Episode 7: Let’s Talk FinCrime and Suspicious Activity

What do financial crime investigations look like, and what goes on in the background to keep us all safe? In this episode of Let’s Talk FinCrime, learn how the financial industry uses suspicious activity reports to monitor activity and prevent financial crime.

Listen in as we kick off season two with B.J. Moravek, as he shares steps we can all take to protect our assets, plus highlights of his experience with the U.S. Secret Service, The Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network.

You can hear more of our conversation with B.J. by visiting actimize.nice.com/podcast

Transcript

Unknown: 0:11

Welcome to Let's talk fin crime, the show where we explain not only what compliance and financial crime are, but most importantly, what it means for you and how it affects your daily life. As always, I'm your host, Dave Ackerman. I'm a lawyer, former Chief Compliance Officer, and financial regulation expert for nice Active Minds based in New York City. We bring you conversations with some of the most interesting people we can find. All designed to help you understand what's happening in the financial world. This week, we're talking about SARS. In the financial world. SARS stands for suspicious activity reports. A SAR is a tool that financial institutions use to notify their country's government whenever there's a suspected case of money laundering or fraud. They help the government monitor activity within the finance industry that is either out of the ordinary, possibly illegal or even potentially threatening to public safety. In the United States, SARS gets sent to the Treasury Department for further investigation. So in this episode of Let's talk fin crime, we discuss what a SAR is, how they're used, and give you some examples of how SARS help you keep safe. With that I'm truly honored to introduce our next guest BJ more of is a director of AML and sanctions compliance at Kauffman Rossum. For over 30 years, BJ has worked in the financial crimes investigation. He's been at the Office of the Comptroller of the Currency in Washington, DC, he served as a senior Special Agent with within fincen, which stands for the Financial Crimes enforcement network, and they're with the Treasury Department. And for 20 years, he was a Supervisory Special Agent with the United States Secret Service. Truthfully, it would be a lot faster for me to list the various agencies that he didn't work for. But BJ, it's really great to have you with us. I'm excited for this conversation. Yeah, it's my it's my pleasure to be with you, Dave today and and to have a candid conversation about suspicious activity reports. I'm hoping it's informative to your, your your audience, and everybody takes a little tidbit away today. But thanks again for the opportunity. Well, so let's get into it. What What is this? I mean, I feel like the name is almost self explanatory. What is a suspicious activity report? In today's banking environment? And is it even important? Yeah, so so I'll kind of I'll walk you through suspicious activity reporting and and and just how critical they are. In today's banking environment. They are most important. It's Think of it as a way that that financial institutions communicate with the United States government. One of the things that that I like to instill in everybody when I get out there and have the opportunity to talk is that that the purpose of the of the Bank Secrecy Act, the sole purpose of it, and and all anti money laundering programs required by law is to identify suspicious activity and to file suspicious activity reports. With the Financial Crimes enforcement network, most banks get themselves into trouble when they don't file suspicious activity reports rather than having an overabundance of them. Now, these reports are filed by financial institutions, and that's everything from from a casino to to a bank to a to a money service business. So the definition of financial institution is much broader than than banks. So every year, roughly 2 million SARS are filed with the with the Financial Crimes enforcement network, between 2000 did you say 2 million? Yeah, about 2 million? Is that worldwide, or is that in the United States? that's just that's just within the United States around 2 million SARS are filed. Oh, yeah, it's a lot. To give you some idea around 12 million SARS have been filed with the Financial Crimes enforcement network from 2011 to 2017. And in 2019, alone, there were 2.7 5 million SARS filed. And just to give you an idea of what this is that that's reporting about $3 trillion in suspect activity, that has been reported to sent fincen since 2011. So so I want to make sure I understand this correctly. The these reports that the that a financial institution in the broader sense are required to send to the government It is essentially they they are self disclosing that there's that there is a transaction that they think may not necessarily be aboveboard, or how does that work? Like what exactly? You know, what do we what are we talking about when we say suspicious? Right? And that's a it's a great question, because, you know, believe it or not the Bank Secrecy Act, actually Deval defines what's suspect. And if I can go