FinCEN Data Shows Increase in Identity-Related Filings, Stressing Importance of KYC Programs

FinCEN Proposes Rule, Fight Illicit Finance

The Financial Crimes Enforcement Network (FinCEN) published Monday (March 28) its Suspicious Activity Report (SAR) data for 2021.

The report contains data by industry, state and type of filing since 2014 and provides valuable information to identify trends of defined suspicious activities that financial institutions (FIs) filed with FinCEN, as required by the Bank Secrecy Act.

FIs have strong incentives to file suspicious activities because federal law provides them with complete protection from civil liability if they report these activities on time and following the indications stated in the law.

PYMNTS has looked at the data to identify the main concerns related to customer identification and money laundering. FinCEN data covers eight industries, but we selected three of them, Loan or Finance Company, Money Services Businesses (MSB) and Depositary Institutions.

For Loan or Finance Companies, the first figure that stands out is that 30% of the filings nationwide (59,902) for suspicious activities refer to “questionable or false identification.” This number rises to 40% if we add problems related to “questionable or false documentation” and “identity theft.” While not all the identification problems may be linked to money laundering concerns, it is noticeable that the filings for specific anti-money laundering (AML) issues such as “suspicious concerning the source of funds” doubled in 2021 (931) compared to 2020 (494) and tripled compared to 2019 (355), although the numbers are still low.

In the category of MSB, identity-related problems are also a concern. While companies seem to have fewer issues when it comes to obtaining documents, problems with identification have increased. In this regard, filings for “questionable or false documentation” dropped almost 50% from 2018 (43,735) to 2019 (23,688) and then remained flat. However, filings for “questionable or false identification” increased from 2,074 in 2018 to 14,432 in 2019 and then increased slightly. Most notably, the reports of “suspicious concerning the source of funds” increased more than 150%, from 60,069 cases in 2020 to 100,260 cases in 2021.

For Depositary Institutions, the picture is slightly different from the other two. In absolute numbers, these institutions submit more filings, but the data suggests that these companies are reporting more activities related to money laundering. For instance, the top priority or most common concern is “suspicious concerning the source of funds” for almost 10% of the total filings, and the next activities on top are also AML related, like transactions below currency transaction report (CTR) thresholds, transactions with no apparent economic, business purpose or transactions out of pattern for customers. Filings for questionable identification or documentation have remained flat or even decreased in the last few years.

The data is aggregated, and it doesn’t allow to draw specific conclusions on the specific problems that triggered these filings, but it provides useful information about where companies are devoting more resources.

For depositary institutions, there is a significant and consistent increase in money laundering reporting. This may be due to an increase in illicit activities and/or an improvement in the AML programs that companies are putting in place. One of the requirements for a good AML program is to conduct customer due diligence to identify and verify customers. In this area, depositary institutions have managed to decrease more than half the reports that they issued in 2021 (110,665) compared to 2019 (235,835).

For MSB, the trend is similar in money laundering issues, but when it comes to identification, these companies have experienced a recent spike after a few years reducing the number of filings. In absolute terms, MSB filings for identification issues (88,207) are not so far from depositary institutions (110,665), suggesting that maybe part of the customer onboarding process has moved from one type of institution to another, or that the customer base of MSB institutions has increased in bigger numbers than for the depositary institutions.

Finally, for loan or finance institutions, the main concern seems to be identification, where the filings are rapidly increasing, while the numbers of reports for other money laundering issues remain shockingly low (1,683 in 2021).

This data shows at least two trends. First, companies are detecting and reporting more issues concerning customer verification and identification. Second, depositary institutions are probably devoting significant resources to identify and detect money laundering violations given the increasing number of filings.

See also: FinCEN Recovers $1.1B for Crime Victims