As authorized by Annunzio-Wylie, FinCEN  issued a regulation in 1996 requiring banks and other depository  institutions to report, using a SAR form, certain suspicious transactions  involving possible violations of law or regulation, including money  laundering. After identification of unusual  activity, depository institution staff conduct additional research to  determine whether to file a SAR. Representatives  also cited an increased awareness of the risks of terrorist financing and  other financial crimes after September 11 and improved knowledge of BSA  requirements and issues resulting from regulator and institution guidance  and training. Multiple Factors Contributed to the Increases in Depository Institutions’ SAR Filings from 2000 through 2007

Representatives from depository institutions, federal banking regulators,  and law enforcement agencies identified a number of factors that, in their  view, collectively contributed to the increases in SAR filings by depository  institutions from 2000 through 2007. FinCEN and Law Enforcement Agencies Took Multiple Actions to Improve SAR Filings and Educate Filers about Their Usefulness in Investigations

FinCEN and law enforcement agencies have taken several steps to  improve SAR filings and educate filers about their usefulness in  investigations. Additionally, FinCEN representatives regularly participated  in conferences and outreach events for BSA/AML issues, including events  focused on SARs. Law Enforcement Agencies Conduct Outreach Efforts and Build Relationships to Improve the Quality of SAR Narratives and Communication with Institutions

Representatives from federal law enforcement agencies we interviewed  said that they conducted outreach events and developed relationships with  local depository institutions to improve SAR narratives and alert the  institutions to criminal activity the agencies are targeting in investigations. 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 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 a  number of 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 agencies, separately and in collaboration with other agencies,  have taken actions to more effectively analyze SAR data, particularly by  better integrating BSA data with other law enforcement data. Although they generally  supported a key proposed revision, some law enforcement agency  representatives we interviewed believed certain proposed revisions could  be detrimental to their investigations. FinCEN Has Developed a New Process for Revising Forms, but Details about the Process Are Limited and Do Not Include Some Important Collaborative Practices and Mechanisms

FinCEN has developed a new process it intends to use in the future when  revising SAR and other forms; however, documentation on the process  does not include some collaborative practices. If FinCEN continues to use the process as it is currently outlined, it may  not achieve some potential benefits that could come from closer  adherence to practices that can help enhance and sustain collaboration,  such as greater consensus from all stakeholders on proposed SAR form  revisions, and fuller documentation of the process. SARs are a key information  source for federal, state, and local law enforcement agencies, as well as  the federal regulators. Appendix I: Objectives, Scope, and Methodology

This report examines (1) the underlying factors that affected the number  of suspicious activity reports (SAR) filed by depository institutions from  2000 through 2007, (2) actions that federal agencies have taken to improve  the usefulness of SARs for law enforcement, (3) ways in which federal  agencies use SARs and actions they have taken to make better use of  them, and (4) whether the process the Financial Crimes Enforcement  Network (FinCEN) uses to revise SAR forms is effective in assuring that  the information collected is appropriate for law enforcement needs.
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. GAO was asked to examine (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. GAO reviewed laws and agency documents; analyzed SAR filings; and interviewed representatives from the Financial Crimes Enforcement Network (FinCEN), law enforcement agencies, bank regulators, and depository institutions.

What GAO Found

In 2000 through 2007, SAR filings by depository institutions increased from about 163,000 to 649,000 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, 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 still cannot 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. However, the limited documentation on the process does not provide details to determine the degree to which the new process will incorporate GAOidentified best practices for enhancing and sustaining federal agency collaboration. For example, it does not specify roles and responsibilities for stakeholders or depict monitoring, evaluating, and reporting mechanisms. By incorporating some of these key collaboration practices and more fully developing and documenting its new process for form revisions, FinCEN could achieve some potential benefits that could come from closer adherence to the practices--such as greater consensus from all stakeholders on proposed SAR form revisions.