These activities include (1) ensuring  compliance with BSA requirements to report suspicious activity, (2)  collecting and storing reported information, and (3) taking enforcement  actions or conducting investigations of criminal financial activity. In 1996, FinCEN required banks and other  depository institutions to report, on a SAR form, certain suspicious  transactions involving possible violations of law or regulation, including  money laundering. Law enforcement agencies housed in DOJ and the Department of  Homeland Security use SARs for investigations of money laundering,  terrorist financing, and other financial crimes. Federal and multiagency law enforcement teams, which may  include state and local law enforcement representatives, also use SAR data  to provide additional information about subjects during ongoing  investigations. Multiple Factors Contributed to Increases in Depository Institutions’ SAR Filings

From 2000 through 2007, depository institutions filed an increasing  number of SARs each year and representatives from federal regulators,  law enforcement, and depository institutions with whom we spoke  attributed the increase to a number of factors. According to FinCEN data,  SAR filings by depository institutions increased from approximately  163,000 in 2000 to more than 732,000 in 2008. Representatives of federal banking regulators, law enforcement agencies,  and depository institutions most frequently attributed the increase to two  factors: technological advances and the effect of public enforcement  actions on institutions. According to the representatives, automated  transaction monitoring systems can flag multiple indicators of suspicious  activity and identify much more unusual activity than could be identified  manually. The representatives suggested additional factors as contributing to  the increase, including greater awareness of BSA requirements after  September 11, 2001, more regulator guidance for BSA examinations, and  more BSA-related training at the institutions. FinCEN and Law Enforcement Agencies Have Acted to Educate Filers about The Usefulness of SARs and Improve the Quality of Their Filings

FinCEN and law enforcement agencies have taken multiple actions to  educate filers about SARs usefulness and improve the quality of SAR  filings. Since 2000, FinCEN has issued written products with the purpose  of educating filers and making filings more useful to law enforcement. FinCEN  representatives regularly participate in outreach events on BSA and anti- money laundering issues, including events on SARs. Federal law enforcement agency representatives said  they improved SARs’ usefulness by conducting outreach events and  establishing relationships with depository institutions in their local areas  to communicate with staff about crafting useful SAR narratives. Federal Agencies Use SARs in a Variety of Ways and Have Taken a Number of Actions in Recent Years to Make Better Use of Them

FinCEN, law enforcement agencies, and banking regulators use SARs in  investigations and depository institution examinations and took steps in  recent years to make better use of them. FinCEN uses SARs to provide a  number of public and nonpublic analytical products to law enforcement  agencies and depository institution regulators. FinCEN’s Initial Steps in New Form Revision Process Did Not Include Some Important Collaborative Practices and Mechanisms

We reported in 2009 that FinCEN encountered a number of problems in its  2006 revision of the SAR form and in 2008, developed a new process for  form revisions. In 2008, FinCEN developed a new process that it planned to use in future  revisions of BSA forms, including SARs. Early documentation for the  process suggested some greater stakeholder involvement at early stages,  but subsequent documentation we reviewed did not indicate that FinCEN  fully incorporated certain GAO-identified practices that can enhance and  sustain collaboration among federal agencies. We recommended that the Secretary of the Treasury direct the Director of  FinCEN to further develop and document its strategy to fully incorporate  certain of these practices into the revision process and distribute that  documentation to all stakeholders. For example, in addition to collaboration  with IRS information technology staff we previously identified, current  documentation indicates that FinCEN has collaborated in more detail with  federal law enforcement agency representatives, federal financial  regulators, representatives from SAR review teams and other multiagency  law enforcement teams, and prosecutors to determine the content of a  revised SAR form. However, because FinCEN has  not yet completed implementation of its form revision process, it is too  soon to determine the effectiveness of the process.
Why GAO Did This Study

To assist law enforcement agencies in their efforts to combat money laundering, terrorist financing, and other financial crimes, the Bank Secrecy Act (BSA) requires financial institutions to file suspicious activity reports (SAR) to inform the federal government of transactions related to possible violations of law or regulation. Depository institutions have been concerned about the resources required to file SARs and the extent to which SARs are used. The Subcommittee asked GAO to discuss our February 2009 report on suspicious activity reporting. Specifically, this testimony discusses (1) factors affecting the number of SARs filed, (2) actions agencies have taken to improve the usefulness of SARs, (3) federal agencies' use of SARs, and (4) the effectiveness of the process used to revise SAR forms. To respond to the request, GAO relied primarily on the February 2009 report titled Bank Secrecy Act: Suspicious Activity Report Use Is Increasing, but FinCEN Needs to Further Develop and Document Its Form Revision Process (GAO-09-226), and updated it with additional information provided by FinCEN. In that report, GAO recommended that FinCEN work to further develop a strategy that fully incorporates certain GAO-identified practices to enhance and sustain collaboration among federal agencies into the forms-change process.

What GAO Found

In 2000 through 2008, total SAR filings by depository institutions increased from about 163,000 to 732,000 per year; representatives from federal regulators, law enforcement, and depository institutions with whom GAO spoke attributed the increase mainly to two factors. First, automated monitoring systems can flag multiple indicators of suspicious activities and identify significantly more unusual activity than manual monitoring. Second, several public enforcement actions against a few depository institutions prompted other institutions to look more closely at client and account activities. Other factors include institutions' greater awareness of and training on BSA requirements after September 11, 2001 and more regulator guidance for BSA examinations. FinCEN and law enforcement agencies have taken actions to improve the quality of SAR filings and educate filers about their usefulness. Since 2000, FinCEN has issued written products with the purpose of making SAR filings more useful to law enforcement. FinCEN and federal law enforcement agency representatives regularly participate in outreach on BSA/anti-money laundering, including events focused on SARs. Law enforcement agency representatives said they also establish relationships with depository institutions to communicate with staff about crafting useful SAR narratives. FinCEN, law enforcement agencies, and financial regulators use SARs in investigations and financial institution examinations and have taken steps in recent years to make better use of them. FinCEN uses SARs to provide public and nonpublic analytical products to law enforcement agencies and depository institution regulators. Some federal law enforcement agencies have facilitated complex analyses by using SAR data with their own data sets. Federal, state, and local law enforcement agencies collaborate to review and start investigations based on SARs filed in their areas. Regulators use SARs in their examination process to assess compliance and take action against abuse by depository institution insiders. After revising a SAR form in 2006 that could not be used because of information technology limitations, in 2008, FinCEN developed a new process for revising BSA forms, including SARs, that may increase collaboration with some stakeholders, including some law enforcement groups concerned that certain of the 2006 revisions could be detrimental to investigations. Available documentation on the process did not detail the degree to which the new process would incorporate GAO-identified best practices for enhancing and sustaining federal agency collaboration. For example, it did not specify roles and responsibilities for stakeholders or depict monitoring, evaluating, and reporting mechanisms. According to FinCEN officials, it is taking some additional steps toward obtaining greater collaboration with law enforcement agency representatives, prosecutors, and multi-agency law enforcement teams and others to determine the contents of the form, but it is too soon to determine the effectiveness of the process.