US Congress demands answers on SARs

Defensive filers and FinCEN in GAO probe

US Congressmen have asked the Government Accountability Office (GAO) to investigate the mission and operational capacity of the Financial Crimes Enforcement Network (FinCEN), and the increasing volume of Suspicious Activity Reports (SAR) that the agency is receiving.

In a letter to David Walker, Comptroller General of the United States, the heads of the House Committee on Financial Services expressed concern over “the mission and operational capacity of FinCEN”, in light of a hearing in May by the Subcommittee on Oversight and Investigations that “raised questions about the efficiency and effectiveness of Bank Secrecy Act (BSA) administration and enforcement”.

The letter, co-signed by House of Representatives members Barney Frank and Spencer Bachus, also expressed concerns over the number of SARs filed and specifically that at the May hearing, “a number of banking industry witnesses commented that they lacked clear guidance on what law enforcement is looking for and finds useful in these reports.”

Witnesses also “noted that the industry engages in ‘defensive’ SAR filings or errs on the side of filing a SAR even if there is doubt about its usefulness, in order to avoid the possibility of being penalised by federal financial institution regulators”.

The letter goes on to lay out a number of specific questions the House Committee wants answered, to ascertain the severity of the situation and FinCEN’s capability to respond.

Defensive SAR filing is a serious problem. In 2006 alone, more than a million SARs were filed with FinCEN, in addition to 15 million currency transaction reports received over the same period. The overwhelming number of reports flooding the agency has raised serious and legitimate concerns over whether FinCEN is equipped to deal with the workload, and how to cut down on unnecessary filing.

The letter coincides with the release of a statement from the US financial regulators setting forth their policy for enforcing specific anti-money laundering requirements of the BSA, and clarifying their intent to hand cease-and-desist orders to institutions that fail to comply with money laundering rules.

The investigative process, both in Congress and at the GAO, will be conducted through in a series of reports, briefings or testimonies over the next two years.