through those, there's, there's really three kind of bullet points that I'd like to go through that actually give you the definition of what's suspicious. The federal government gives guidance to banks, we define what is suspicious, and then it is their job to identify and report this activity. So first and foremost, it's a transaction that involves funds derived from illegal activities, or as intended or conducted in order to hide or disguise funds or assets derived from illegal activities as part of a plan to violate or evade any law regulation or to avoid any transaction reporting requirement under federal law. So that's, that's typically your money laundering, right? That's, that's an individual who receives proceeds from what we call specified unlawful activity. And then what he's trying to do is to is to is to hide it, you know, to just give you a little background, that money laundering occurs in three ways. There is a there is a a placement phase where the money goes into the bank, there's a layering phase where you move the money between financial institutions or between accounts within the within the financial institution. And then there's that integration phase where money that that that was gotten from illegal activity appears legitimate. So that's that money laundering cycle. So that's the first definition that the transaction involves illegal proceeds. That the second traction transaction is it's designed to evade any regulations promulgated under the Bank Secrecy Act, that's the that's, for example, structuring transactions, where what you're trying to do is you're trying to avoid the reporting requirements of structured transactions, you know, everybody probably is aware of the fact that banks are required to report transactions greater than $10,000 in cash conducted by any one individual in any one business day. So a lot of times individuals will try and structure transactions to to avoid that reporting requirement. So that would be suspect. And then last, but not least, the transaction has no business or apparent lawful purpose, and is not the sort in which the particular customer would normally be expected to engage. And the institution knows no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction. So for a second, because it's on its face, that makes sense, right, let's let's just take for a second that the Bank Secrecy Act is actually the worst named act on the planet, because it's almost the exact opposite of what it's actually doing. And it sounds to me like there was a lot of subjectivity in that, you know, how, how does a bank supposed to know that, that a transaction doesn't have a lawful purpose for, you know, if, let's say, let's say, I'm loaning money to my brother, how are they supposed to, to be able to separate that from an individual who was laundering money through a credit card scheme? Right, so so in what we consider to be like trade finance transactions, where where monies are moving between two parties, what you're looking for is a business relationship between the two parties. And the fact of the matter is, is that that business relationship can be established by doing what we consider to be due diligence in the public domain. So, for example, you see a company in China that that manufactures steel, right. And what they're doing is they're purchasing say, steel rolling equipment from Germany. The fact of the matter is that transaction may alert within a suspicious activity monitoring system but the fact of the matter is, is that you have the two counterparties involved in a transaction and you can develop a business sense that would that would be normal and expected right now if you see that same company, who is a steel manufacturer in in China purchasing Cotton in, in, you know, let's say Egypt, there is no business nexus between those. And that would be considered to be suspect activity, right? So the fact is, is that banks are required to do a requisite level of due diligence to understand the transaction and make sure it makes good business sense. Now, when you're talking about transactions between individuals, right, banks are required to develop that that Nexus they they are required to pick up the phone and say, I noticed that that bill, you sent money to Dave, can you tell us the purpose of that transaction right now, if the names are the same, then that you can, you can kind of hinge on the fact that maybe Bill's repaying his brother Dave, right. Or in the medical field or the wire, it will be something like repay long or things like nature, but if you cannot develop a a understanding or reason for that transaction, it becomes suspect. And then you're required to pick up the phone, contact your customer, right? And figure out why did you send the money to Dave? Bill? What was that for? And if he offers you a reasonable explanation, it's great. You don't have to file a suspicious activity report. But of course, if that, if that transaction and the explanation that that bill your customer gave as to why he sent $12,000 to get doesn't make sense, then that would be suspect, and you'd be required to file at SAR. Okay, so so it sounds to me. So this is where things get really interesting, at least in my mind, because all of this is happening