Excerpt from the SAR Activity Review
Currency Transaction Reports (CTR) and Suspicious Activity Reports (SAR): Reading With Context By Regina Stone16
CTRs and SARs collect a variety of information about a financial transaction. Regulators, just as law enforcement, are mindful that there are costs to the financial sector when requiring this information and understand that it is important the government communicate the value of this information to those providing it. In this article, the New York State Banking Department wants to illustrate how, when CTRs and SARs are read within a local context, the richness of the information becomes apparent.
CTRs and SARs may be completed independent of each other. A CTR or series of CTRs may generate a SAR, while a SAR may be completed without the benefit of a CTR, as the activity reported may represent an attempted but failed financial transaction or activity that did not require currency. Let’s look at the value of the CTR, as every CTR does not necessarily result in the filing of a SAR.
Level Within the Financial System
CTRs track currency in the hands of consumers whether the currency is cash flowing into or from the financial system. The level within the financial system at which the CTR is generated often has a substantial impact on the significance of the information that the CTR reveals.
CTRs are required to be filed by many financial institutions. These include banks, other depository institutions, brokers and dealers, money transmitters (and associated agents), currency exchangers, check cashers, and issuers/sellers/ redeemers of money orders and travelers checks. These financial institutions represent different levels and portals into the financial system. Banks and other depository institutions are at the center of the financial system. On the other hand, money service businesses, as represented by the money transmitters, currency exchangers, check cashers, and issuer/sellers/redeemers of money orders and travelers checks, are nonbanks that represent portals into the banking system, which are one or more steps removed.
The closer the CTR filing is to the actual transactor/customer, the more valuable the information may be. For example, CTR filings by nonbank financial intermediaries such as money transmitters often contain useful information, which is in addition to the summary information contained in CTRs filed by banks.
CTR Form Information
All the information on the CTR form is useful. However, certain boxes of information are particularly valuable when attempting a quick read of the form: size of the transaction; occupation, profession or business; zip codes; identification; and date of birth.
A. Size of the Transaction
CTRs are required for cash transactions over $10,000 or a series of cash transactions that aggregate to over $10,000 in one business day by a given customer. Many CTR filings well exceed the $10,000 threshold. The largest CTR I have seen submitted in New York was in excess of $750,000. It is not unusual for CTRs filings to be in excess of $50,000. Bear in mind that this is consumer funds going into or out of the financial system, and that the individual conducting the transaction is willing to take the security risk of transporting that large amount of currency.
B. Occupation, Profession or Business
Many businesses are cash-intensive, either in the collection or payment of cash. Reading the occupation in conjunction with the size of the transaction gives an indication of whether the source would have generated that type of transaction. Some CTRs note the categories of unemployed, retired or disabled. This may raise questions as to whether the individual is among the unbanked or underserved.
C. Distances Reported
The CTR captures addresses with corresponding zip codes noted. Part I identifies the person on whose behalf the transactions are conducted, while Part II identifies the individual conducting the transaction. Part III identifies the financial institution where the transaction takes place. The mere use of the zip codes or address can indicate the distances individuals may be traveling to complete the transaction. For example, if a CTR indicates addresses (zip codes) that are not near each other, then the individual conducting the transaction may have traveled a great distance to complete the transaction. If a great distance was traveled to reach the portal into the financial system, why? It is possible that an individual is employed away from home or has just moved into the area. How many portals into the financial system were passed, and why? Are there too few portals into the system, i.e. underserved/ unbanked area? Again, why is the individual willing to take the security risk of transporting currency?
Customer identification on the CTR serves the obvious purpose of verifying the identity of the person conducting the transaction. However, it also can be read in the context of the distance information provided by the CTR. For example, if a customer is traveling from state A to conduct a transaction in state B, but provides identification that is not associated with either state A or B, this questions not only the validity of the identification presented, but why the customer is willing to travel that distance to complete a transaction.
