Regulatory Change and the Role of Accountants
Peter Romaniuk, Jeffry Haber, and Gary Murray
2007 - Bank secrecy has functional and virtuous origins. From
the late 18th century, the tradition of Swiss private banking
evolved to facilitate early forms of international trade.
But bank secrecy is no longer venerated. Far from it. Recent
events—the wars on drugs and terrorism, and high-profile
financial scandals—have led to increasing regulation,
as governments at home and abroad seek to suppress money laundering
and terrorist financing. Chief among the tools to deter and
detect these ills is the Suspicious Activity Report (SAR),
introduced by 1996 regulations pursuant to the Annunzio-Wylie
Anti–Money Laundering Act of 1992. SARs describe suspicious
financial transactions that may be relevant to a violation
of the law. In some circumstances, only transactions above
a certain dollar threshold trigger a SAR, but in other situations
(such as insider information), no minimum dollar threshold
Ongoing legislative and
regulatory changes have increased the scope of suspicious
activity reporting significantly. With the passage of the
Patriot Act in 2001 and recent amendments to the Bank Secrecy
Act, SAR requirements have been extended to broker-dealers
(January 2003), insurance companies (May 2006) and, most
recently, mutual funds (October 2006). Although the accounting
profession is not specifically covered, accountants are
bound by SAR requirements in their capacity as employees
of financial institutions (see Exhibit
1). Moreover, accountants may voluntarily file SARs
and may yet be bound by international mandatory reporting
requirements (as they are in the United Kingdom). Prudence
demands that accountants become familiar with SAR requirements
and, more broadly, the anti–money laundering and counter–terrorist
financing (AML/CTF) strategies used by the federal government.
Are SARs Useful to Law Enforcement?
requirement to file SARs fulfills three basic functions
for law enforcement.
First, SARs are an important source of intelligence about
potential criminal activity, especially in instances where
multiple SARs are filed by different financial institutions.
SARs help identify new methodologies for money laundering.
Both the quantitative data (such as the dollar value of
transactions structured to conceal the movement of illicit
funds) and the qualitative information (the reasons why
the transactions are suspicious) can usefully inform assessments
of future threats from money laundering and terrorist
financing, as well as decisions about when to launch investigations.
SARs provide important input into the government’s
development of AML/CTF strategies.
Second, SARs offer a body of data that can be used for
investigative purposes. SARs identify suspects, their
accounts, their companies, and, in some cases, co-conspirators,
additional witnesses, and supporting documentation. Receiving
such information in “real time” can be particularly
useful when suspects are under investigation. SARs explain
in detail the origin of funds and how funds move into
and out of accounts. This is especially important when
the movements involve foreign jurisdictions that are known
money-laundering concerns, such as those listed among
“Non-Cooperative Countries and Territories”
by the Financial Action Taskforce (FATF), the leading
intergovernmental organization on AML/CTF. Viewing transactions
in chronological order enables law enforcement to trace
a pattern of activity, toward possible prosecution. SARs
can provide key evidence of prior knowledge or prerequisite
intent to violate law (e.g., statements made to bank personnel).
The third function of SARs is deterrence. Of course, SARs
alone may be unlikely to dissuade launderers and terrorists,
but they do constrain their ability to act in the financial
sector. In some cases, this leads criminals to alter their
tactics (e.g., by making multiple smaller transactions);
this, in turn, can yield valuable information for law
enforcement and increase the likelihood of detection.
As money-laundering experts acknowledge, “The ultimate
value of a SAR regime is best illustrated by the lengths
criminals will go to avoid alerting financial institutions
about a suspicious transaction” (Triflin J. Roule
and Jeremy Kinsell, “Legal and Bureaucratic Impediments
to Suspicious Transaction Reporting Regimes,” Journal
of Money Laundering Control, Vol. 6, No. 2, 2002).
What, When, Where, Why, and How Much?
forms and filing instructions can be found on the website
of the U.S. Treasury’s Financial Crimes Enforcement
Network (FinCEN; www.fincen.gov/reg_bsaforms.html).
Many institutions use their own terminology and methodology
in completing SARs. Nonetheless, anyone completing a SAR
should use common terms and language, or explain any distinctive
terms. More-detailed guidance is available from FinCEN (www.fincen.gov/reg_guidance.html),
but one simple approach is to answer six key questions:
Provide a complete pedigree on the subject or business (with
officers) and additional signers. Include names, addresses,
dates of birth, Social Security numbers, phone numbers,
and occupations. Identify additional subjects not named
as the accountholder. No person involved in the transaction
should be notified of the SAR.
What made the transaction suspicious? For example,
was it structured deposits, ATM withdrawals in foreign countries,
or wire transfers?
Notate the date the activity began. Did the activity routinely
occur? Over what period of time?
