What is a suspicious transaction report (STR) or a suspicious activity report (SAR)? In some jurisdictions, the terms STR and SAR are used interchangeably. However, in other locations, suspicious activity reporting is broader in terms of the definition and may encompass the observance of overall suspicious activity by the customer.

The actual definition of an STR by law could vary from one jurisdiction to another jurisdiction but the literal meaning would remain the same. A transaction becomes suspicious when it is not in line with the profile of a customer and has possible connectivity with money laundering, terrorist financing or proliferation of weapons of mass destruction.

The following scenario could be considered to be suspicious activity. For instance, there is an individual retail banking customer, maintaining a salaried account with the bank, who is working for a private marketing company and earning $24,000 per year. Noting that there is no other source of income for that individual, the individual would realistically only be able to deposit $2,000 a month. This would be followed by various withdrawals for personal expenditures. From the anti-money laundering/counter-terrorist financing (AML/CTF) perspective, if this customer starts depositing $3,000 a month in their salary account, this would raise a red flag for the AML/CTF analyst to investigate the related transactions to identify and justify the extra $1,000 being deposited into the account. If the customer is depositing this extra $1,000 as a one-off transaction with proper justification, then this scenario would be justifiable. However, if this activity continues within the account with no supporting documentation and no other apparent source of income for the customer, this would lead to the filing of an STR with the financial intelligence unit (FIU) of the country where this activity is taking place.

There are several types of STRs and there could be several reasons to file an STR, but the underlying factor is that the transaction does not make financial sense and there is no supporting documentation to validate the transaction.

Timing to Report

The timing to report an STR may also vary from jurisdiction to jurisdiction, with some countries having a specific number of days defined to file a report while in others it is mandated to report immediately. An STR ideally should be reported immediately as soon as it is identified as an STR.

Reporting to the FIU

Globally, FIUs are looking for quality STRs that are supported by proper documentation and are submitted in a timely fashion by the respective money laundering reporting officers (MLROs). The reason is simple: These are highly sensitive cases and the FIUs are receiving a number of such STRs from various reporting entities. Moreover, these cases are investigated at length, which may require the involvement of other law enforcement agencies and authorities in addition to necessitating the support of FIUs from other countries.

STR Pack

Unless specifically mentioned in the relevant regulations, the following items form a solid base for submitting an STR to an FIU:

• A complete set of account onboarding documents including identification documents. This may include a local identification card, passports, driver’s licenses, salary certificates, proof of business ownership documents, etc.
• Know your customer and enhanced due diligence documents
• For entities, a trade license, commercial registration, Memorandum and Article of Association, trust or partnership deed, as well as identification documents for the ultimate beneficial owners, partners, directors, signatories, management, etc.
• Detailed account statements for all types of accounts
• A synopsis of total debit and credit transactions
• An analysis of each transaction type
• Link analysis
• Copies of documents proving major suspicious transaction behavior, such as invoices, a SWIFT document, copies of checks, cash deposit receipts, Letter of Credit documents, etc.
• A completed manual or electronic STR form describing details of the customer profile, suspicious transactions and reasons for suspicion

The above-mentioned documents list is not exhaustive and can vary from specific case to case.

Conclusion

It is important that MLROs prepare STRs effectively as well as complete and submit them in a timely manner. In terms of STR reporting, complete end-to-end documentation required by the relevant regulations and internal policies/procedures is essential for FIU personnel to investigate and take necessary action without delay in the fight against money laundering, terrorist financing and proliferation of weapons of mass destruction.

Ghaus Bin Ikram, CAMS, head of Financial Crime Compliance/MLRO, United Arab Bank PJSC, UAE,

Disclaimer: The views expressed are solely those of the author and are not meant to represent the opinions of his employer.