The SAR Activity Review - fincen.gov · reports, issue papers, and other publications related to, or resulting from, information contained in the SAR Activity Review may be published

TheSARActivityReviewTrendsTips &Issues

Published under the auspices of the Bank Secrecy Act Advisory Group

Issue 5

February 2003

Table of Contents

Introduction…………………………………….……………….....……1

Feedback Form………….…………………………………………...….3

Section 1 – Suspicious Activity Report Statistics………...………....…5

Section 2 – Trends and Analysis……………………………....…..…..17

Section 3 – Other SAR Analysis Issues………….….……..........……..25

Section 4 – Law Enforcement Cases……………….……....….......…..51

Section 5 – Tips on SAR Form Preparation & Filing…….............….55

Section 6 – SAR News Update………….....……………….........……..61

Section 7 – Issues and Guidance………………………...……..............65

Section 8 – Industry Forum…..........…………………………..…...…..69

Appendix 1 – Characterization of Suspicious Activity byStates and Territories by Year…………………....................................72

Introduction

The SAR Activity Review-Trends, Tips and Issues is a product of continuingdialogue and close collaboration among the nation's financial institutions, lawenforcement officials, and regulatory agencies to provide meaningful informationabout the preparation, use, and value of suspicious activity reports (SARs) filed byfinancial institutions.

Significant topics presented in this issue include terrorist financing methodsthrough Informal Value Transfer Systems (IVTS) such as hawalas, as well asthrough non-profit organizations. Also, the money laundering vulnerabilities andindicators of suspicious activity are identified for certain financial institutions thatmay, in the future, be subject to anti-money laundering program rules required bySection 352 of the USA PATRIOT Act. Those institutions include travel agencies,automobile and boat dealers, pawnbrokers, life insurance companies, and certainsegments of the securities industry. Additionally, information concerning the newPatriot Act Communication System (PACS) is provided in the Issues andGuidance Section of this publication.

This publication reflects the recognition of relevant government agencies and thenationís financial institutions of the desirability of a continuing exchange ofinformation between the private and public sectors to improve the SAR System.These financial institutions and government agencies include, among others, theAmerican Bankers Association; Independent Community Bankers of America;American Institute of Certified Public Accountants; Securities IndustryAssociation; Futures Industry Association; Non-Bank Funds Transmitters Group;Federal Reserve Board (FRB); Office of the Comptroller of the Currency (OCC);Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision(OTS); National Credit Union Administration (NCUA); Federal Bureau ofInvestigation (FBI); U.S. Department of Justiceís Criminal Division and AssetForfeiture & Money Laundering Section; U.S. Department of Treasuryís Office ofEnforcement; U.S. Customs Service (USCS); U.S. Secret Service (USSS);Internal Revenue Service (IRS); and the Financial Crimes Enforcement Network(FinCEN).

The SAR Activity Review is published semiannually. The previous issues werereleased in October 2000, June 2001, October 2001, and August 2002. Analytic

1

reports, issue papers, and other publications related to, or resulting from,information contained in the SAR Activity Review may be published separately.

Questions, comments, and other feedback concerning the SAR Activity Review arewelcome. A feedback sheet is included on the next page. Comments may also beaddressed to either or both of the SAR Activity Review project co-chairs:

John J. Byrne David M. VogtSenior Counsel and Executive Associate DirectorCompliance Manager Office of Regulatory PolicyAmerican Bankers Association Financial Crimes Enforcement1120 Connecticut Ave., NW Network (FinCEN)Washington, DC 20036 (703) 905-3525 (phone)(202) 663-5029 (phone) (703) 905-3698 (fax)(202) 828-5052 (fax) [email protected]@aba.com

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3

Feedback FormFinancial Crimes Enforcement Network - U.S. Department of the Treasury

Your feedback is important and will assist us in planning future issuesof the SAR Activity Review. Please take the time to complete thisform. Thank you for your cooperation.

