Deputizing Financial Institutions
How to make AML surveillance programs more useful to law enforcement
This two-part series proposes that banks and other financial institutions operating in the United States be allowed and helped to alter their current approach to recognizing and reporting suspicious activity in the course of their anti-money laundering (AML) programs, so as to support law enforcement more directly in the fight against crime. The first installment examines the current AML practice and discusses how financial institutions could take a more proactive role. The second installment will outline a process for initiating such changes, as well as a model for improved interactions between financial institutions, regulators, and law enforcement, focused on ferreting out specific criminal activity.
The goal of such reforms would be to improve the alignment between AML efforts and the core crime- and terrorism-fighting objectives that motivated the underlying statutes and regulations in the first place.
Most financial institutions are obligated to file Suspicious Activity Reports (SARs) within 30 days of receiving information (about a known individual or entity) that establishes suspicious activity that may relate to a violation of the law or whose explanation is not reasonably apparent (and hence "suspicious") in light of the known circumstances regarding the subject and the surrounding financial transactions. (See 31 CFR Section 1020.320 for specific SAR requirements.) The failure to file SARs in a timely manner is a criminal violation and is the source of a substantial part of civil and criminal AML enforcement actions. Firms have, accordingly, developed exceptionally large and complex surveillance models and elaborate applications, and they have amassed sophisticated and numerous staff to sift through transactional and
related data to determine whether a SAR must be filed.
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