right underneath the public's nose, right? No one actually outside of the finance world even knows that these types of reports exist. Correct. But my question to you is, millions of them are being filed in the US alone? Correct? Are they actually making a difference? Like what is actually happening once this suspicious activity is made known? Yeah, it's another it's another great question day because because everybody thinks these things go into this giant black hole, right. So so they are they are filed with the Financial Crimes enforcement network. And then the financial inquest and enforcement Financial Crimes enforcement network, review SARS, and uses the data contained within them to periodically publish SAR activity reviews, which report trends, tips and issues. And the fact of matter is, is that the general public can actually view these publications that are issued periodically by fincen. To see what what what's going on what's what are the trends that that banks are reporting, and it's it's made public, but it's also used by law enforcement. So what happens is is that is that fincen then gives law enforcement permission to go into and call and utilize this data. There, there are over 100 sar review teams located across the United States. The SAR review teams are comprised primarily of state local federal law enforcement and prosecutors as well as members of the United States military that review these, these SARS. These sores are also utilized by 78. fusion centers located across the United States states though these fusion centers are collaborative efforts between law enforcement agencies to share resources, expertise and information to detect criminal and terrorist activity. The goal is to integrate the information each agency has together to prevent security gaps due to lack of communication. So we learned after after 911, the fact that we were not as law enforcement agencies talking to one another. So these fusion centers force different law enforcement agencies to sit under the same roof, and to share information and these and these suspicious activity reports are a treasure trove of information I cannot tell you throughout my 20 year career as the United States Secret Service, how many cases I put together based on the information received from from from financial institutions required to file the SARS, it, it almost defies belief, though, I mean, when you think about the sheer volume of input, so for those who are listening, it's important to realize a lot of a lot of criminal activity is very difficult to build a case with. And there I can think of many instances throughout my career where you'll have individuals engaged in terrorism engaged in money laundering engaged in trafficking, where the the evidence doesn't exist to convict them into a court of law for the act in which they are being accused. However, the the idea that they're the money laundering aspect of it and moving money around and not paying taxes. on it, things of that nature. That is a very different animal. And it's something that, fortunately for us criminals are not as good at. So I mean, BJ, I'm kind of curious as to like, you know, when you're when you're looking at all of this information, is it? Is it the SAR reports from the banks in the financial institutions that are guiding your investigations where to go, or you start with something else, and then you use the source as additional resources? Well, so remember that, that that all SARS are filed post event, right. So they're reporting something that has already, you know, occurred. And And ideally, as a law enforcement officer, what you're looking for is is a SAR to be filed, kind of contemporaneously with the with the activity. So, so banks are required to file a SAR after 30 days of determination that a transaction is suspect. So what we're looking for is banks to be filing SARS on activity, which is pretty current rather than filing SARS on activity that occurred six months or a year later, there is little or no value to law enforcement. On a SAR that is filed reporting activity that occurred a year ago, what we're trying to do is looking for that opportunity to get in early on the suspect activity. So So is the SARS contain narratives. Right? And and we'll talk about just how easy it was. When we all know that, that that that a suspicious activity report was filed on activity related to former governor eliot spitzer in New York, right. And it was it was, it was that that that activity was filed by the bank because they didn't like what they were seeing. But but the agents that put that case together, simply went into the narrative portion of the SAR because the narrative portion can turn contains a story that said who, what, when, where, why, how, simply put in the word governor did a name search and that sort came up. So it tells you that that if you are a FBI agent, and what your expertise is that you work within a squad, that that primarily targets, political officials, bribery, corruption, things of that nature, it's as simple as you putting in a keyword into that, that that, that that database, putting in the word Gov in every single SAR there's ever been filed, that within that database has the word governor within the narrative, we'll