Date of Birth
A date of birth is a marker to identify the individual conducting the transaction. However, there have been occasions where the person conducting the transaction was under the majority age, possibly
a student. Again, it questions the source of wealth. Is this individual unbanked or underserved, and would financial education be appropriate to bring this type of individual into the financial system?
External Information to Overlay on CTR Information
As demonstrated, reading a few CTR boxes in relation to each other tells a story. When external information such as various databases about the area of the transaction is considered, there is even more information to be derived. For example, what is the socio-economic characteristic of the areas where the transaction is being conducted or from where the customer traveled? Are they unbanked or underserved areas? What are the census tract characteristics? Are they areas of growth or decline? Are the areas commercial, residential or major transportation hubs? Are they areas where outreach in terms of financial literacy would be appropriate? Do the areas support the economics of the transaction? Are there opportunities for more financial institutions in those areas?
Reading Between the LinesA CTR provides useful information about the customer and the environment the customer may be transacting in, which leads to further questions to be answered:
- Is the customer traveling great distances to conduct a transaction?
- Has the customer by-passed other portals to enter the financial system?
- Is the customer traveling from unbanked or underserved areas?
- Is the customer transacting in areas of major transit hubs?
- Is the transaction conducted in unbanked or underserved areas?
- What are the socio-economic characteristics of the area where the customer conducted the transaction or where the customer came from (address)?
- Does the customer transaction match a cash-intensive industry/business/ occupation?
- Are these customers that would benefit from outreach and financial literacy programs?
- Does the transaction represent the appropriate level of economic support from the area?
- Do the areas represent opportunity for additional financial institutions to service the area?
- Just as CTR information read in relation to each box on the form can lead to further questions, the same information can be interpreted as “Red Flags:”
- Why is a customer traveling great distances to complete a transaction?
- Why has the customer passed so many other portals into the financial system?
- Why is the customer willing to take the security risk of transporting currency to and from a portal into the financial system?
- Do the areas identified support the economic transaction being completed?
- Why is there a mismatch of addresses and identification presented?
- Why is someone under the majority age conducting a large transaction?
What Next? SAR Reporting?
As noted above, a CTR tells a story, which can generate simple questions as well as red flags. Red flags can result in a SAR being filed. However, as is well known, not every SAR is the result of a CTR. For example, someone may attempt to transmit over $10,000 through a financial institution but when asked to provide identification choose not to complete the transaction. No CTR is completed, but a SAR may be.
From a regulatory perspective, the regulator has the ability to look across the financial services industries to see if there are common patterns. FinCEN maintains the Gateway system which provides access to both CTRs and SARs. What starts out as a question for a single CTR (or series of CTRs) or SAR(s) at one financial institution can be expanded as a larger analysis across the financial services industries. In effect, the overlay of the FinCEN databases allows customer activity to be tracked not only within a given financial services industry, but across financial services industries.
Therefore, CTRs and SARs may be independent of each other. CTRs can complement and may support SAR filings. Regardless of how independent the information associated with a single CTR or SAR may appear, CTR and SAR databases should be compared: if questions start with a SAR – see if any CTRs are filed; and vice-versa.
Usefulness of Information
In summary, CTRs and SARs provide value individually and even more so when utilized in conjunction with each other. Reading with context and perspective unlocks the richness of the information provided. The relationships of information contained within the forms are important. Overlaying additional (external) databases provides greater information, and if the information can be grounded in a local context, the richer the information still.
16 Regina Stone is Deputy Superintendent of Licensed Financial Services for the New York State Banking Department.
The single filing of a SAR may not indicate the complete story. It would be advantageous to know if this is the first SAR or if multiple SARs exist and for what reason. It would be further advantageous to “look back” to see if there are any CTRs that relate to any of the SAR information. Were similar transactions previously completed? If so, were they single transactions or possibly structured transactions? What identification was presented and collected at that time?
Excerpted from SAR Activity Review Issue 13, page 30
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