A. Please indicate your level of satisfaction with each section of the SAR ActivityReview.

1=Not Useful, 5=Very Useful

a. SAR Statistics 1 2 3 4 5b. Trends and Analysis 1 2 3 4 5c. Other SAR Analysis Issues 1 2 3 4 5d. Law Enforcement Cases 1 2 3 4 5e. Tips on SAR Form Preparation and Filing 1 2 3 4 5f. SAR News Update 1 2 3 4 5g. Issues and Guidance 1 2 3 4 5h. Industry Forum 1 2 3 4 5

B. How do you use this report? (Check all that apply)

a. Training _________b. Background information resource _________c. Analytic tool _________d. Increase management awareness _________e. Comparison of statistics _________f. Make changes to your compliance program _________g. Audit/exam preparation _________h. Other (identify) _________

C. With whom have you shared the SAR Activity Review? (Check all that apply)

a. Your staffb. Your colleaguesc. Senior managementd. Board/audit committee

D. Have you discussed the SAR Activity Review at management meetings? [ ] Yes [ ] No

E. How did you receive the SAR Activity Review?

a. At the ABA/ABA Money Laundering Enforcement Seminar ______b. On an agencyís website ______c. From a law or accounting firm ______d. Other (identify) ______

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F. Which of the following best describes your job position? (Check one)

a. [ ] CEO/COO d. [ ] Operations g. [ ] Securityb. [ ] Compliance e. [ ] Legal h. [ ] Governmentc. [ ] Risk Management f. [ ] Audit i. [ ] Other______

G. Which of the previous issues have you read? (Check all that apply)

[ ] October 2000 [ ] June 2001 [ ] October 2001 [ ] August 2002

H. Any Additional Suggestions or Comments?__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Thank you for your feedback.

Send your Feedback Form to:

FinCEN Office of Strategic AnalysisFax [email protected]

OR

American Bankers AssociationFax [email protected]

200113,76714,66016,08415,35716,33514,38716,82319,20314,28320,57120,44421,624

January February MarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecemberSubtotal

Total Filings

1996---

2,1704,4046,0706,9076,5676,9387,4745,0296,510

52,069

19976,1235,5196,8507,1846,754 6,6967,1756,3327,5617,4395,9607,604

81,197

19986,8327,0558,9388,0577,409 8,737 8,7578,5327,5778,1657,8488,614

96,521

19998,6219,949

11,4929,478

10,400 10,956 8,518

10,4848,4719,843

11,24311,050

120,505

200013,39913,63415,15411,49913,674 13,963 12,61114,11113,32113,14814,43713,769

162,720

Exhibit 1SAR Filings by Year and Month

Number of Filings

940,782

203,538

200219,42417,88125,03719,24927,31316,59026,60022,43324,57125,134

224,232

5

Section 1Suspicious Activity Report StatisticsApril 1, 1996 through October 31, 2002The following statistics1 relate to SARs filed since April 1996 by depositoryinstitutions (i.e., banks, thrifts, savings and loans, and credit unions). A small partof the total volume relates to reports filed by affiliates of depository institutions or,in some cases, filed voluntarily by money services businesses (MSBs) prior to2002, and by brokers and dealers in securities who are not affiliated with banks, orgaming businesses that, during this time frame, were not yet required under theBank Secrecy Act (BSA) to file SARs.

Note: SAR statistical data is continuously updated as additional reports are filed andprocessed. For this reason, there may be minor discrepancies between the statisticalfigures contained in the various portions of this report or in previous reports.

1 Statistics generated for this study were based on the Document Control Number (DCN) of each recordwithin the SAR system. The DCN is a unique number assigned to each SAR submitted. Numericdiscrepancies between total number of filings and the combined number of filings of states and/orterritories are a result of multiple filers listed on one or more SARs.

1,156287

24,350

69454,467

3,5264,4454,360

5941

12,4344,112

90982401

5,7271,638

838838

1,3342,312

3251

2,2493,2204,8803,379

6932,472

284835

3,2211,018

AlabamaAlaskaAmerican SamoaArizonaArkansasCaliforniaColoradoConnecticutDelawareDistrict of ColumbiaFederated States of Micronesia FloridaGeorgiaGuamHawaiiIdahoIllinoisIndianaIowaKansasKentuckyLouisianaMaineMarshall IslandsMarylandMassachusettsMichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew HampshireNew Jersey