come back to you. So it's a it's a tool that you can call, right and utilize to the best of your, whatever your area of expertise says you can put the word tear and you can put the wetter word governor and you can put the word, you know, bank fraud and money laundering, terrorist, whatever your whatever your your after these forms allow you to go in there and really, really, really utilize this data get really, really pinpoint accurate on it, and to call it and and because it's just, it's such a treasure trove of information. And for years, we've struggled to really capitalize on all that information that's in there. But over the years, we've gotten much, much, much better at at at at utilizing the data that is filed so painstakingly by these financial institutions. And that is a perfect spot to take our first commercial break. When we come back, we're going to really push into PJ's illustrious career and see how these types of reports have helped him protect us over the course of his 2030 years in this business. So we right there and we'll be right back. Billions of dollars each year are laundered through illicit money that flows across international borders to fund criminal activities, black market trade and terrorist financing. Nice, atomized and complicated help financial institutions fight back by providing a trade based money laundering and financial crime solution for the physical and financial supply chain of global trading. The solution addresses sanctions risk fraud and money laundering and provides document verification coverage for red flags embargo and sanctions checks and hopes prevent credit and invoice fraud. Visit atomized that nice.com slash TB ml to learn more. Welcome back, we are talking to BJ Have it who's the Director of AML and sanctions compliance at Kauffman Rosen. And for over 30 years, BJ is working on financial crimes investigation as a Supervisory Special Agent with the Secret Service with fincen and many other areas. And what we're talking about are these specific reports that banks and financial institutions must file with the government called SARS, or suspicious activity reports. More than 2.7 5 million of them were produced in 2019 alone. And they're used by law enforcement agents at all levels all over the country to help keep you and I's safe. So let's get into the fun stuff. This is the stuff that really gets people's blood boiling. Can you give us an example from your career where you cold some of this information that was produced by fence and and it may be possible for you to either aid an investigation or stop some criminal activity? Well, yeah, surely so. So again, this the SAR data is a treasure trove of information for, you know, federal law enforcement, state and local prosecutors. So So over the years, you know, I've had the opportunity to initiate numerous investigations based upon the filing of a SAR, one of them, one of the most memorable investigations that comes to mind involve the bank that was acting as a, as an intermediary, relative to numerous small dollar transactions to to to a bank and in Somalia. And the case involved the movement of monies by numerous US citizens, primarily, if I recall residing in Michigan, to an intermediary in the United States and eventually forwarded to a charity in Somalia tied to terrorist financing. You know, the SAR filed by the bank provided invaluable intelligence information is that identified numerous US citizens sympathetic to funding of terrorist activities in Somalia. So the money was was going to Al Shabaab who operates in in East Africa and Yemen, and they're, and they're an entity affiliated with al Qaeda. So it was a really, really sharp, sharp bank, with sharp analysts that saw the activity that file the SAR that provided us with with the names of hundreds of individuals who were moving money to this to this terror organization. So what it did was it identified for us individuals who were sympathetic to a terror organization in Somalia. So, you know, traditionally, individuals that are not sympathetic to terrorist organizations don't move money, but the fact is, is that if you are inclined to to move money to a terrorist organization, what it did was it provided us with with with extremely valuable intel on US citizens, who were sympathetic to Al Shabaab enough to send them send them money. So it provided for us a fantastic fantastic lead. And it's, it's a story of, of just success, right? It's that it's the partnering of financial institutions and the federal government to do to what to do one thing to identify bad guys to stop, stop, stop things cold in their, in their tracks to provide us with it with intelligence. So it was it was one of those success stories. Now, over the years, I've worked with work with law enforcement, and I've prosecuted many banks who have not been successful in in in the filing of SARS, as I said earlier, banks never get themselves into trouble for filing SARS, because they're provided with what we call Safe Harbor. But the banks that don't identify the suspicious activity that literally are, are, are almost willing co conspirators with these bad guys that that don't stop the activity that don't report it to the government really, really, really can be fined billions