuesday, September 4th, 2018 at 6:00 am.