36265

21,905

20612,631

881422

1,136174

14,195

90727

406109

1,601596267275271500120

0652885

1,1751,000

160638

71194695273949

44559

03,104

33518,143

1,069785

1,429233

3 6,5601,492

80536150

2,763764363287388594186

0937

1,4021,7192,266

251966107249

1,486506

1,530

406131

7 2,392

29722,836

1,475937

1,657274

36,9881,656

52553120

2,863955325362424666189

01,1821,8281,8482,208

2221,139

100315

1,966416

2,377

528157

22,505

43024,995

1,6794,4492,004

2851

7,9132,205

84550186

3,7931,163

427555751902213

21,5372,4772,7462,511

2831,215

152371

2,063573

3,349

689353

103,894

560 43,3042,1464,8733,670

467 3

9,9183,141

73731402

4,7901,349

493520853

1,943241

02,0692,7473,7652,893

5211,590

220615

3,074448

4,197

Exhibit 2SAR Filings by States and Territories

—For the Period April 1, 1996 through October 31, 2002—

State/Territory 1996 1997 1998 1999 2000 2001 2002

6,600

1,034341

710,020

77552,163

5,9233,8285,490

7513

14,4064,657

1061,001

2878,2712,112

7621,2431,5362,422

3723

2,9754,3194,7583,546

6172,307

1982,1652,872

8235,694

6

50223,737

3,238224

414,536

8972,813

203

4,4981,237

530963478

2,03613,426

5834

2,67398

3,0143,989

1731,260

201

New MexicoNew YorkNorth CarolinaNorth DakotaNorthern Mariana IslandsOhioOklahomaOregonOverseasPalauPennsylvaniaPuerto RicoRhode IslandSouth CarolinaSouth DakotaTennesseeTexasU.S Virgin IslandsUnknown/BlankUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyoming

237 5,511

9394322

975395602

120

1,510188166312326569

4,0013

318387

57634771114372

27

2379,6611,621

2155

1,722497

1,11739

02,481

562290563430799

4,9139

20588288

1,2081,733

15455143

28613,297

2,063212

132,198

5031,196

70

2,409440283627547890

6,1581228

1,06861

1,5012,176

161649

54

30717,748

2,366122

332,295

6981,807

20

3,571316503668675993

7,6051726

1,36158

1,5353,124

154755

40

40319,138

2,97822457

3,319813

2,47122

03,535 1,063

495733267

1,55510,119

3219

2,21969

2,0013,362

1821,006

67

Exhibit 2 (continued)

SAR Filings by States and Territories—For the Period April 1, 1996 through October 31, 2002—

State/Territory 1996 1997 1998 1999 2000 2001 2002743

25,5023,049

20465

5,0521,0541,611

111

5,5421,555

9231,1252,9301,732

14,20259

1202,756

1132,8632,665

2411,293

128

7

12345678910111213141516171819202122232425262728293031323334

CaliforniaNew YorkFlorida TexasIllinoisArizonaNew JerseyPennsylvaniaMichiganOhioDelawareConnecticutGeorgiaWashingtonMinnesotaMassachusettsColoradoNorth CarolinaNevadaVirginiaOregonMarylandUtahMissouriLouisianaIndianaTennesseeWisconsinSouth DakotaKentuckyPuerto RicoSouth CarolinaOklahomaHawaii

228,539114,594

62,41460,42430,25828,17024,69623,54620,89120,09719,74619,73918,17017,82017,80316,87816,69916,25415,37712,75611,61711,60111,34610,327

9,3398,5778,5745,8865,6535,5575,3614,9914,8574,759

24.30%12.20%

6.65%6.40%3.20%3.00%2.60%2.50%2.20%2.15%2.10%2.10%1.95%1.90%1.90%1.80%1.75%1.70%1.65%1.35%1.25%1.25%1.20%1.10%

Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%

Exhibit 3Frequency Distribution of SAR Filings Ranked by States

and Territories in Descending Order —For the Period April 1, 1996 through October 31, 2002—

Rank State/Territory Filings Percentage2

(Overall) (Overall)

8

353637383940414243444546474849505152535455565758596061

NebraskaAlabamaKansasNew HampshireIowaArkansasRhode IslandDistrict of ColumbiaMississippiNew MexicoIdahoMaine AlaskaNorth DakotaWest VirginiaMontanaBlank/UnknownWyomingVermontGuamNorthern Mariana IslandsU.S. Virgin IslandsOverseasAmerican SamoaFederated States of MicronesiaMarshall IslandsPalau

4,7444,6204,0804,0573,4753,2973,1902,7782,7472,7151,6551,6461,3931,2441,1791,132

750560544512236190113

3015

64

Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%


Frequency Distribution of SAR Filings Ranked by States and Territories in Descending Order


Rank State/Territory Filings Percentage2

(Overall) (Overall)

