Financial Crimes Enforcement Network Requests Comment on Burden Imposed on Financial Institutions Related to Filings

In particular, financial industry participants that have anti-money-laundering (AML) program requirements will want to consider providing FinCEN with comments regarding, among other things,

1. factors that may affect the burden and costs of SAR reporting (particularly those that are amenable to quantification)
2. the characterization of the three stages FinCEN used in the Notice to calculate the estimates and the general case conversion rate used
3. the labor costs associated with the SAR process 
4. the categories FinCEN used to estimate complexity
5. whether the other assumptions FinCEN made were reasonable in calculating the estimated burden

Background

Regulators have often praised the information supplied in SARs filed with the U.S. Department of the Treasury (Treasury). In May 2020, for example, Treasury recognized a number of cases that were initiated because of, or helped by, analysis of Bank Secrecy Act filings. However, because of the confidential nature of SAR filings, the precise connections between particular filings and specific cases will always remain somewhat opaque. In addition, as the number of SAR filings has increased, at least with certain financial institutions such as broker-dealers, there has been a sometimes overlooked tension between “defensive” SAR filings and regulatory expectations that broker-dealers may not be filing enough SARs.

What has not been opaque or overlooked, however, has been the effort and cost required since the passage of the PATRIOT Act to develop, stand up, maintain and appropriately staff AML programs. AML programs, particularly in the broker-dealer industry, have grown from mere add-ons to their compliance departments to fully staffed and resourced powerhouses of their own, so much so that in 2015, a senior Securities and Exchange Commission staff member called the AML program an “especially critical component of a firm’s overall compliance program, the cornerstone over which all else is built.”² Indeed, regulatory settlements regularly require enhancements to AML programs and often the retention of a compliance or other consultant to recommend further changes. 

In the Notice, FinCEN is requesting comment on “a proposed updated burden estimate for the information collections” pursuant to the Paperwork Reduction Act of 1995 (the PRA).³ Notwithstanding the fact that FinCEN filed this with PRA as its focus, financial industry participants required to comply with SAR filing requirements under the PATRIOT Act should consider the potential effect they could have on reducing burdens with respect to SAR filing components of their AML programs.

The SAR Filing Burden

Traditionally, FinCEN has assigned one hour per SAR filing, which “included only the filer’s annual operational burden and cost associated with (a) producing and filing the report, and (b) storing a copy of the filed report.”⁴ In this Notice, “FinCEN intends to add a supplemental annual PRA burden estimate that reflects the annual costs involved in (a) determining whether alerts that were elevated for further review merit filing a SAR, and (b) documenting the decision not to file a SAR when a case does not merit it.”⁵ (Emphasis added.)

Further, “with respect to the methodology underlying the PRA burden and cost estimates, rather than continuing to allocate a single PRA burden and cost to the completion, submission, and storage of any type of SAR, FinCEN proposes to estimate the individual PRA burden and cost of different categories of SARs, grouped by the SARs’ estimated degree of complexity.”⁶ (Emphasis added.)

The Notice analyzes the 2019 SAR filing data to identify a number of factors against which to measure the burden, including whether to file a SAR, how to attribute suspicions conduct to various typologies and how to explain the rationale for the SAR. In addition, FinCEN considered other variables, such as the length of the SAR narrative, the number of actors involved and whether the SAR included an attachment.  

The Notice identifies six stages of SAR determination, and this Notice applies estimates only to three of them: evaluating cases for potential SAR filing, recordkeeping of cases not converted into SARs and the SAR filing process itself.⁷ FinCEN stated that it intends to address the burden and cost associated with the other three stages (maintaining a monitoring system, reviewing alerts and transforming alerts into cases) in a future notice.⁸

FinCEN’s Key Assumptions

The Notice assumes four staff positions (two “supervisory” and two clerical) to calculate the hourly burden estimate.⁹ Further, based on a 2018 Bank Policy Institute paper that calculated that banks filed SARs on 42 percent of alerts turned into cases (that is, not false positives), the Notice approximates the number of cases that could have generated the number of original SARs filed in 2019.¹⁰ Using these assumptions, among others, the Notice calculates that the cost of evaluating 5.56 million cases for original SARs is about 1.8 million hours, or about 20 minutes per case, at a total cost of $90.8 million. The Notice further estimates “that the average burden hours of documenting the rationale as to why a case does not merit filing a SAR, for all types of financial institutions and in the context of any type of suspicious transactions, would be 25 minutes per report.”¹¹ One summary table provides an estimated burden of anywhere from 3 to 300 minutes per report, depending on type of process or type of report.¹² Financial industry participants should take note of these calculations to determine whether they align with the actual costs, time and burden that financial institutions face in standing up AML program requirements associated with its SAR filing/not filing reviews and decisions.

Seeking Comment on FinCEN’s Assumptions

As noted above, the Notice seeks comment on a number of topics, including but not limited to, FinCEN’s characterization of the three stages used to calculate the estimates; resource costs (e.g., labor); and whether the other assumptions FinCEN made were reasonable in calculating the estimated burden.  

While the Notice contains a wealth of other data based on 2019 filings, financial industry participants should consider studying the details closely when considering what comments it considers in responding to this Notice.