Suspicious Activity Reporting

Presentation Transcript

Reporting Risks and Creating Effective Reports

Kevin Whelan

Resident Advisor, EAG

Office of Technical Assistance

US Department of Treasury

KWhelan@otatreas.us

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

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

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

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

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.)

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

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.)

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)

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 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.