9

2 All percentages are approximate.

123456789

1011121314151617181920

BSA/Structuring/Money LaunderingCheck FraudOtherCounterfeit CheckCredit Card FraudUnknown/BlankCheck KitingDefalcation EmbezzlementMortgage Loan FraudConsumer Loan FraudFalse StatementMysterious Disappearance Misuse of Position or Self DealingWire Transfer FraudCommercial Loan FraudDebit Card FraudCounterfeit Credit/Debit CardCounterfeit Instrument (Other)Computer Intrusion4

Bribery/Gratuity

491,988124,141

83,64549,29044,74339,14036,48536,40021,06919,18817,70412,96312,916

7,9677,7675,7814,1252,9981,7771,078

48.20%12.15%

8.20%4.80%4.40%3.85%3.60%3.55%2.10%1.90%1.75%1.27%1.27%

Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%Less than 1%

Exhibit 4Frequency Distribution of SAR Filings

by Characterization of Suspicious Activity in Descending Order—For the Period April 1, 1996 through October 31, 2002—

Rank Violation Type Filings Percentage3

(Overall) (Overall)

10

3 All percentages are approximate.4 Separate box for this violation was added to form TD F 90-22.47 in June 2000. Statistics date from that period.

BSA/Structuring/Money LaunderingBribery/GratuityCheck FraudCheck KitingCommercial Loan FraudComputer Intrusion5

Consumer Loan FraudCounterfeit CheckCounterfeit Credit/Debit CardCounterfeit Instrument (Other)Credit Card FraudDebit Card FraudDefalcation/EmbezzlementFalse StatementMisuse of Position or Self DealingMortgage Loan FraudMysterious DisappearanceWire Transfer FraudOtherUnknown/Blank

21,655 94

9,0782,902

5830

1,1902,405

391219

3,340261

3,2861,880

9521,3181,216

3024,8361,539

Exhibit 5 Frequency Distribution of SAR Filings

by Characterization of Suspicious Activity—For the Period April 1, 1996 through October 31, 2002—

Violation 1996 1997 1998 1999 2000 2001 2002

35,625109

13,2454,294

9600

2,0484,226

387294

5,075612

5,2842,200

1,5321,7201,765

5096,6752,317

47,22392

13,7674,032

9050

2,1835,897

182263

4,377565

5,2521,970

1,6402,2691,855

5938,5832,691

60,983101

16,2324,0581,080

02,5487,392

351320

4,936721

5,1782,376

2,0642,9341,854

7718,7396,961

90,606150

19,6376,1631,320

653,4329,033

664474

6,2751,2106,1173,051

2,1863,5152,225

97211,1486,971

108,925201

26,0127,3501,348

4194,143

10,1391,100

7698,3931,4376,1823,232

2,3254,6962,1791,527

18,31811,908

126,971331

26,1707,6861,5711,2933,644

10,1981,050

65912,347

9755,1012,995

2,2174,6171,8693,293

25,3466,753

11

5 Separate box for this violation was added to form TD F 90-22.47 in June 2000. Statistics date from that period.

For statistical information on the Characterization of Suspicious Activity byStates/Territories by Year see Appendix 1.

18,269

20,089

93,44715,980

3,67411,257

Federal Reserve BoardFederal Deposit Insurance CorporationOffice of the Comptroller of the CurrencyOffice of Thrift SupervisionNational Credit Union AdministrationUnspecified6

5,875

10,339

26,2986,014

2,1411,402

Exhibit 6 SAR Filings by Primary Federal Regulator


Regulator Total Filings by Year1996 1997 1998 1999 2000 2001 2002

9,581

14,909

41,4259,122

2,6313,529

10,800

14,735

51,55611,375

2,8465,209

14,656

15,883

64,94612,316

3,0419,663

23,198

28,750

113,26319,560

5,27513,492

24,412

34,240

109,22820,143

6,02410,439

MSB (Bank Form Filings) 0 0 0 0 00 19,746

12

6 Unspecified regulator indicates that the SAR form was filed by a non-bank financial institution that is not directly supervised by one of the five agencies listed above. Such entities that have no regulatory requirements for the relevant periods that mandate SAR filings include, but are not limited to: money services businesses, insurance companies, and securities broker/dealers who are not affiliated with banks.

