Bank Secrecy Act:
Suspicious Activity Report Use Is Increasing, but FinCEN Needs to Further Develop and Document Its Form Revision Process
GAO-09-226: Published: Feb 27, 2009. Publicly Released: Mar 30, 2009.
To assist law enforcement agencies in their efforts to combat money laundering, terrorist financing, and other financial crimes, the Bank Secrecy Act (BSA) requires financial institutions to file suspicious activity reports (SAR) to inform the federal government of transactions related to possible violations of law or regulation. Depository institutions have been concerned about the resources required to file SARs and the extent to which SARs are used. GAO was asked to examine (1) factors affecting the number of SARs filed, (2) actions agencies have taken to improve the usefulness of SARs, (3) federal agencies' use of SARs, and (4) the effectiveness of the process used to revise SAR forms. GAO reviewed laws and agency documents; analyzed SAR filings; and interviewed representatives from the Financial Crimes Enforcement Network (FinCEN), law enforcement agencies, bank regulators, and depository institutions.
In 2000 through 2007, SAR filings by depository institutions increased from about 163,000 to 649,000 per year; representatives from federal regulators, law enforcement, and depository institutions with whom GAO spoke attributed the increase mainly to two factors. First, automated monitoring systems can flag multiple indicators of suspicious activities and identify significantly more unusual activity than manual monitoring. Second, several public enforcement actions against a few depository institutions prompted other institutions to look more closely at client and account activities. Other factors include institutions' greater awareness of and training on BSA requirements after September 11, and more regulator guidance for BSA examinations. FinCEN and law enforcement agencies have taken actions to improve the quality of SAR filings and educate filers about their usefulness. Since 2000, FinCEN has issued written products with the purpose of making SAR filings more useful to law enforcement. FinCEN and federal law enforcement agency representatives regularly participate in outreach on BSA/anti-money laundering, including events focused on SARs. Law enforcement agency representatives said they also establish relationships with depository institutions to communicate with staff about crafting useful SAR narratives. FinCEN, law enforcement agencies, and financial regulators use SARs in investigations and financial institution examinations and have taken steps in recent years to make better use of them. FinCEN uses SARs to provide public and nonpublic analytical products to law enforcement agencies and depository institution regulators. Some federal law enforcement agencies have facilitated complex analyses by using SAR data with their own data sets. Federal, state, and local law enforcement agencies collaborate to review and start investigations based on SARs filed in their areas. Regulators use SARs in their examination process to assess compliance and take action against abuse by depository institution insiders. After revising a SAR form in 2006 that still cannot be used because of information technology limitations, in 2008, FinCEN developed a new process for revising BSA forms, including SARs, that may increase collaboration with some stakeholders, including some law enforcement groups concerned that certain of the 2006 revisions could be detrimental to investigations. However, the limited documentation on the process does not provide details to determine the degree to which the new process will incorporate GAOidentified best practices for enhancing and sustaining federal agency collaboration. For example, it does not specify roles and responsibilities for stakeholders or depict monitoring, evaluating, and reporting mechanisms. By incorporating some of these key collaboration practices and more fully developing and documenting its new process for form revisions, FinCEN could achieve some potential benefits that could come from closer adherence to the practices--such as greater consensus from all stakeholders on proposed SAR form revisions.
Recommendation for Executive Action
Status: Closed - Implemented
Comments: In 2009, FinCEN incorporated the process through which it manages suspicious activity reports (SAR) and other Bank Secrecy Act (BSA) forms, into the charter and operations of its Data Management Council (DMC). The DMC provided a forum for various stakeholders such as law enforcement agencies and the financial regulators to provide input into FinCEN.
Recommendation: To better ensure that future revisions to the SAR form result in changes that can be implemented and balance the differing needs of all stakeholders, the Secretary of the Treasury should direct the Director of FinCEN to further develop and document its strategy to fully incorporate certain GAO-identified practices to help enhance and sustain collaboration among federal agencies into the form change process and distribute that documentation to all stakeholders. Such practices could include defining and articulating the common federal outcome or purpose they are seeking to achieve; defining and agreeing on their respective roles and responsibilities; and having processes to monitor, evaluate, and report on their efforts to enable them to identify areas for improvement.
Agency Affected: Department of the Treasury