When a financial institution identifies possible criminal activity, it is mandatory to submit a suspicious activity report (SAR) to Financial Crimes Enforcement Network (FinCEN). Monitoring such cases is crucial in combating fraud; however, preparing and filing SARs can be time-intensive.

To assist with this challenge, DataVisor has introduced a reporting solution that leverages artificial intelligence to help draft SAR narratives, fill out report fields, and submit reports electronically. Integrated within an anti-money laundering platform, the tool aims to provide organizations with more efficient methods for tracking and reporting fraud.

There is a growing demand for a more streamlined SAR process. According to FinCEN, financial institutions submitted approximately 4.6 million SARs last year. Each requires detailed information and supporting documentation, and DataVisor reports that preparing a single SAR can take an average of 21 hours.

Impacts on Financial Institutions

Due to the recent increase in fraud, the SAR process continues to impose significant demands on financial institutions, which already grapple with substantial compliance requirements.

According to FinCEN, trends in SAR filings reflect the broader landscape of fraud. Check fraud remains a prevalent issue as more criminal networks target mail services. Additionally, there has been an increase in SARs related to elder fraud, as older adults have become frequent targets of impersonation scams.

The rise of the digital economy has also contributed to new forms of fraud, including significant increases in identity theft, account takeovers, and ACH fraud arising from e-commerce and online financial services.

Strategic Considerations

The prevalence of fraud means that the SAR filing process will continue to be burdensome for banks. Moreover, since SARs are not only filed when fraud is confirmed but also when there is suspicion of illicit activity, this trend is likely to persist.

Another factor driving the increase in SAR filings is a defensive strategy adopted by many financial institutions. FinCEN has observed a trend where organizations file SARs even if there is a minimal chance of fraud occurring, to ensure they are covered. While this approach may require more work for these institutions, it seems likely to continue.

Although filing too many SARs does not typically result in fines, errors or lapses in reporting can be costly. For instance, U.S. Bancorp Investments was fined $500,000 and censured because it failed to file 42 SARs over a three-year period due to misjudged transaction thresholds for reporting.