Why STRs are important
In most countries, it is a requirement by law for regulated organisations to report suspicious transactions or activity, especially those that are members of the Financial Action Task Force (FATF) and follow their recommendations for anti-money laundering (AML) and combating the financing of terrorism (CFT).
Suspicious transaction reports (STRs) are documents submitted to the relevant financial intelligence unit (FIU) when there are reasonable grounds to suspect an individual or organisation is laundering money, engaging in terrorist activity, or committing other financial crime. These documents provide critical data to assist law enforcement in investigations into criminal activity, and are an important tool in the process of ‘following the money’.
Criminal investigations helped by the submission of STRs can include all sorts of crime, from child trafficking to modern slavery, drug smuggling to terrorism. STRs play a key role in combatting money laundering and terrorist financing because they can trigger an investigation into a previously unknown criminal activity and help to unravel the financial trail connected to that activity.
The United Nations categorises transactions as suspicious when there are reasonable grounds to suspect the transaction is linked to the proceeds of criminal activity or is related to terrorist financing. Suspicious activity refers to ‘irregular or questionable’ behaviour or activity, or a transaction that is inconsistent with normal activities or those expected for that account type.
Global STR statistics show an increase in report submissions
- The number of SARs filed in the US has increased by 50% since 2014 to over 2.5 million in 2020
- Australia has seen a 258% increase in SMRs since 2016-17, relating to the submission of approximately 265,000 SMRs in 2019-20
- Over 570,000 SARs were filed in the UK in 2020, up 20% from 2019
Why are the number of STRs increasing globally?
While the cause of this rise is not certain, it is likely to be reflective of several factors:
- Increasingly sophisticated AML software detecting more suspicious activity.
- Lower risk appetite driven by increased regulatory action for reporting breaches. As the penalties for non-compliance with AML regulations have increased, so too has the number of STRs submitted. While most of these reports are likely to be justified, many banks fear being hit with penalties if an STR is not filed, so the phenomenon of defensive reporting becomes a real issue.
- Not having enough information to safely determine whether something is suspicious or not. Organisations may deem it safer to be overly cautious and submit a report if they are unsure.
- There is growing evidence to suggest that there has been an increase in the amount of money being laundered since 2017.
Why is a higher volume of STRs a problem?
It is likely a combination of the above factors that have led to the global rise in the number of STR submissions to regulators and FIUs.
Regardless of the reason for this rise, it signifies further pressure being placed on both the organisations filing STRs, and the bodies receiving them, as they can be resource intensive to file as well as to process.
Scandals like the FinCEN Files call into question the effectiveness of the current system, in which many STRs, once filed, are not processed in any meaningful capacity and can result in criminal activity going unprosecuted and reputational damage for the financial institutions and regulators involved.
How can technology help?
Regulators are already showing great commitment to improving technology, which can only spell improvement for AML processes and the fight against financial cri me.
For example in the UK, digital transformation of SARs (Suspicious Activity Reports) submitting and analysis is being driven by Action 30 of the Government’s Economic Crime Plan, which aims to transform the quality and ease of submission of SARs - especially for bulk reporting.
When properly applied, technology can deliver the internal efficiencies needed to reduce the financial and human resource burdens associated with filing STRs.
Ensuring full compliance with all STR regulatory requirements, Napier’s STR Builder not only saves time but gives peace of mind with stringent data security. By implementing Napier’s STR Builder, compliance teams can focus on submitting high quality, detailed and accurate STRs, confident that the contents are secure, confidential, and compliant with anti-tipping off regulations.
Suspicious transaction reporting: how technology can ease the burden
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