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BSA/AML Hot Topics: How much does it cost to file a SAR?

Naomi Glass, AVP, BSA/AML Compliance Officer

COVID-19 Update

On July 7th, FinCEN released its second advisory (FIN-2020-A003) related to the coronavirus pandemic. This advisory focuses on imposter scams and money mule schemes, which are two forms of consumer fraud observed during the COVID-19 pandemic. I would encourage your BSA staff to review this advisory, along with all others issued by FinCEN in response to the pandemic, as they provide useful guidance to financial institutions to aid in the detection, prevention, and reporting of suspected criminal activity.

One of my favorite shows to watch on TV is The Prophet. For those of you who aren’t familiar with the show, it is about an entrepreneur who saves struggling small businesses by investing in them. In every episode, one of the first questions that the entrepreneur will ask the business owner is how much it costs to produce whatever product it is that the company sells, right down to the penny. You would be surprised how many business owners do not know how much each component costs that goes into making the finished product. When it comes to BSA/AML compliance, the situation isn’t much different. If a regulator were to ask you how much it costs to file a suspicious activity report (SAR) at your credit union, would you know the answer?

Fortunately, the Financial Crimes Enforcement Network (FinCEN) has crunched the numbers for us! On May 26, it shared precise calculations in a notice and request for comments [85 FR 31598] that proposed updating the estimated burden (time, effort, or financial resources) expended by financial institutions to report suspicious transactions using the SAR form. The update was done at the suggestion of the Office of Management and Budget as part of its continuing effort to reduce paperwork and burden to financial institutions.

The Process

Credit Union SAR Stats for 2019

Number of SARs filed: 201,856
Number of CUs that filed SARs: 3,235
Percentage of overall SAR filings: 7.3%

Type of Filing:

  • 136,930 SARs reported initial activity
  • 64,926 SARs reported continuing activity

Number of Suspicious Activities Reported:

  • 52% reported up to 2
  • 45% reported 3-5
  • 3% reported over 5

Filing Method:

  • 177,040 SARs filed in batch
  • 24,816 SARs filed individually

Length of Narrative:

  • 62% SARs were up to half a page
  • 28% SARs were up to one page
  • 10% SARs were over 1 page

Attachment Included:

  • 33% provided a CSV file
  • 67% did not provide a CSV file

With respect to scope, FinCEN previously estimated the SAR burden based on two criteria:

  • The SAR filer’s annual operational budget, and,
  • The cost associated with producing, filing, and storing a copy of the SAR.

Ask any BSA/AML compliance professional and they will tell you that a lot more work goes into the SAR filing process than just producing, filing and storing a SAR. FinCEN seemingly agreed. In its proposal, FinCEN recommends that the burden estimate also take into consideration the annual costs involved in the following:

  • Determining whether alerts that were escalated for further review merit a SAR, and,
  • Documenting the decision not to file a SAR when a case does not merit it.

I can tell you firsthand that the amount of time it takes to justify not filing a SAR can take just as long, if not longer, than it takes to file a SAR. The same could be said for the length of the narrative that is written to document the decision not to file. The reason for this is because regulators performing BSA/AML Program examinations will request that financial institutions produce “the analyses or documentation of any activity for which a SAR was considered but not filed.”

With respect to methodology, FinCEN recommends in its proposal that burden estimates take into consideration the cost associated with a SAR’s degree of complexity. This is important because the amount of time it takes to complete and file a complex SAR versus a basic SAR can be significant. For instance, a SAR that is filed to report cash structuring may take a BSA/AML Investigator an hour to complete, whereas a SAR reporting a money laundering scheme involving numerous shell companies may take five hours to complete. FinCEN measures the complexity of a SAR based on the number of suspects per SAR, the number of suspicious transactions listed per SAR, the length of the SAR narrative, and whether an attachment is included with the filing.

The Results (*Spoiler Alert*)

Since I know you are all chomping at the bit to find out the results of FinCEN’s calculations, without further ado, here are the numbers: For credit unions, the estimated total annual burden (in hours) is 343,972, and the estimated total annual cost is $12,843,002.

While these numbers seem high at first glance, the figures for banks are significantly higher. For banks, the estimated total annual burden is 2,854,613 hours with an estimated total annual cost of $107,803,688. Disagree with the math? FinCEN provided the public with 60 days to submit comments and feedback about the proposed update. The deadline to respond just ended on July 27.

FinCEN’s notice has a ton of interesting facts and figures in it, so I recommend taking the time to read through it. And for those of us who are visual learners, FinCEN put 24 different tables in it!

Ultimately, the amount of time and money is takes financial institutions to file SARs is well worth it, especially since the value SARs bring to law enforcement is absolutely priceless.