FinCEN Seeks to Clarify Suspicious Activity Reporting Obligations Under the BSA

The Financial Crimes Enforcement Network (FinCEN) recently issued some rare, detailed guidance concerning the filing of Suspicious Activity Reports (SARs), impacting how financial institutions and larger casinos comply with anti-money laundering laws and potentially signaling a larger regulatory shift.

FinCEN was joined in issuing this new guidance by several other federal agencies, including the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC). This guidance is aimed at assisting financial institutions, including non-bank financial institutions such as certain casinos,[1] with their SARs filing obligations under the federal Bank Secrecy Act.

This client alert is intended to summarize this new guidance for the benefit of casinos subject to the Bank Secrecy Act’s requirements.

Background

The Bank Secrecy Act (BSA) is a federal law that requires financial institutions, including banks but also larger casinos and certain types of businesses, to maintain an effective anti-money laundering (AML) program. Specifically, the BSA requires such businesses to submit certain types of reports of financial activity by their customers to FinCEN, an agency within the U.S. Department of the Treasury. These submissions generally fall into two categories: Currency Transaction Reports or “CTRs” and Suspicious Activity Reports or “SARs.” In the casino context, CTRs must be filed for every cash transaction that exceeds $10,000 in a single 24-hour period. SARs must be filed for any transaction, cash or otherwise, that exceeds $5,000 and includes any indicia of fraud or money laundering. The overall goal of the BSA’s filing requirements is to collect intelligence on certain types of financial activity so as to allow federal law enforcement agencies to utilize this information in the course of criminal investigations.

FinCEN periodically issues guidance to assist financial institutions, including casinos, on how to better understand when and how to file SARs in particular. Such guidance is important given the inherent subjectivity in determining when and exactly how to file SARs in a way that complies with both the applicable laws and regulations and FinCEN’s expectations. The new guidance issued on Oct. 9  includes some useful new information for financial institutions generally, and casinos in particular, and is summarized below.

The New SAR Guidance

The new guidance was issued in the form of answers to four “frequently asked questions” (FAQs), which are briefly summarized below.

1. What are the SAR Filing Requirements for Transactions at or Near the CTR Threshold Absent Evidence of Structuring? The new guidance makes it clear that the mere fact of a transaction or transactions at or near the $10,000 threshold for CTR filing does not require the filing of a SAR. Further, this guidance confirms that such a SAR must be filed only if the casino “knows, suspects or has reason to suspect that” the subject transaction(s) are “designed to evade CTR reporting requirements.” The guidance also reiterates that a casino’s BSA compliance program should be designed to detect and report structuring to guard against use of the casino for money laundering. The details of a casino’s monitoring for such activity should be commensurate with the casino’s level of money laundering risk, all things considered.

2. Is a Casino Required to Conduct a Review of a Patron Account following the Filing of a SAR? The new guidance clarifies that a casino is not necessarily required to conduct a separate review of a patron following the filing of a SAR. Rather, any such review should be based on appropriately risk-based internal policies, procedures and controls to monitor and report and appropriate. In other words, a casino is not required to conduct a separate review, manual or otherwise, of a patron or account following the filing of a SAR to determine whether suspicious activity has continued.

3. What Is the Timing for Filing Reports of Continuing Suspicious Activity? Although FinCEN had previously suggested that financial institutions report continuing suspicious activity via SARs at least every 90 days, subsequent guidance modified that timing. The new guidance seems to suggest that SARs should be filed in accordance with applicable timelines within 30 calendar days after the date of the initial detection of the facts justifying a SAR. For SARs filed in accordance with continuing suspicious activity guidance, they should include the entire 90-day period starting on the date immediately following the initial SAR. It should be noted that there is some confusion about this new guidance in terms of what it means, exactly, and whether it may be in conflict with other guidance. Further clarification should be expected.

4. Is Documentation of a Decision Not to File a SAR  Required? Not necessarily. The new guidance emphasizes that the BSA does not require that a financial institution document its decision not to file a SAR. This clarifies that previous guidance encouraging such documentation as merely a good practice in some cases and not a legal requirement in all cases. The new guidance does suggest that in situations where documenting the fact that a SAR was not filed is deemed appropriate, a simple, concise statement will suffice as sufficient documentation in most cases.

Conclusion

Recent BSA enforcement actions by FinCEN and the U.S. Department of Justice and related state regulatory enforcement actions clearly indicate that BSA compliance is a priority at both the federal and state levels. It is important for casinos to make BSA compliance a priority and to closely monitor guidance updates from FinCEN. Casino operators are advised to consult with experienced counsel for advice on analyzing, interpreting and, when applicable, implementing new FinCEN guidelines.

If you have any questions about this new guidance or about BSA compliance generally, please contact the authors.

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[1] U.S. casinos with annual gross gaming revenue of more than $1 million are considered to be non-bank financial institutions and therefore subject to the BSA’s anti-money laundering requirements and related regulations.