FinCEN data shows identity filings are on the rise

The Financial Crimes Enforcement Network (FinCEN) released its Suspicious Activity Reporting (SAR) data for 2021 on Monday, March 28.

The report contains data by sector, state and type of filing since 2014 and provides valuable information to identify trends in defined suspicious activity that financial institutions (FIs) have filed with FinCEN, as required by the Secrecy Act banking.

FIs have a strong incentive to report suspicious activity because federal law provides them with full protection from civil liability if they report such activity in a timely manner and following the guidelines set forth in the law.

PYMNTS reviewed the data to identify key concerns related to customer identification and money laundering. FinCEN’s data covers eight sectors, but we’ve selected three, lending or finance companies, money services businesses (MSBs), and depository institutions.

For lending or finance companies, the first number that stands out is that 30% of reports nationwide (59,902) for suspicious activity refer to “questionable or fake ID”. This number rises to 40% if we add the problems related to “doubtful or false documents” and “identity theft”. Although not all identification issues are related to money laundering issues, it should be noted that reports for specific anti-money laundering (AML) issues such as “suspicious regarding source funds” doubled in 2021 (931) compared to 2020 (494) and tripled compared to 2019 (355), although the numbers are still low.

In the MSB category, issues related to identity are also of concern. While companies seem to have fewer problems when it comes to obtaining documents, identification problems have increased. In this regard, filings of “doubtful or false documents” fell by almost 50% from 2018 (43,735) to 2019 (23,688) and then remained stable. However, filings for “dubious or false identification” rose from 2,074 in 2018 to 14,432 in 2019, and then increased slightly. Most notably, reports of “suspects regarding source of funds” increased by more than 150%, from 60,069 cases in 2020 to 100,260 cases in 2021.

For deposit-taking institutions, the table is slightly different from the other two. In absolute numbers, these institutions submit more reports, but the data suggests that these companies report more money laundering activity. For example, the top priority or most common concern is “suspicious about the source of funds” for almost 10% of total deposits, and the next top activities are also related to anti-money laundering, such as transactions below the Currency Transaction Reporting (CTR) thresholds, transactions with no apparent economic or business purpose, or off-pattern transactions for clients. Requests for questionable identification or documents have remained stable or even decreased in recent years.

The data is aggregated and doesn’t allow specific conclusions to be drawn about the specific issues that triggered these filings, but it does provide useful insights into where companies are devoting more resources.

For depository institutions, there is a significant and steady increase in money laundering reports. This may be due to an increase in illicit activity and/or improved AML programs that companies are implementing. One of the requirements of a good AML program is to perform due diligence to identify and verify customers. In this area, depository institutions managed to more than halve the declarations they issued in 2021 (110,665) compared to 2019 (235,835).

For MSB, the trend is similar in money laundering issues, but when it comes to identification, these companies have seen a recent spike after a few years of declining filings. In absolute terms, MSB reports for identification issues (88,207) are not that far off from depository institutions (110,665), suggesting that part of the customer onboarding process may have gone downhill. -be moved from one type of institution to another, or that the clientele of MSB institutions has increased in greater number than for deposit-taking institutions.

Finally, for credit or financing institutions, the main concern seems to be identification, where reports are increasing rapidly, while the number of reports for other money laundering problems remains shockingly low (1,683 in 2021 ).

These data show at least two trends. First, companies are detecting and reporting more issues around customer verification and identification. Second, depository institutions are likely devoting significant resources to identifying and detecting money laundering offenses given the growing number of reports.

See also: FinCEN recovers $1.1 billion for crime victims