Federal Bureau of Investigation Internal Revenue Service U.S. Secret ServicePostal Inspection ServiceU.S. Attorneyís Office U.S. Customs ServiceHigh Intensity Financial Crime Area

Department of TreasuryDrug Enforcement AdministrationDepartment of JusticeOffice of Foreign Assets ControlSocial Security Administration (IG)

Sub-TotalOther Federal Law EnforcementTotal Federal Law Enforcement

RegulatoryFederal Deposit Insurance CorporationFederal Reserve BoardOffice of the Comptroller of the Currency

2,3551,138

894340185

520

5511914

5,044

425,086

2446

17

Agencies 1996 1997 1998 1999 2000 2001 2002 Total

Federal Law Enforcement3,8332,6871,609

610132

620

5618429

9,022

859,107

2629

21

4,1742,1831,223

63684

1010

3023103

11

8,478

1018,579

2527

19

4,7792,1181,060

644106

830

438808

8,857

1038,960

2213

24

4,4931,7301,4011,012

101970

23123

1059

9,004

1089,112

4215

37

7,7332,2592,6541,601

2232393266479776631

15,352

22815,580

153263

102

6,0201,8492,2591,402

3624303232781255351

12,831

81813,649

14034

82

33,38713,96411,100

6,2451,1931,064

649298343143130123

68,588

1,48570,073

432427

302

13

Exhibit 7Direct Referrals of SARs by Financial Institutions to

Law Enforcement7 and Regulatory Agencies—For the Period April 1, 1996 through October 31, 2002—

Exhibit 7 shows the number of times financial institutions that file SARs have alsodirectly referred certain situations to law enforcement officials. The "direct refer-rals" in this edition of the SAR Activity Review have been tabulated by recording acount for each agency to which a direct referral was made. This method is appro-priate since a situation giving rise to a single SAR can be referred to more than oneagency. Such a tabulation accurately reflects the number of times particular lawenforcement agencies received SAR information directly from filing institutions.

Securities & Exchange CommissionOffice of Thrift SupervisionNational Credit Union AdministrationFederal Trade CommissionNational Association of Securities DealersTotal Regulatory

State & Local Law EnforcementCity/Local Police DepartmentCounty/Parish D/A, A/G, or Prosecutorís Office8

State PoliceOther State and LocalTotal State & Local Law Enforcement

Other PendingUnspecified Private Industry9

Foreign Law Enforcement10

FinCEN/DCCGRAND TOTAL

15740

0113

4,407789317

181

89

5,783

8254

295145

11,369


Direct Referrals of SARs by Financial InstitutionsTo Law Enforcement7 and Regulatory Agencies


Agencies 1996 1997 1998 1999 2000 2001 2002 Total

Regulatory (continued)11350

196

6,9781,235

445

295

106

9,059

56184

2774

22418,827

21310

197

7,588938347

263

107

9,243

40164

3369

15318,378

8647

185

7,9941,253

401

289

135

10,072

50234

1286

13119,630

44022

1143

8,9761,533

373

375

129

11,386

31351

1559

18621,283

301568

1578

14,2901,893

500

555

785

18,023

44264

9158

38835,026

2914287

5339

7,908270120

1,369

3,139

12,806

1812421

16227,083

158485024

101,451

58,1417,9112,5033,327

4,490

76,372

2301,532

231418

1,289151,596

7 Some SARs may reference making referrals to multiple law enforcement agencies.8 City, County, or State.9 Includes referrals stating law firm, corporate security, etc.10 Includes referrals made to Interpol.

14

AccountantAgentAppraiserAttorneyBorrowerBrokerCustomerDirectorEmployeeOfficerShareholderOtherNone Indicated

