WASHINGTON -- The number of suspicious activity reports filed by credit unions is growing exponentially since greater regulatory scrutiny had been applied over the last couple of years.

In 2004, credit unions had filed 12,254 SARs and more than doubled that number the following year at 25,875, according to the Financial Crimes Enforcement Network's The SAR Activity Review--By the Numbers released late last month. Credit unions had already filed 19,725 in the first half of the year.

"You've got a closer review of BSA and suspicious activity in general. Examiners are applying more scrutiny," CUNA Federal Compliance Counsel Nicole Seabron said, prompting credit unions to work even harder at reporting.

"Credit unions have been pouring their time, effort and money into reporting suspicious activity," NAFCU Director of Compliance Anthony Demangone said. Since the regulatory tightening, he added, credit unions are also "doing a better job of shaking the tree." Part of what is helping them do a better job is automation, which can catch more patterns than humans.

"Some of it is probably going to be defensive filing," Seabron said. She explained that some credit unions are not looking deep enough into what is "unusual" versus what is actually "suspicious."

However, Demangone noted that FinCEN has "changed their tune" about defensive filing, an issue raised under the administration of former Director William Fox. Under current and outgoing Director Robert Werner, FinCEN has noted large numbers of SARs correlating with money laundering and organized crime cases that are under investigation. Werner will leave the agency at the end of the year for a post with Merrill Lynch and a successor has not been named.

Demangone also noted that adhering to the thresholds for different circumstances provided right on the form could cut filings back. All insider abuse must be reported, but when the institution can identify who is committing the suspect activity, it does not need to be reported unless it exceeds $5,000 in aggregate. The threshold is $25,000 if the person cannot be identified. Also, transactions over $5,000 in aggregate need to be reported when the institution suspects the funds were obtained through illegal activities; the transaction was designed to evade Bank Secrecy Act regulations; or where the institution knows of no reasonable explanation for the transaction.

The "narrative" portion has been a difficult portion in the past for all filing financial institutions as far as including the pertinent information. But, Seabron said, "There has been a lot of training on the narratives." CUNA has been stressing the five W's and is seeing a better understanding of the requirements in seminars.

CUNA does not have an average length of time that a SAR can take to complete, but it can take anywhere from 10-15 minutes to several hours, Seabron said, depending upon the specific facts of the case.

Both lawyers highlighted that the Treasury Department has noted publicly that more needs to be done to show the financial institutions what all this reporting is yielding and how effective it is. "We don't have any idea as a whole as to the effectiveness of these reports...They're going to have to look at the facts of how many of these are coming through and how many actually have useful information," Seabron said.

Of the 3.6 million SARs filed between April 1996 and June 2006, 2.5 million came from financial institutions, FinCEN's report said. Filings on customers made up the largest category for "relationship with the financial institution", accounting for 373,439 filings last year and 199,096 for the first half of this year. BSA/structuring/money laundering accounted for nearly half (48.64%) of filings by financial institutions. --scooke@cutimes.com

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Credit Unions Increase SAR Filings by Leaps and Bounds

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