SARs - sharp tip of feds’ investigative spear

The recent demise of Eliot Spitzer as governor of New York has focused attention not only on his pricey vices but also on a little-known or -understood regulation of the Bank Secrecy Act requiring banks to file SARs — short for Suspicious Activity Reports.

The SAR is one of the primary tools federal law enforcement agencies use to help uncover suspicious movements of money and money laundering. Agents from a small army of federal agencies pore over them regularly, looking for the one hot lead that could lead to the downfall of a drug kingpin or a powerful politician.

Banks and other financial institutions are required to file a SAR on customers who engage in suspicious or illegal behavior that could involve money laundering, drug trafficking, terrorist financing and a host of other crimes. The SAR was developed by the Federal Reserve Bank, the Federal Deposit Insurance Corporation and several other federal banking regulatory agencies in 1996.

The SAR is prepared by the bank and contains personal identification information such as date of birth, Social Security number, address and bank account numbers. The form also contains a narrative section that describes the suspicious behavior. Most of the reports are filed electronically with the IRS. The information is provided to other federal agencies for review and storage for future use.

Often SARs are initiated or completed by tellers, customer service personnel or branch managers. But many of the reports are filed by specialized Anti-Money Laundering (AML) units maintained by the banks.

The AML teams are equipped with surveillance software that identifies suspicious transactions. The software combs through daily banking transactions and selects suspicious entries for review and investigation that may produce a SAR.

I remember working a caseSeveral years ago, as an FBI special agent, I worked a case involving bribery of a state official by construction contractors. After receiving the report of suspected bribery, the first step I took was to check the FBI database for information on the official and the contractors.

The only information in the system was a relatively recent SAR filed on one of the contractors and his wife. The reporting bank explained how the contractor and his wife had visited the same bank branch at the same time on the same day and cashed two $6,000 checks, each by a different teller.

Local bank branch personnel did not catch the suspicious transaction, but an AML unit in Florida using surveillance software did. I was never able to charge the contractor with anything, but the public official pleaded guilty in federal court.

The SAR information did not become evidence in the case, but it gave me information about a contractor generating a substantial sum of cash in a suspicious manner.

Based on my experience in money-laundering cases, the contractor appeared to be trying to avoid another Bank Secrecy Act requirement, for filing a Currency Transaction Report with the bank and the IRS for cash transactions greater than $10,000. This SAR information gave additional credibility to the source of information that initiated my investigation.

According to media reports, the banking payments to the Emperor’s Club prostitution ring were picked up by bank surveillance software. Spitzer seems to have been trying to avoid filing a Currency Transaction Report just like the contractors I investigated.

But his efforts to escape detection backfired because the efforts themselves generated a SAR that was filed with the IRS, where a special agent in the Criminal Investigation Division reviewed the report.

Spitzer was first suspected of public corruption, according to press reports, but additional investigation uncovered information about prostitution. All of this led to the FBI’s electronic telephone surveillance of the Emperor’s Club, in which Spitzer was discovered to be “Client 9.”

Banks take the SAR responsibilities very seriously because regulatory agencies have made believers of them. Banks that did not properly follow the regulations have been fined millions of dollars.

The most celebrated example in these parts came in 2004, when the feds fined Riggs National Bank, one of the oldest businesses in Washington, D.C., $25 million for failing to comply with anti-money laundering practices, including filing SARs. Riggs was soon bought out by PNC Financial Services.

Errant banks also have been required to do what are known as “look backs” and then file SARs on years of past transactions. A cadre of retired federal agents travel throughout the country preparing SARs that should have been done years ago. The costs of these look backs are staggering but necessary if the banks want to keep their banking licenses.

As the result of Eliot Spitzer’s downfall, the SAR will never be taken lightly again. Truth be told, the SAR should be considered as much more than just another bureaucratic report. It is the sharp tip of a financial investigative spear that can mortally wound political figures as well as drug kingpins.

Dan Dreibelbis served as a Special Agent of the FBI for 25 years in Baltimore. He currently teaches as an adjunct instructor for Villa Julie College’s Forensic Law program. Dan can be reached at  

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