Financial institutions in the United States have reported soaring volumes of suspicious financial activity to U.S. anti-money laundering (AML) authorities over the past three years.
Disruptions from the global pandemic created unique opportunities for financial crime, particularly fraud schemes involving checks, government benefit payments, and investment accounts. Vulnerable populations have grown in both size and susceptibility, especially among migrants and the elderly, forming a target-rich environment for threat actors.
In 2022, Financial institutions submitted more than 3.6 million Suspicious Activity Reports (SARs) to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). SAR filings in March 2023 set a monthly record, with more than 351,000 reports.
Based on data from the first quarter of 2023, this year is likely to set additional records.
Since suspicious activity reporting became fully electronic in 2012, total SAR volumes had increased modestly but steadily until approximately 2019, before spiking dramatically in 2020, 2021, and 2022.
Potential non-criminal drivers
Accelerated SAR filings may not necessarily correlate to symmetrical increases in actual illicit activity. Rather, as the name implies, suspicious activity reports indicate that a financial firm detected and alerted authorities to customer activities known to suggest links to crime. A rapid SAR-filing tempo may be driven by a variety of potential factors.
Several causes likely explain the surge in SAR filings, including heightened regulatory pressure, enhanced
threat awareness or detections by firms, and pandemic-related changes
such as proliferation of government programs and the rapid, widespread adoption of mobile banking.
‘Defensive’ SAR filing
Additionally, the spike in reporting could be attributed to defensive filing, a widely recognized practice in which firms apply overly broad detection criteria to minimize their own risk.
While aiming to preempt regulatory scrutiny, however, defensive filing produces a higher proportion of SAR filings that unhelpfully point to legitimate activity. Firms see a clear cost-benefit equation here: Submitting a thinly substantiated SAR carries no regulatory risk – whereas failing to report suspicious activity can attract significant enforcement action and painful penalties.
While the sharp rise in SAR filings spanned virtually all categories of illegal activity, this special report highlights key trends, which are supported with additional data.
Growth in suspected fraud linked to government programs likely stemmed from the extensive, documented abuse of pandemic relief programs. Increases in suspected human exploitation appear to reflect heightened awareness by financial institutions, owing to recent alerts from the U.S. Treasury Department and outreach from non-governmental organizations.
Additionally, elder financial abuse figured prominently in SARs data, also likely reflecting pandemic-era societal shifts that exposed seniors to new threats. Correlation to crime Considerable evidence, backed by expert consensus, indicates that elevated suspicious activity reporting does reflect a genuine increase in certain types of criminal activity. Technological developments and documented increases in certain crime categories, including identity theft and online fraud, are also likely contributors. SARs related to check fraud have soared over the past three years, FinCEN data shows.
Contemporaneous statistics from the Federal Bureau of Investigation (FBI) demonstrate a similar increase in reported fraud cases, particularly in the online domain, which suggests that fraud is rising at an alarming rate. The following report provides a user-friendly analysis of SAR-filing trends in critically important areas, such as check fraud, human exploitation, and elder abuse.
Data is presented showing important annual and monthly trends. SAR program background Between 2000 and 2013, FinCEN published semi-annual SARs activity reviews, each containing a detailed analysis of suspicious activity patterns and other financial intelligence insights, including from investigations by federal, state, and local law enforcement agencies. Those reviews ended in 2013. Since 2017, FinCEN has maintained a comprehensive SAR database on its public website1 , which is updated monthly and includes tools for data interrogation.
June 19, 2023 Published by The Thomson Reuters Institute. (Download PDF Report)