Credit unions lag other financials in full completion of important SAR section

WASHINGTON-According to the most recent Financial Crimes Enforcement Network (FinCEN) Suspicious Activity Reporting Activity Review-Trends, Tips, and Issues, credit unions lag behind the other federal financial institutions in completion of the narrative section of the form. The review found that only 76.33% of suspicious activity reports (SARs) filed by credit unions completed the narrative portion of the report. Institutions regulated by the Federal Reserve Board completed the section 97.6% of the time; by the Federal Deposit Insurance Corporation 94.69% of the time; by the Office of the Comptroller of the Currency 98.23% of the time; by the Office of Thrift Supervision 99.05% of the time; and by other, non-bank institutions 93.08% of the time. "That's a fairly significant difference in terms of completion of the narrative and we'd have to look at the NCUA and see what kind of guidelines they are putting out," Assistant Director of FinCEN David M. Vogt commented, "but that's obviously an area of some concern because of the importance of that particular section of the SAR." FinCEN provides materials to the regulators to help with training, but as far as actual training "that's really the proper function of the particular regulator," Vogt explained. "Actually, the narrative is one of the most important parts of the SAR because it gives the person who is seeing the activity for the first time, whether it's a teller or somebody who's in the back room, an opportunity to explain in their own words why they think the activity is suspicious," Vogt said. "That is a tremendous help, particularly to law enforcement, as they try to make sense out of the SARs and try to figure out how to better use the SARs. It's the idea that somebody who is actually observing the activity is able in free form. "The other thing about the narrative, which is important, is that's where we can really start to see trends and patterns of activity." For example, Vogt said it allows FinCEN to monitor activities around the nation and check for similarities. NCUA Director of Public and Congressional Affairs Bob Loftus refuted this statement saying that the agency has no official obligation to instruct or conduct classes on filling out the SAR form, though examiners should provide help when necessary. According to NCUA attorneys, he said the form comes with pretty straight forward instructions. NCUA has published a regulation that credit unions must fill out the form properly, according to an NCUA attorney, and guidelines which explain the "critical" role the narrative plays. The SAR forms are not typically reviewed by NCUA, but if an examiner happens to see an incomplete SAR, or no SAR filed when there should be, the examiner should instruct the credit union to correct the situation. The attorney, who did not want to be quoted, said that this appears to be an issue to be examined. "The assistant director at FinCEN is trying to pass the buck, and he doesn't know what he's talking about," Loftus said when it was suggested that NCUA should provide guidance on the forms. Not only should the narrative section of the SAR form be filled out, but it should be detailed. "The more information they get in there the better. It really gives us a leg up in understanding why that activity was viewed as suspicious and that really is an incredible advantage from both an analytic stand point and then from the ultimate users of this material, which is law enforcement themselves," Vogt explained. The more complete the report, the less time law enforcement officials have to spend interviewing the institution's employees. FinCEN receives reports anywhere from one line to several pages long, Vogt reported. "The SAR system itself is an outgrowth of the United States obligations as part of the larger international community to comply with a certain standard set of criteria for combating money laundering," he said. Under the previous system, the "criminal referral reporting" system implemented in 1984, the filer simply checked a box if an activity appeared to be suspicious. "That particular system didn't tell you a whole lot," Vogt said. The SAR system was implemented in April 1996. Since then FinCEN has received an increasing number of reports each year for every type of financial institution and others, such as casinos. In 1999, FinCEN received 120,506 filings (12,316 from credit unions) and this year Vogt expects to receive 140,000 to 150,000 forms. As of August 31, 2000, they had received 101,895 filings, 9,798 from credit unions. "It's taken a couple years for the whole SAR process to sink down through the financial community," Vogt said. "I think, well we hope anyway, that we've got pretty universal understanding of the SAR requirements and I think there has been some feedback from law enforcement that has suggested that this is a good process and more banks should become engaged in it. Just in general, I think, across the board it's better compliance. "Of course, it could be reflective of more crime, but I don't know how we could measure that at this point." FinCEN's recommendations for filing a SAR form include: * A detailed description of the suspicious activity to the "maximum extent possible." * Never attach supporting documents to the SAR. Keep them at the institution for a minimum of five years. * Use a standard name format for the institution and always include the organization name, employer identification number, and a complete address. * Always identify the institution's primary regulator. * Use whole dollar amounts for total dollar amount involved. Report the transaction using U.S. dollars but indicate the type of currency and conversion rate used. * SARs should be filed with the Internal Revenue Service's Detroit Computing Center. SARs should be filed within 30 days of the detected suspicious activity or within 60 days if no suspect has been identified. Continuing suspicious activity should be reported every 90 days. Filing of a SAR in itself should not be the basis for terminating a customer relationship. Many suspicious activities involve wire transfer patterns through "shell companies," which appear to serve no purpose other than to transfer funds or securities. More than $500 million in suspicious wire transfers have been indicated since reporting began. Other notable trends include money laundering from Russia since the 1990 fall of communism (as demonstrated last year at the Bank of New York); increasing SAR reporting at institutions along the Texas-Mexican border; increased casino accounts with little gaming and quick withdrawals of large sums; and increased automated teller machine suspicious activity. In July of this year, FinCEN issued a list of nations particularly vulnerable to money laundering because of their lax regulation. These nations include: Bahamas, Cayman Islands, Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, Marshall Islands, Nauru, Niue, Panama, Philippines, Russian Federation, St. Kitts & Nevis, and St. Vincent and the Grenadines. -scooke@cutimes.com