Exhibit 8Relationship of Suspect to Financial Institution


Relationship 1996 1997 1998 1999 2000 2001 200252 732921

2,453159

30,698160

5,588495629

9,37816,925

53 1422631

3,231283

49,59588

8,438548381

12,92712,364

39 207

3528

3,727357

62,524122

8,385492390

14,47614,491

51 3588040

4,531514

78,803130

8,632519408

15,21322,206

63 50312245

5,100965

110,463154

10,851565562

21,82225,582

82 52337247

6,1511,512

142,780190

11,693694740

28,25625,969

130 990444

555,7471,584

163,047177

9,364604557

29,72526,818

15

17

Section 2 - Trends and AnalysisHighlighted Topic—Terrorist Financing Methods

The U.S. Departments of the Treasury, Justice, and State have worked together todisrupt and dismantle the sources of terrorist financing. The United States hasalso worked closely with other countries and multilateral organizations to continueto build on its successful record in persuading jurisdictions to adopt anti-moneylaundering and anti-terrorist financing regimes. Due to the successes resultingfrom the blockings of terrorist assets and enhanced cooperation and scrutiny fromlaw enforcement, the financial war on terrorism has entered a new phase. Thisphase is characterized by an increased need to focus on the methods of financingterrorism outside the mainstream financial system. The significance of identifyingand regulating those methods, specifically those involving unlicensed moneytransmitters, is demonstrated by inclusion of Sections 359 and 373 in the USAPATRIOT Act. An understanding by members of the financial community aboutinformal value transfer systems (IVTS), corrupted charitable organizations, andother informal methods for transferring funds across borders and between terroristcells is critical to ensure the reporting of suspicious activity related to thosesystems.

Informal Value Transfer Systems

In November 2002, the Department of the Treasury issued its report on IVTS inits ongoing effort to gain a more complete understanding of the nature of thesesystems.11 The report, required under Section 359, addresses the complexity ofIVTS, provides information for the law enforcement and financial communities,and offers recommendations to further educate those communities about IVTSto help stem their use as potential avenues for money laundering and otherfinancial crime.

IVTS is a term used to describe money or value transfer systems that operateinformally to transfer money. In the past, some of those informal networks werelabeled by various terms including “alternative remittance systems” and“underground banking.” Depending on the ethnic group, IVTS are called by a

11 See Report to Congress in Accordance with Section 359 of the USA PATRIOT Act, available onFinCEN's website, www.fincen.gov, USA PATRIOT Act Info.

18

variety of names including, for example, "hawala" (Middle East, Afghanistan,Pakistan); "hundi" (India); "fei ch'ien" (China); "phoe kuan" (Thailand); and"Black Market Peso Exchange" (South America).

U.S. citizens and persons residing in this country, who are from nations where theuse of IVTS is commonplace, employ the system for various reasons. In countrieslacking a stable financial sector or containing substantial areas not served byformal financial institutions, IVTS may be the only method for conductingfinancial transactions. For example, foreign aid money going to Afghanistan isbeing disbursed through IVTS due to a lack of a banking infrastructure in thatcountry. Individuals and organizations often use IVTS due to inadequate paymentsystems, foreign exchange or capital controls, or because the formal financialsector is not readily accessible, is significantly more expensive, or is more difficultto navigate.

Indicators of the Misuse of Informal Value Transfer Systems in TerroristFinancing

While the majority of IVTS activity is legitimate in purpose,12 some of thesesystems have been used to facilitate the financing of terrorism. The very featuresthat make the systems attractive to legitimate customers — efficiency,convenience, trust, speed, anonymity, and the lack of a paper trail — also appeal toterrorists and terrorist organizations. Also, criminals use the networks to launderdirty money, make illicit payments, and commit other offenses such as taxevasions and customs violations.

The following activity may be suspicious and indicate misuse of IVTS.

• Transactions divergent from the normal activity (or expected low income)of a business entity or customer including:

! sudden influxes of activity and/or unexplained funds deposits;

! high volumes of financial transactions in comparison with those ofother same scale businesses located and operating in the area (e.g.,

12 IVTS traditionally serves the purpose of remitting funds of expatriate communities to their home countries.

19

grocery stores; travel agencies; boutiques; import/exportbusinesses; shipping and trading companies; restaurants; jewelrystores or businesses; textile stores or businesses); or

! large and/or mixed deposits of cash and monetary instruments,inconsistent with the expected type of transactions for the business.

• Unusually high levels of cash shipments detected in conjunction with asmall business operation;

• Transactions involving unusual business trade connections (e.g., smallscale auto parts dealer sending aggregate wire transfers to a precious metaldealer or agricultural importer);

• Separate (or lack of) records kept for certain clients and/or largetransactions;

• Account activity involving only deposits and one-way wire transfers;

• Varying methods of funds delivery and/or collection;

• Unusually high volume or patterns of incoming express/priority mail.

Many uncertainties and complex issues are associated with this segment of thefinancial industry, and additional indicators of suspicious activity may beidentified in the future. The Treasury Department will, therefore, work closelywith law enforcement, regulators, and the financial community to gain a completeunderstanding of these informal networks and how they interact with the moreformal financial industry.

