A new hot topic is AML and SAR over reporting. Bankers and financial managers are both so spooked about not filing SAR’s and have such little knowledge of their clients that as soon as something happens – they pull pages out of a John Grisham novel, write up the SAR and ship them off.
The “Full Metal Jacket” approach to monitoring clients and filing SARs is in a word – STUPID.
Let’s begin with a logic chain…
- A transaction occurs that you do not understand.
- You think about what it could be (see John Grisham reference).
- A wonderful story is created.
- You search what little you know of the client and pick facts that reinforce your narrative.
- You file the SAR – certain you are protecting your firm.
There is nothing like good intentions and ignorance running at full speed guaranteeing that the logic train which smacks into a wall at high speed, just before it ricochets off the cliff plunging over a cliff, into a raging river full of piranhas, awaiting the final explosion.
Over reporting is symptom of a problem, not a cure for another. The problem is a faulty KYC process. Either client intake or client representative or back office sloth does not really understand the client. Several cases have been filed by the customers against the banks for SAR reporting where the was no suspicious behavior – only a lack of understanding by the bank of the their client. Shah vs HSBC is a great example of how HSBC truly failed to understand their client and spent million in legal expenses defending itself.
A good KYC and back office will reduce the number of SARs filed and has done so in each of our engagements. The nature of most of our engagement for helping KYC and back office has been after a team has taken the “Full Metal Jacket” approach, over reported – thus signaling the regulatory authorities that they had a iffy KYC and back office.
SARs should only be filed when there is an authentic suspicion. Not for any other reason. This includes SAR filing used as a means of retribution against former clients, paramours, or the threat of an SAR as a means to extort money from a person or business.
Please! Just do your KYC and really Know Your Client.