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Suspicious Activity Reporting. Reporting Risks and Creating Effective Reports. Kevin Whelan Resident Advisor, EAG Office of Technical Assistance US Department of Treasury Reporting is Potentially Dangerous. For you Criminals are dangerous and unpredictable

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suspicious activity reporting

Suspicious Activity Reporting

Reporting Risks and Creating Effective Reports

Kevin Whelan

Resident Advisor, EAG

Office of Technical Assistance

US Department of Treasury

reporting is potentially dangerous
Reporting is Potentially Dangerous
  • For you
    • Criminals are dangerous and unpredictable
    • Ordinary people can also be harmful and unpredictable
      • They can complain to politicians or employers and can bring civil actions in court
  • For your firm
    • Customers may ‘forum shop’ to find a bank with lax compliance
  • For your industry
    • High and burdensome compliance costs can cause customers to do business elsewhere
    • An abusive or non-functioning compliance system can inconvenience customers and cause them to do business elsewhere
not reporting is also potentially dangerous
Not Reporting is also Potentially Dangerous
  • For You
    • Civil penalties
    • Criminal penalties
  • For Your Firm
    • Exposure to various forms of risks
      • Reputational
      • Regulatory
      • Operational (i.e. Fraud)
      • Concentration
  • For your industry
    • Bad money drives out good
      • Bad money seeks to co-mingle with good money and steal from its reputation
      • Good money seeks to avoid bad money and preserve its reputation
      • Criminals would love to do business with major money center banks since it makes them look more legitimate
  • For your country
    • Limits foreign investment
    • Causes capital flight to safer havens
    • Generally undermines financial system trust and integrity
    • And … most important accommodates or increases general level of criminality and the possibility of being used in terrorist financing
safety in reporting
Safety in Reporting
  • What is safety?
    • It is being assured that your customers will not know that they were the subject of a report from you
      • Even if criminally prosecuted (in most cases)!
    • It is being assured that you will not face legal penalties for submitting reports
  • Why safety?
    • Because without it reporters will feel personal risk
    • Reports won’t be filed if significant risk is felt
    • The system can’t work without reports!!
reporting suspicions is the best option
Reporting Suspicions is the best Option
  • But …
    • The system must be made to work!
    • Reports must be kept confidential
    • Reports must be properly analyzed and referred to law enforcement only when there is a reasonable degree of confidence that a criminal offense has occurred
    • Law enforcement must competently investigate and prosecute the criminal offense
      • Must be able to discern between criminal and legitimate activity
      • Must not abuse their power or the public trust place in them
reporting hazards
Reporting Hazards
  • Defensive Reporting
    • Avoiding regulatory risk by over reporting
      • Unreasonably low threshold for suspicion
      • Failing to attempt to resolve suspicion locally
      • These reports can overwhelm the FIU and law enforcement
        • Need to make sure reports have a high signal/noise ratio
    • Malicious reporting
      • Reporting of non-suspicious activities and behavior to present the appearance of compliance
      • At the same time, failing to report real suspicions either deliberately or through neglect
      • These reports present a ‘red herring’ for FIU staff and cause time to be diverted from productive uses
      • Also a ‘red flag’ for FIU and regulators
reporting hazards cont
Reporting Hazards (cont.)
  • Bad Reporting
    • Failing to provide adequate identifying information
    • Failing to provide a narrative that accurately describes the basis for the suspicion
    • Failing to report in a timely manner
    • Failing to follow up on reports when new information is available
contents of a good report
Contents of a good report
  • Data fields provided as accurately and completely as possible
  • Missing information is not a reason to withhold a report
    • Partial reports are okay
    • Additional information should be reported as it is obtained
  • Narrative is key. Should attempt to answer the basic journalistic questions:
    • Who?
    • What?
    • Where?
    • When?
    • How?
    • Why?
contents of a good report cont
Contents of a good report (cont.)
  • Other details (if known) should include:
    • Type of transaction and stated reason for its performance
    • Date and amount of transaction
    • Identification information for natural person or legal entity or representative performing the transaction
      • Address
      • Taxpayer ID
      • Passport
      • Etc.
    • Identification information for beneficiary of transaction
      • Same as above
      • Also account number and details
    • Information on all other transactions and facts that contribute to the suspicion
eag reporting recommendation used for information sharing among eag fius
EAG Reporting Recommendation(used for information sharing among EAG FIUs)
  • Responsiveness: The [report] shall address the specific nature of the [suspicion] as completely and thoroughly as possible.
  • Accuracy: The [report] shall be accurate in factual matters. In all other matters where expert opinion or subjective estimation is involved, the [report] must assign a degree of confidence to each such opinion or estimation. Where not obvious, fact and opinion shall be clearly demarcated. The [report] shall avoid prejudicial words or words that lack precise definition (e.g. ‘excessive’ or ‘inappropriate’)
eag reporting recommendation used for information sharing among eag fius11
EAG Reporting Recommendation(used for information sharing among EAG FIUs)
  • Clarity: The report shall be written with the audience in mind and shall avoid unnecessary complexity in terms of language or presentation of results. The report shall use the most appropriate techniques to convey information as efficiently and accurately as possible. Such techniques may include, but are not limited to, a combination of narrative, tabular, and graphic forms.
  • Impartiality: The report shall be rigorous and not reflect bias nor any hidden purpose therein
  • Relevance: The report shall include only information necessary to support the conclusions. All other extraneous information shall be avoided, except where required.
  • You know your customers better than anyone. Especially the high risk ones. You know suspicion when you see it. But …
    • You have to actually look for it
    • You have to be willing to see it
    • You have to report it
  • Otherwise the system won’t work