of dollars. But that makes sense. I mean, if if you think about this, conceptually, these reports are a tool to help various different law enforcement agents at all levels of the United States, as you say, find and go after the bad guy, right. So if they if if a financial institution is not diligent in that process and is not playing their part, I mean, you could understand why then enforcement of this would be show just unforgiving. Oh, it is because it's it's, it is removing a tool from your toolbox that seems to be instrumental in following the month. Well, David, I mean, it's it It's a it's a, it's an impediment. It's a roadblock. So, so the banks are not are not required to, you know, kick down doors and, and take their guns out and execute search warrants, that's our job. But what they are required to do is to notify us that there is suspect activity, right. And then they make a risk based decision as to whether or not they want to continue the relationship, some some banks will will take on risk because it's profitable for them and that they can they can mitigate the risk by pouring money into a compliance program. Some banks basically say, now we're out of this business right? So you know, the law allows you to continue to bank these, these what we consider to be bad guys as long as you file SARS, and then it's up to your individual financial institution to say Do we want to continue this activity and most banks their risk appetites do not allow for this and what they say is now you know, you file one you file two you file three SARS, six SARS, eventually what you say is enough is enough. And we have to sever the relationship with with the with the with the with the customer, but you can never one of the things everybody needs to realize and I've prosecuted I got the I was the one that was was instrumental in in working with the FBI to get the first ever prosecution of an individual for disclosing the existence of a subsea Activity Report. If you are a financial institution, you can never deny you, you can never tell the suspect or subject of a SAR that a SAR has been filed, you cannot disclose the existence of the SARS, the SARS are again, very, very, very, they're very delicate, they contain delicate information, their intelligence tool, but the fact of the matter is, if you disclose the existence of these SAR filings, you personally as well as your financial institution can be held, not only civilly liable, criminally liable for that disclosure. And unfortunately, in the past, we've had the opportunity not only to prosecute bankers for the unauthorized disclosure of the sores, but also members of law enforcement, and it's unfortunate, but the fact is, it's very taboo to ever say, Hey, we filed a SAR on this individual, it's just just cannot be done. So, so the nerd in me has to admit this to the audience and to yourself. That case that you're talking about that you worked on, I actually teach to young law students now who are looking at going into a career of financial regulation. It's it's almost the bedrock of how to operate with a SAR now. So let me quell some fears, then to I'm sure there's plenty of individuals who are listening to this and thinking, well, how, what happens if a SAR is filed on me? How do I prove that I am not funding terrorist activity? You know, if I use my credit card in two different places in too quick and time it gets shut off? How do I know that I'm not going to get caught up in all of this? And, you know, the last thing I want to do on the other side of the table looking at me, right? Right. So you know, the fact is, you know, myself, you Dave, the the listening audience will never know if a suspicious activity report has been has been filed on them. I think if if one was filed and a knock on the door comes from, you know, your local, your local police officer or a member of a star review team or a federal agent, I think you can put one to one together say, Oh, I must have done something wrong here. But the vast majority of the american public in their normal course of banking, really, chances are de minimis, that that a specific activity report would be filed on you. But there are instances where where individuals have unfortunately, primarily in the i would i would say the most individuals get themselves in trouble. When they take large cash transactions and they break them up. Where where say, you know, you you you you have, you have a large amount of cash and I would say when I when I'm talking about large amount of cash, I'm talking $10,000 in excess of $10,000. And you'll want to get it into the to the bank account. It could be that you've been you've had it your pillow for years and you just want to get it into the bank. The big problem we see most individuals get in trouble with is when they go into a bank in on a Monday they deposit $3,000 on a Tuesday they deposit $3,000 and then on a Friday they deposit $4,000 they get themselves into trouble every single Time and Isar will most likely be filed based on structuring you're trying to evade that$10,000 reporting requirement. The advice I always give individuals that if you want to deposit or withdraw cash, in a large amount, just do it. Number one, a currency transaction report will be