File or No File: When Does Unusual Become Suspicious?

Member activity can quickly move from something they haven’t done before to something you need to report. It’s important that everyone in your organization knows what to look for and how to escalate concerns. Determining when to file a Suspicious Activity Report (SAR) can vary by institution, but the federal obligation to report is defined as:

• Criminal violations involving insider abuse in any amount.
• Criminal violations aggregating $5,000 or more when a suspect can be identified.
• Criminal violations aggregating $25,000 or more regardless of a potential suspect.
• Transactions conducted or attempted by, at or through the bank (or an affiliate) and aggregating $5,000 or more, if the bank or affiliate knows, suspects or has reason to suspect that the transaction:
  • May involve potential money laundering or other illegal activity (e.g., terrorism financing).
  • Is designed to evade the BSA or its implementing regulations.
  • Has no business or apparent lawful purpose or is not the type of transaction that the particular customer would normally be expected to engage in, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.

File or No File – How Do You Decide?
Let’s talk about how different member behavior can move from unusual to reportable by examining the following scenarios. Think of it as Deal or No Deal, but with a compliance twist – File or No File? Here we go!

A member deposits $9,900 in cash.
File or no file? On the surface, someone might look at this cash deposit and assume it is an attempt to avoid currency transaction reporting limits. It may be, but an isolated deposit of cash may have a legitimate explanation. Two of the important tools for decisioning suspicious activity are context and patterns. If the member repeats this cash deposit activity for several weeks, refuses to give any information regarding the source of funds and has no history of prior cash activity, it’s probably time to file. If the member explains the source of the cash and this is an isolated deposit, there would probably be no need to file.

A member wires $75,000 to purchase a condo.
File or no file? This seems straightforward and most likely has no reason to raise any concerns. But what if the same member comes back two weeks later and claims they were scammed? Suddenly a wire transaction has evolved into much more. In this instance, you would want to assist the member in any way possible to try to recoup their losses and you would have an obligation to report that in a SAR.

A member brings in $11,000 in cash.
File or no file? When they present the money for deposit, they ask if the transaction will be reported. Once learning that the transaction will require a Currency Transaction Report (CTR), they take $1,100 back and ask if that deposit will require a CTR.  Your staff member may talk to the member about the fact that the CTR is merely a record of the cash transaction and encourage them to simply deposit all the cash at once. Members have different responses to CTR filings and may continue to insist they want to conduct a transaction that does not require a CTR. In that case, your member has altered a cash transaction to avoid reporting and you would be obligated to report that activity through a SAR.

A member deposits a $50,000 check payable to his business into his five-year-old’s Uniform Transfers to Minors Act (UTMA) account. Then, the member withdraws the funds over time and deposits the money into his business account.
File or no file? This would be a reportable situation. The deposit of a check payable to a business should have been made directly into the business account. The UTMA allows an adult to transfer assets to a minor by opening a custodial account for them. All withdrawals from a custodial account must be for the direct benefit of the beneficiary. In this instance, the funds are payable to the business and, ultimately, benefit the business. The use of the UTMA account appears to have been used to muddy the waters regarding the source and use of these funds.

The Gray Area…
At this point, we’ve looked at quite a few situations. But what happens when the details are a little less black and white? Here’s an example of where the area becomes a bit more blurry and gray. Deposits from a check cashing business regularly contain very large checks payable to a business. Business checks include payroll checks, but these items are more readily cashed by the payee with identification. Check cashers may cash a check payable to a business if they can establish that the individual cashing the check is legitimately entitled to the funds as a signatory on the business. This can be complicated for the check casher to verify and validate. So far, none of these situations would necessarily lead to a filing.

However, let’s go a step further and you notice that the same business is cashing checks for $50,000, $60,000 or $70,000 week after week. That is not typical behavior for a business. Most businesses have an established business banking relationship with a financial institution, so cashing very large checks repeatedly is, in fact, suspicious and should prompt investigation and potential filing.

Your institution will never catch every suspicious transaction, but it’s essential that everyone takes the time to look at activity and give it thoughtful consideration. As we’ve seen, it’s not a huge leap from unusual to suspicious. So, ask questions – of your members and to one another. Your members and your credit union deserve your vigilance, because when it comes time to decide “file or no file,” you’ll have a better idea of which route to take in the best interest of all parties.

Cindy Hagan works as the compliance and fraud risk director for Vizo Financial Corporate Credit Union. In this role, she administers and coordinates the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) program within the organization to ensure compliance with federal regulations, the NCUA and the industry standards of the FFIEC’s BSA/AML examination manual. She also provides compliance consulting and training services to credit unions.