What are the FinCEN Files?
- The FinCEN Files refer to a set of over 2,100 “Suspicious Activity Reports” (SARs) (see next question) filed by banks with the United States Department of the Treasury’s Financial Crime Enforcement Network,
- The agency that serves as the leading global regulator in the battle against money laundering.
So what is a SAR? When are they required to be filed?
- SAR or Suspicious Activity Report is a document filed by banks and financial institutions to report suspicious activity to US authorities, in this case, FinCEN.
- These are confidential, so secret that banks are not allowed to confirm their existence.
- Indeed, even the account holder is unaware when an SAR is filed related to a transaction in that account.
- SARs are filed with FinCEN in a prescribed format, and are meant to red flag, within 30 days of the transaction’s occurrence:
- Criminal funds or any form of dirty money; insider trading; potential money laundering; terror financing; any transaction that raises suspicion.
Who can file SARs?
- Banks, of course, but now that list has been expanded to include money exchanges, securities brokers, casinos.
- Non-filing of SARs can invoke hefty penalties.
- In recent years, Deustche Bank, HSBC and Standard Chartered Bank, among others, have been slapped with huge fines for improper oversight.
- Credit card systems are not required to file SARs and all filers are required to keep records of SARs for five years.
But is SAR evidence of criminality, illegality If not, what’s its signficiance?
- A SAR is not an accusation, it is a way to alert regulators and law enforcement to possible irregular activity and crimes.
- FinCEN shares SARs with law-enforcement authorities including FBI, US Immigration and Customs;
- They are used to detect crime but cannot be used as direct evidence to prove legal cases.
- In the world of international finance where money moves under several layers to escape or avoid taxation, SARs are the first red flags.
Is there an equivalent of the SAR in India?
- The Financial Intelligence Unit-India (FIU-IND) performs the same functions as FinCEN in the US. Under the Finance Ministry, this was set up in 2004
- As the nodal agency for receiving, analyzing and disseminating information relating to suspect financial transactions.
- The agency is authorised to obtain cash transaction reports (CTRs) and suspicious transaction reports (STRs) and cross border wire transfer reports from private and public sector banks every month
- Under the Prevention of Money Laundering Act (PMLA).
- It is mandatory for banks in India to furnish a monthly CTR to the FIU on all transactions over Rs 10 lakh or its equivalent in foreign currency or a series of integrally connected transactions that add up to more than Rs 10 lakh or its equivalent in foreign currency.
- The STRs and CTRs are analysed by FIU and suspicious or doubtful transactions are shared with agencies like the Enforcement Directorate, the Central Bureau of Investigation and the Income Tax for the purpose of launching probes to check possible instances of money laundering, tax evasion and terror financing.