filed, right because that that transaction is in excess of $10,000 conducted by an individual or on behalf of an individual in any one business day. But it's a whole heck of a lot better to have a currency transaction report file than it is a SAR file, right. That's our report Exactly. And I know unfortunately, of a United States Secret Service agent, who should have known better, who had an antique car, he sold that antique car for cash. And what he did was he structured those transactions. And in the end, he he not only lost his job, but he was convicted due to the fact that he should have known better and it was, it was, there was nothing wrong with selling an antique car for cash. And the price of the car was 12 grand, right? Because he says, Look, I don't want to take a check, I don't wanna take a wire, I just want to sell the car for cash. He sold the car for cash 12,000, which is fine. And what he should have done is simply deposited the cash in one fell swoop right? What he did was he structured it right? For four and four in the same week to avoid that, that CTR filing with there's nothing wrong with that. And in the end, it cost him his career. And a conviction, it was terrible. So that that's the big thing that what I see is most people get trapped in that currency transaction report. And in rather than just conducting the transaction, they structure them and they get they get caught every single time, every single time. So just in case, some of your former colleagues are listening, I have 14 nieces and nephews, and the amount of money that I have purchased in Girl Scout cookies over the years, definitely, definitely caused the SAR to be filed. So I have received for everything, I have the COVID pounds to show that I've eaten those cookies, there was no intent to traffic, right. So okay, so then let's see. Let's talk a little bit of futuring, a little bit to kind of close us out, right, this is a wealth of information. Clearly, financial institutions are getting the memo, that this is important. They have to pay attention to it, they need to stay on top of it. What do you see in the future? How do you see the role of this changing or maybe even providing greater value at some point in the future? Yeah. So So I see no change in the filing of specific activity reports. They're they're they're they're way, way, way too valuable to law enforcement, I think what we might see is, is with a with a raising of the of the thresholds, because right now, the sore threshold right now is pretty low. So So sores are filed on violations, aggregating$5,000, or more, where a suspect can be identified. There is some talk about taking that because we haven't made any changes to either the SAR filing requirements or the currency transaction report requirements. We're kind of we're kind of these, these, these documents were created in the in the in the in the 90s. Right? So what we're going to think about doing is adjusting them for for inflation and years later, so so so $10,000, in 9090 doesn't have the same value that $10,000 does. And in 2021. So we're thinking about raising that currency transaction report from 10 to maybe 20. Right. And the current and the SAR reporting requirements also there is some some some discussions now have taken that that that limit of$5,000 right now and bumping it up to 10 or 20 or 25 or something so the fact that matter is SARS will be around there too. They're too valuable to law enforcement. they've proven their value over the years. But what we see is is isn't a future some adjustments on the on the monetary thresholds for the filing of SARS and also currency transaction reports. Fantastic. BJ more back is the director of AML and sanctions compliance and Katherine Rosen. He personally helps financial institutions with complex Bank Secrecy Act AML. Sanctions compliance. BJ Can you please tell people how to get in touch with you or to learn more about your company? Sure. So you know, I run our I run our practice in in New York City, very proud to to be with Calvin Rossen, where we're located primarily in in Miami, Florida. We have five offices throughout Florida. My office in, in, in the Chrysler Building in, in New York, but the best way to get ahold of me is by cell that'll give you my personal cell. Everybody can, can call me on it 202-494-8214 or by sending me an email to be more avec mo our AV ek at Calvin, k u F ma n rossin. RSS i n one word.com. And I'd love to. I'd love to hear from anybody in the audience. If you got any questions or you just want to have a chat, please feel free to reach out to me. I mean, considering the history that you've been through, and the tremendous impact that you've had on so many people who probably didn't even know that your role existed. I mean, it's I really appreciate you being here. For those of you listening thank you again, please don't forget to subscribe. If you have an idea for a show. If you're interested in being a guest, we'd love to hear from you. So drop us a line at podcast at nice, atomized calm. Don't forget we have bonus content for every episode available at atomized, nice comm forward slash podcast. BJ I want to thank you again for being with us. And we will see you all on the next episode of Let's talk them