Even as the regulatory environment in Washington eases, a top tool of the Internal Revenue Service—the Suspicious Activity Report (SAR)—is receiving more attention these days. What is a SAR and why is it important to the IRS?
Money laundering is big business—big illegal business—but an international practice nonetheless. In the early 1990s, SARs came into play as a means of connecting financial crime and tax fraud with the players and organizations involved. Today, financial entities are required to report suspicious activities they might observe through the course of their business through the Financial Crimes Enforcement Network (FinCEN).
Who files a Suspicious Activity Report?
Businesses that work with financial transactions and services are obligated to file SARs. This includes banks, financial institutions, credit unions, investment tools, brokers, card clubs, casinos and money services businesses (MSBs) that transfer and handle money as a service. While an extension can be granted under certain circumstances, SARs must be filed within 30 days of the so-called suspicious activity.
What does a suspicious activity look like?
Just like tax crime, suspicious activity takes many forms. Generally, actions and activities that raise questions about a source of money, its use, and its destination can give rise to suspicion. FinCEN offers some specifics:
- SARs are required for any transaction or conduct—attempted or completed—that leads to questions about criminal activity. This includes processes that appear to try and avoid reporting requirements and those that seem to serve no true business purpose.
- There are a variety of red flags for suspected fraud, including use of multiple IDs on different days, customers who appear to be sharing one ID, and refusal to complete a transaction when an ID is requested.
- When a customer uses a process that appears to avoid reporting guidelines, it is called structuring. Restructuring a transaction to avoid reporting—by making multiple transactions of smaller amounts, using different cashiers, or having multiple people carry out transactions, is considered structuring.
- MSBs are required to report questionable activity involving sums over a certain amount, such as $2,000 and $5,000.
A component of the effective use of SARs is the perception and observation of those who work at banking and other institutions. In the past, the IRS has pursued financial institutions that did not identify or report clearly questionable transactions. Recently, the IRS announced its CI-FIRST program—a collaborative initiative aimed at improving SAR submission quality and strengthening relationships between the agency and industry.
Understanding how SARs work offers insight into how financial institutions help detect and report potential financial crimes—and how those reports can ultimately support IRS investigations.
What to Do If You’re Facing Allegations
Money laundering tactics can be sophisticated or straightforward. If you are involved with laundering or other tax controversies, our tax attorneys provide strategic guidance for recognizing and resolving challenges with the IRS. Set up a consultation or call us at 440-250-9709. We serve clients across the U.S. and internationally from our offices in Cleveland and Chicago.
More knowledge is better than less. When you need a better understanding of criminal tax evasion or laundering schemes, download our comprehensive Understanding Tax Fraud eBook.
