Suspicious Activity Reports (SARs) Are Surging in 2023

But before we do that - we need to remind ourselves how SARs work.

Suspicious Activity Reports (SARs) 101

Let's put this into layperson's terms. A suspicious activity report (SAR) is when a financial institution, such as a bank (also individuals associated with their business), informs the regulatory body, like the Financial Crimes Enforcement Network (FinCEN) in the US, when they suspect suspicious activity within their business operations.

But they don't do this voluntarily. It's a legal requirement that jurisdictions worldwide place on the financial sector. And why do they do this? Society has decided that crimes damaging to humanity, such as money laundering, fraud, corruption, drug trafficking, and terrorist financing, require robust laws to prevent them.

The requirement to file SARs to regulatory bodies serves as a tactic to make it more challenging for criminals to exploit the regular financial system. They also help law enforcement agencies catch and convict criminals committing financial crimes. 

You can learn how to file a SAR in this sanctions.io guide.

And what suspicious activity are financial institutions legally required to report? Here are some of the most common ones:

• Unusually large cash deposits
• Rapid movement of funds
• Suspicious customer identification
• Structuring transactions
• Wire transfers to high-risk jurisdictions
• The use of shell companies
  

Typically, the process within a financial institution is this: Suspicious actions are first red-flagged. Then, compliance officers (such as AML professionals) will investigate it and decide whether to file a SAR. It's important to remember that SAR filings do not indicate criminal activity on the part of the individuals reported to authorities. 

We will now look at the research that shows SAR reports are rising fast. 

‍

‍

Latest 2023 SARs Filing Research: It's a Record-Breaking Year

In June this year, Thomson Reuters published it's Suspicious Activity Reports 2023. You can read a PDF version of the report here. And according to the research, SAR filings in the United States are surging. 2022 was a record-breaking year with a 57% increase over pre-pandemic (2019) levels. 

The journalists from Thomson Reuters, who crunched the numbers, also revealed in the report that FinCen received 3.6 million SAR filings in 2022. In March 2023, a monthly all-time high of 351,000 SAR reports were filed. 

And what does it mean? It means SARs filings to FinCen will, in all likelihood, be greater again this year. 

Although the report only analyzes SARs in the US (from FinCen), it's still insightful for AML and compliance professionals worldwide. The following section will reveal why SAR filings are on the up.

The 4 Reasons Why SAR Filings Are Surging

Number 1: Information Sharing Between Banks Is Up

The first reason why SARs are rising is that financial institutions, like banks, increasingly share more information and data between themselves.

According to the report's writers, a surprising statistic from the research is that more than 7600 financial institutions with operations in the US are now participating in US Patriot Act 314(b) information sharing.

And as many readers know, information sharing between financial institutions is one of the best tactics to detect financial crime. Why? Because it allows financial services companies to view more comprehensive data. And what does that mean? More nefarious actors are red-flagged - resulting in increased SAR filings.

Jurisdictions worldwide approach such information sharing differently. But there are signs that it's going to increase. For example, in June 2023, Britain's National Crime Agency (NCA) announced that banks will ramp up data sharing in the UK's fight against financial crimes, such as money laundering and fraud. 

Number 2: The Discovery of Directly Pandemic-Related Financial Crimes

The second reason SAR filings are surging in 2023 is that financial institutions continue discovering financial crimes related to the pandemic. 

The issue is this: During the COVID-19 pandemic, the US government (concerned about the potential collapse of the economy) made available multiple COVID-19 relief funds and grants for individuals and businesses at the federal, state, and local levels.

But - and many of you reading know what's coming next - fraudsters got to work stealing billions of dollars from the US taxpayer. This report reveals that criminals potentially got their hands on more than $200 billion. 

And how did this enormous fraud impact SAR filing numbers? The answer: massively.

Here are some astonishing statistics. Between 2014 and 2019 (before the pandemic), the suspicious receipt of government payments SAR filing category averaged around 4000 to 5000 filings yearly. 

In 2020 this figure jumped to a lofty 75,000. In 2021, an astronomical 142,000.

And remember, fraudulently-earned money needs to be laundered. In 2023, banks continue to discover thousands of financial crimes, such as fraud and money laundering related to COVID-19 financial support, which they are legally required to report as a SAR.  

Number 3: Huge Increases in Elder Fraud & Check Fraud

According to the Thomson Reuters report, another significant reason for the surge in SAR filings in 2023 is the worrying increase in elder fraud and check fraud. 

Elder fraud is when criminals target older adults or senior citizens in a deceptive scheme or scam by exploiting these individuals' vulnerability, trust, and financial resources. In the US, it's become a $3 billion-a-year problem, with victims losing, on average, an estimated $120,000 per incident (according to the AARP Public Policy Institute). Countries worldwide are also struggling to combat its rise. 

The cause is partly due to the pandemic. Why? Because senior citizens had little choice but to switch to digital banking. However, the digitalization of business and society (we all see local banks closing) is another factor. Unfortunately, people in this position are often more susceptible to illegal schemes such as phishing scams.

Another type of fraud on the rise is check fraud. Generally, this happens when criminals use checks without authorization or alter a legitimate check to steal money. However, let's get specific: Mail theft-related check fraud is surging in the US. So much so that in early 2023, FinCen published a warning alert. 

Both elder and check fraud are contributing significantly to the spike in 2023 SAR filings. For example, according to the Thomson Reuters report, in 2020, there were 285,000 SAR filings related to check fraud. In 2022 that figure rose to 685,000.

The problem is growing, and one can predict that the 2023 figures will be even higher. ‍

Number 4: Increase in Human Trafficking

The final significant reason why SARs filings in the US are rising in 2023 reflects the global trend of increased human tracking. This heinous crime involves exploiting individuals through force for various purposes, including forced labor, sexual exploitation, and involuntary servitude (modern-day slavery).

According to DeliverFund, a non-profit combating the problem, in the US alone, the illegal market is worth almost $1 billion. And that's dirty money that human traffickers need to launder.

But how is this impacting SAR filings? Why are human trafficking-related SARs growing?

One reason is, of course, because it's a terrible crime that grows worldwide year-on-year. And the SARs filed to FinCen in the US rise with it. But there is another reason: According to the Thompson Reuters report, financial institutions are rapidly learning (and collaborating) what human trafficking red flags look like, such as when illegal money is laundered. 

How sanctions.io Can Support Your AML Goals

To learn more about how our sanctions, PEP, and criminal watchlist screening service works and to receive answers to all your queries regarding the sanctions.io API, integrations, and more. Book a free Discovery Call now. 

7-Day Free Trial (No Credit Card Required)

We offer a free 7-day trial (no credit card is required) and will be delighted to walk you through our service. sanctions.io is a highly reliable and cost-effective solution for sanction checking. AI-powered and with an enterprise-grade API with 99.99% uptime are reasons why customers globally trust us with their sanctions screening needs. 

‍