The High Cost of the Suspicious Activity Report

Bank boards know all too well about the reputational toll and hefty fines from lapses in regulatory compliance. But governance usually doesn’t tend to drill down into specific practice areas and their finer-grained costs.

An ounce of prevention, though less expensive than the proverbial cure, still runs pretty high in Bank Secrecy Act and anti-money laundering (BSA/AML) compliance programs. Directors might want to ask for a more-detailed picture from their bank’s AML team at the next board meeting. Not just to follow up on the damage-control response to the FinCEN Files media spectacle, but also in terms of profit and loss and team morale issues.

Suspicious activity reports (SARs) can get very expensive. We conservatively estimate that about $180 million in annual BSA/AML analyst salaries in the U.S. goes just to preparing the SAR form. But there’s also a huge opportunity to do better for society.

What are SARs? Some might say they are a headache-inducing form that demands a whole lot of painstaking and tedious detail, and then never quite fulfills its ultimate purpose of stopping criminals. Unfortunately, there’s a lot of truth to that description. What should – and could – SARs be?

• An essential tool for fighting crime.
• An effective communication channel for AML collaboration.
• An invaluable resource for law enforcement to identify, track, and prosecute criminals.

At the risk of overstating the obvious, not every “suspicious” activity leads to criminal activity. Though banks do have the power to block the flow of funds, financial crime regulators (in the U.S., that’s the Financial Crimes Enforcement Network, or FinCEN) and jurisdictional law enforcement (such as district attorneys) hold the authority to go after the criminals. A bank’s primary responsibility in AML is to provide relevant information from the financial vantage point.

The level of detail can make all the difference in the usefulness of these reports. A complete and accurate SAR, filed with ample, highly relevant information, provides texture and nuance for regulators to make strong decisions about which cases deserve the attention of law enforcement. Prosecutors can then use information from SARs to build criminal cases. A future with somewhat fewer illicit arms sales or much less human trafficking could hinge on a few form fields.

The status quo for most bank AML compliance programs entails a substantial amount of manual inputs. Lacking automation, providing more high quality detail in SARs demands more time. U.S. financial institutions filed 2.3 million SARs in 2019. An AML analyst can command, on average, an annual salary of $75,000. These figures, plus some other industry-specific estimates and general human resources conventions, fed into my calculation above for the total annual SARs tab for U.S. financial institutions. And that $180 million figure doesn’t even account for the nine out of 10 investigations that don’t lead to a SAR filing – yet typically do result in more monitoring.

Manual processes, even with the best intentions of highly skilled AML teams, are inherently prone to human error. I also suspect these professionals would rather focus on the aspects of their work that demand the subtle discernment of human judgement. Some of the lowest-hanging fruit for using technology in AML investigations include automation that can:

• Populate the SAR form with case information.
• Organize case data from fragmented sources across the bank and vendors.
• Visualize trends in the case to spot strange behaviors.
• Quickly separate false positives from true positives.
• Capture the insights of investigators as structured data, creating clean data that can be used for analytics and machine learning.
• Validate and quickly transmit the SAR to expedite information flow.
• Securely store the case information for future analytics and audits.
• Keep casework across the team thorough and efficient.

Investigating and reporting suspicious financial activity is both an enormous expense for banks and a systemically important resource for protecting society. It’s worth investing in automation technology that will make a bank’s BSA/AML compliance program more efficient and effective.

How a specific bank might move forward in leveraging compliance automation technology will vary on a wide range of factors. Adopting this sort of technology isn’t an all-or-nothing proposition. A careful analysis of a bank’s AML practice area can identify minor changes that are likely to have an outsize impact in the fight against crime.