202020200927 The FinCEN Files – misleading the public and benefiting from criminal conduct

The articles demonstrate a fundamental lack of understanding of what an SAR is and what it is for

The vast majority of SARs filed around the world go nowhere. Sometimes it’s because that particular SAR does not reveal anything that screams “stop this now” or it does not match with other data at all or enough to raise questions.

Depending on the jurisdiction, the filing of an SAR is either

a trigger for an automatic, temporary, freeze on the assets; or

the action to be taken is left to the business that files the report.

If there is a temporary freeze, it often expires after a fixed time unless the FIU issues instructions to continue the freezing of the assets.

If there is no automatic freeze or if the freeze expires then business has a dilemma. If we use the example of a bank, if the bank refuses to act on a customer’s instructions, the customer may sue. The bank is not allowed – because SARs are subject to strict confidentiality – to use the fact of the SAR in its defence. So, the only thing the bank can do is to let the money go and to file another SAR.

This is not, as the ″FinCen Files″ articles have suggested, the bank, etc. being irresponsible. It is balancing an impossible position created by legislation.

Once an SAR has been filed, the reporting business should keep the customer and the account under review so that further SARs are filed if appropriate.

In each jurisdiction, the law says that SARs must be filed with either

a) a designated department – the FIU (except in Singapore where financial institutions are required to file a copy with the financial regulator); or

b) a person (for non regulated persons in the UK, it’s made to “a constable”).

As part of the protected arrangement, when a person files a report in good faith, that person is protected against any and all claims that may be made in contract or tort in respect of any consequences of the filing of that report.

Submitting a copy of that report to anyone else is not protected.

This causes problems in an international environment: a report filed in jurisdiction A does not attract the same protection if a copy is filed with the FIU in jurisdiction B.
Moreover, the exchange of information between jurisdictions is often restricted by law, even within the same banking group.

The journalists seem to have overlooked the important point that subsidiaries and branches operating in different jurisdictions are subject to different legal and regulatory regimes.

If they do know it, they have not only failed to communicate it, they have written as if it is not so.

Moreover, subsidiaries are discrete legal entities – the delivering of a copy of an SAR to an associate company, domestically or abroad, does not automatically receive the protection against action by third parties.

Indeed, in a number of countries a change in the law has been necessary to allow the passing of information to a Group compliance office.