Indicate the branches and accounts affected. Name any other
financial institutions and account numbers involved. Are
affected accounts open or closed?
Describe any information from the customer’s file
or from due diligence procedures that could be linked to
the suspicious activity.
much? Determine, if possible, the source of
the funds or the disposition of the funds and the dollar
value of the transactions. Be prepared to provide law enforcement
and regulators with supporting documentation. Do not attach
or paste objects onto the SAR form.
Not to Do
guidance includes the following caveat:
[L]ate filings, absence of supplementary SARs, and/or inaccuracies
in SARs have an impact upon law enforcement’s ability
to determine whether a crime was committed or continues
to be committed, and the extent of any possible criminal
activity that has been committed. Therefore, it is imperative
that financial institutions not only file complete and sufficient
SARs but that those SARs are filed within established deadlines
(FinCEN, “Guidance on Preparing a Complete and Sufficient
Suspicious Activity Report Narrative,” November 2003,
are a number of common reasons why a SAR could be deemed
The SAR does not provide the complete identifying information
of the account holder/signer.
The narrative does not indicate whether the deposits or
withdrawals were cash, checks, or wire transfers. If the
deposits were in the form of checks, additional details
regarding the checks would be helpful. If the deposits
were in the form of cash, the SAR should indicate whether
currency transaction reports were also filed.
The SAR does not indicate the name of the bank, account
number, and beneficiary receiving the wire transfer. The
SAR does not clearly indicate how many wire transfers
were sent, and does not reveal the date of the wire transactions
with regard to the dates of the deposits.
The SAR does not describe the customer’s transaction
history and does not detail why this activity is suspicious
in historical context.
The SAR fails to identify the name(s) of the signer(s)
on the account and the date the account was opened.
The SAR does not indicate the balance prior to the deposits.
The SAR neither states whether the bank inquired about
the purpose of the transactions and the source of the
money, nor describes any possible response by the customer.
The information was presented in the form of a table,
spreadsheet, or attachment, as opposed to a narrative.
Past, Present, and Future
might be tempting to think that the expanding SAR requirements
are merely a response to the events of September 11, 2001,
and will subside over time. In truth, the regulatory uptick
predates the attacks and will likely outlive the war on
terror. Prior to September 2001, Treasury officials had
formed a Gatekeepers Working Group to engage professionals—especially
lawyers and accountants—and had even discussed integrating
AML standards into relevant professional standards. This
has subsequently occurred in the United Kingdom, where accountants
are bound by SAR requirements, whether they are acting on
behalf of designated reporting bodies or not. This particular
reform may yet reappear in U.S. discussions on accountants’
roles in AML/CTF. For example, FATF experts conducted an
exhaustive review and recommended that accountants, as a
profession, should be subject to the full range of AML/CTF
measures. This would extend the SAR regime, requiring accountants
to develop internal controls and apply additional scrutiny
to transactions from countries of money-laundering concern.
course, the trend toward more-robust regulation is often
met with resistance. Banks have long noted rising implementation
costs. Sectors newly covered by AML/CTF measures—such
as the securities and insurance industries—have raised
similar concerns. Critics point out that the volume of SARs
submitted to FinCEN has grown so much in recent years (Exhibit
2) that it threatens to overwhelm the agency’s
capacity. Worse, many reports are effectively superfluous,
as financial institutions adopt a policy of defensive filing,
submitting reports merely on the basis of a weak suspicion
to avoid any subsequent reprobation.
response, regulators have endeavored to balance the burden
that they place upon financial institutions by refining
SAR requirements, updating guidance for filers, and improving
their own analytical capacity. They have enforced compliance
by imposing fines upon banks and broker-dealers for infractions
related to the filing of SARs.
more industries, companies, and clients come under SAR reporting
requirements, it is important for CPAs to have an understanding
of the nature, purpose, and use of SARs. Law enforcement
is increasingly requiring the private sector, and the financial
and accounting communities in particular, to implement AML/CTF
strategies. Although notions of bank secrecy will continue
to be redefined in response to evolving government priorities,
an awareness of the origins and broad directions of regulatory
change can benefit those trying to manage it. Knowledge
of the SAR form—the who, what, when, where, why, and
how much of completing it—and who must file it will
put CPAs in a better position to provide advice. Regardless
of whether accountants are further affected by future regulatory
change, there is little doubt that a well-informed profession
is better positioned to influence, and adapt to, evolving
Romaniuk, PhD, is an assistant professor of government
at the John Jay College of Criminal Justice, CUNY, New York,
N.Y. Jeffry Haber, PhD, CPA, is an associate
professor of accounting at Iona College, New Rochelle, N.Y.
Gary Murray is the director of the High
Intensity Financial Crimes Area (HIFCA) of United States
Immigration and Customs Enforcement, Department of Homeland