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BSA/AML Hot Topics: U.S. Cash Transaction SARs on the Rise – Are Yours?

COVID-19 Update

FinCEN recently released new guidance to financial institutions related to COVID-19. The release consisted of a February 24, 2021, advisory (FIN-2021-A002) that focuses on fraud and theft associated with Economic Impact Payments (EIPs), otherwise known as the stimulus checks Americans have been issued as direct relief in the wake of the coronavirus pandemic. I would encourage your BSA staff to review this advisory along with all others issued by FinCEN in response to the pandemic. They provide useful guidance to assist financial institutions in detecting, preventing, and reporting suspicious transactions involving COVID-19 related fraud.

Jennifer Morrison, VP, Senior Risk Manager

Credit unions are required to file Suspicious Activity Reports (SARs) on transactions that might signal criminal activities, and one of those criminal activities is structuring. Structuring is the attempt to obfuscate currency transaction reporting (CTR) requirements at the $10,000 and above threshold by conducting cash transactions in amounts just below the reporting threshold. This includes deposits and withdrawals of cash.

The SAR category “Transactions Below CTR Threshold” was the leading SAR category in 2020. In fact, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) reported that SARs on cash transactions below $10,000 hit an all-time high in 2020, the highest level in the seven full years, which is how long the structuring category has existed on the SAR. Further, the number of SARs filed under that category were up 44% from 2019. Why?

And the evidence is clear. The number of such SARs began to rise in April 2020. Closed U.S. borders likely made it more difficult for criminals to smuggle cash; therefore, criminals had to launder their cash within the U.S. in order to transfer it to their desired destinations. The border closures are the same forces that slowed the flow of illegal drugs from south of the border. It is likely that criminals did not have other alternatives for laundering their illegal cash, including cash-intensive businesses that were also closed due to the pandemic. Such businesses include barber shops, gas stations, and casinos.

Tips to help prevent this criminal activity from impacting your institution

  • Fine-tune your systems. Make sure your antennae are up and your systems are fine-tuned for cash deposits and withdrawals. One key is to make sure you can aggregate cash transactions, including transactions at a branch and especially among your ATMs. This is true not only for reporting CTRs that require aggregating transactions on a given business day, but you should also be looking for cash transactions that aggregate just below the reporting threshold. Criminals know the law!
  • Compare your CTR and SAR filing statistics from 2020 to 2019 and 2018. You should always be looking at trends in your data. If you see an increase in any one category, always ask why. What has changed within your membership? Are you reporting CTRs and SARs for members that have never been subjects before? And make sure that your alerts are fine tuned to picking up changes in your data and changing external trends, such as this dramatic increase in cash-related SARs.
  • Review your CTR reporting and look for missed SAR “opportunities.” Filing a “late” SAR is not a problem when it is based on a new typology or new analysis. You simply state in the narrative that, given SAR filing trends, the credit union reassessed its CTR reporting for possible missed structuring-related SARs. Maybe you lower your threshold from $9,000 for structuring to $8,000 and then see what could now be deemed to be structuring. Just play around with the data. You may start to identify subjects and changes in behavior among your members. It is better to do the review than to have a regulator ask you the question!
  • Make use of this news in your next risk assessment. The pandemic lockdowns caused criminals to change their behavior, at least temporarily. In your risk assessment, this may change the inherent risk assigned to your cash transactions at your branches and ATMs. Then, in your assessment of controls, honestly assess your CTR reporting capabilities. Assess your systems and ability to generate alerts that capture structuring behaviors. And always look at training. Give your tellers a “heads up” about possible increases in cash transactions in the branch so that their antennae are up for suspicious activity referrals.

As we hopefully continue to open our economy and perhaps our borders to resume cross-border travel, this criminal behavior may cease to a large extent. But structuring is a great example of how criminals must adapt to changes in our world.