A government program designed to track down terrorists and money launderers is frightening bank customers, frustrating financial institutions and inundating federal agencies with secret reports of dubious value.
It's called the Suspicious Activity Report, or SAR, and critics say it victimizes honest citizens who are conducting legitimate financial activities through legitimate banking channels, while generating a flood of useless paperwork and burdening financial institutions with billions of dollars in costs.
Experts predict nearly 1 million such reports will be filed in 2006, a bit more than half by depository institutions, the rest by money-services businesses, casinos, card clubs and the securities and futures industries. Insurance companies had to begin filing in spring 2006, and mutual-fund companies will have to establish anti-money laundering programs and file SARs in fall 2006.
In total, 919,230 SARs were filed in 2005. You cannot find out if one has been filed on you; anyone revealing that information is breaking the law.
What can trigger a SAR? Almost anything out of the ordinary that rouses the suspicion of the personnel where the transaction took place. According to their rules, any group of transactions totaling $5,000 or more that "is not the sort in which the particular customer would normally be expected to engage" can cause enough suspicion to create a SAR. The reports are filed with the Financial Crimes Enforcement Network (FinCEN), a division of the Department of the Treasury, and shared with law enforcement.
To be sure, the reports have led to criminal investigations and prosecutions. But the report also has mushroomed into a paper-generating monster that threatens to create Suspicious Activities Reports in government files on an increasing number of ordinary citizens.
Scared of paying off a debtUnlike other government spying programs, this one is out in the open -- and it's creating fear among people doing ordinary banking activities. Take a recent college graduate from Columbus, Ohio, whose parents offered an interest-free loan to pay off his high-interest credit-card debt. While surfing online, a message-board post caught his attention.
"A guy said he paid off his credit card and got a call from the bank," says the graduate, who asked not to be identified. "They held his funds for three weeks because his payment deviated from his normal payment. I did my own research and found it was realistic.
"They could report you to Homeland Security if payments deviate from the norm. It sounded scary and made me nervous. I think it's ludicrous that anyone should be afraid of paying off their debt."
The SAR was developed in 1996 as a way for banking organizations to report "suspected criminal violations of federal law or a suspicious transaction related to money laundering activity, or a violation of the BSA (Bank Secrecy Act)," according to Federal Financial Institutions Examination Council (FFIEC) documents.
The Bank Secrecy Act, according to the FFIEC, was "designed to help identify the source, volume and movement of currency and other monetary instruments transported into or out of the U.S., or deposited in financial institutions."
Clearly, the Sept. 11 terrorist attacks and the subsequent revelation that the terrorists freely lived here and opened bank accounts at will frightened American citizens and the government. Congress responded with the Patriot Act, aimed at giving government agencies more power to find and clamp down on money laundering and terrorist financing.
Financial institutions, which long had been required to have anti-money laundering (AML) programs, have come under increased pressure in recent years as identity theft and computer-related financial crimes have grown exponentially. The feds came down hard on banks that failed to adequately guard against money laundering. Among the most-heavily-fined offenders was Riggs Bank, fined $25 million in 2004, followed by $80 million in penalties against ABN AMRO Bank in 2005 and a $10 million fine against BankAtlantic in 2006.
The numbers mountBanks sat up and took notice, and the SARs began to flow. The reports from depository institutions alone climbed rapidly, more than doubling in four years.