How banks and the government keep track of suspicious financial activity
An obscure government database of suspicious financial activity was thrust into the spotlight Wednesday when the New Yorker’s Ronan Farrow reported that key information on Michael Cohen, President Donald Trump’s personal attorney, is missing from the system.
The Financial Crimes Enforcement Network is missing two reports showing Cohen accepted more money in potentially illicit transactions from than was previously known, a law enforcement official told the New Yorker. The official acknowledged leaking the database’s existing reports on Cohen — which were released last week by Michael Avenatti, Stormy Daniels’ lawyer, and showed that Cohen received a payment from a firm tied to a wealthy Russian businessman — out of concern over the missing documents.
The report has raised fresh questions about the database, and how the record-keeping process works. Here is a guide.
When was the database created?
The Treasury Department created the Financial Crimes Enforcement Network, which is known as FinCEN, in 1990, as a way to help law enforcement authorities identify money laundering and other illegal financial activity. FinCen has expanded its intelligence-gathering operation several times since then, including under the Patriot Act of 2001.
How does the database work?
FinCEN requires banks and other financial institutions to report client activity that meets the system’s criteria for suspicious behavior. Financial institutions are required to submit the data under the Bank Secrecy Act, a 1970 law aimed at combating money laundering and fraud. The information in the database is accessible by federal, state and local law enforcement agencies, and can be used in investigations. The entry of suspicious behavior into the database is not considered a crime.
Suspicious activity reports
There are two principal methods financial institutions use to disclose required information. The first is by filing what’s called a “suspicious activity report,” or an SAR, about transactions that appear to involve criminal activity. Other warning signs include clients who use fake forms of identification, or who make financial transactions that “serve no business or other legal purpose and for which available facts provide no reasonable explanation,” according to FinCEN’s website.
Financial institutions must also file suspicious activity reports for any transactions of $2,000 or more, and for transactions of $2,000 or more that seem to fit a pattern. SARs must also be filed if a large transaction is divided into multiple smaller ones to avoid FinCEN’s reporting threshold, an activity known as “structuring.” The number of suspicious activity reports filed each year has risen steadily from a few hundred thousand in the 1990s to more than one million a year now.
Currency transaction reports
Another common reporting method is called a “currency transaction report,” or CTR, which is primarily used to record larger transactions. Financial institutions must file these reports for “cash-in” or “cash-out” transactions larger $10,000, according to FinCEN. Cash purchases of $3,000 to $10,000 must also be recorded by financial businesses whose products include travelers checks or money orders. Records must also be kept of money orders of $3,000 or more, and currency exchange transactions of more than $1,000.
Does information in the database expire?
In theory, no. The information in FinCEN’s database remains there indefinitely, allowing law enforcement agencies to access it at any time.
Editors Note: We reached out to FinCEN for comment on this story, but did not receive a response before publication. After publishing, a FinCEN official gave us the following statement: “Under longstanding procedures, FinCEN will limit access to certain SARs when requested by law enforcement authorities in connection with an ongoing investigation. In any event, government employees and law enforcement personnel with access to the system are not authorized to publicly disclose SARs, and, as previously reported, Treasury’s Inspector General is looking into whether any SARs were improperly disclosed.”
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