Hawalas

FinCEN closely examined the workings of the hawala system, a widely used formof IVTS. The system works by transferring money without actually moving it.The basic hawala transaction involves a sender, two trusted intermediaries, and arecipient. For example, a U.S. resident who wants to send money to a friend inanother jurisdiction [Country B] would give it to a U.S. hawaladar,13 who typicallyprovides the sender with a specific code or other identification mechanism. The

13 The term hawaladar refers to a hawala dealer or provider of hawala money transfer services.

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U.S. hawaladar then contacts a local hawala operator in Country B by telephone,fax, or e-mail and the sender contacts the intended recipient to convey thedesignated code. The local hawaladar in Country B then delivers the specifiedfunds to the recipient upon presentation of the code. The hawaladar charges a flatfee, commission, or may alternatively or in addition, profit from the exchange ratedifferential between the official and black market price of U.S. dollars in CountryB. The accounts between the two operators may be settled in various waysincluding compensatory payments (i.e., when someone from Country B sendsmoney to the United States), conventional wire transfers or checks, physicalmovement of money (by courier), invoice manipulation or other trade-basedmechanisms, and the trade/smuggling of gold and precious gems.

The USA PATRIOT Act strengthened our governmentís ability to disrupt themovement of funds and, together with existing statutes, provided additionalstatutory basis for prosecuting terrorist financing-related offenses connected to theuse of hawalas and other IVTS.

Specifically, 18 U.S.C. §1960 was amended to tighten the prohibition againstknowingly conducting any "unlicensed money transmitting business." Theprohibition against operating any such business without an appropriate statelicense was amended to state that this prohibition exists "whether or not thedefendant knew that the operation was required to be licensed" or knew thatoperation without such a license was a criminal offense. This means thatignorance of the law cannot be raised as an excuse.14 In addition, the scope of§1960 was expanded to include any business, licensed or unlicensed, that involvesthe movement of funds that the defendant knows were derived from a criminaloffense, or were intended "to promote or support unlawful activity. "

The USA PATRIOT Act also created a new provision, codified in 31 U.S.C.§5332(a), that makes it an offense for any person, with the intent to evade acurrency reporting requirement under Section 5316, to conceal more than $10,000in currency in any fashion, and to transport, or attempt to transport, such currencyinto or out of the United States. This provision also provides for criminalforfeiture of property involved in the offense, including a personal money

14 However, this amendment did not apply to the prohibition in the statute against operating a moneytransmitting business without registering (when required to do so) with FinCEN. FinCEN has identifiedthis discrepancy to Congress. See Report to Congress under Section 359 of the USA PATRIOT Act.

21

judgment if directly forfeitable property cannot be found, and the defendant doesnot have sufficient substitute assets to satisfy the forfeiture judgment.

Non-Profit Organizations

Those persons who finance terrorism have used certain charities and non-profitorganizations designed to siphon off money from humanitarian purposes andfunnel it to support terrorism. Contributors are led to believe they are donatingto good humanitarian causes when, in reality, some or all of the donations arediverted for terrorist funding. In response to this problem, law enforcementofficials in the United States have acted to block assets of non-profitorganizations suspected of having ties to terrorist organizations and prosecute,where possible, those responsible for diverting funds from charitable purposes.15

Additionally, in November 2002, a document entitled "U.S. Department of theTreasury Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities" was published to assist U.S.-based charities in avoiding beingused in terrorist financing schemes.16

A FinCEN Advisory will be published in the near future to further address the useof IVTS and non-profit organizations in terrorist financing.

SARs Filed That Refer to Terrorism(March 2002 through September 2002)

FinCEN continued to examine the SAR database to determine the extent to whichSARs have been filed relating to terrorism. Searches were conducted for certainkeywords in the narrative portion that included: terror, terrorism, terrorist(s),September 11(th), 9/11 9/11/01, World Trade Center (WTC), Pentagon, controllist, watch list, hijacking(s), and hijacker(s). Another search involved querying theviolation field. The terms searched in the "Other" violation field included thewords: terrorist(s) and terrorism.

Between April 1, 2002 and September 30, 2002, 717 SARs were filed thatcontained references to terrorism or terrorists. The following chart representsSARs filed pertaining to terrorism for the 13-month period, commencingSeptember 1, 2001 and ending September 30, 2002.

15 Drawn from Contributions by the Department of the Treasury to the Financial War on Terrorism - Fact Sheet, September 2002.16 This document is available through the Department of the Treasuryís website, www.ustreas.gov.

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As shown in the above chart, the number of filings began to steadily declinefollowing a series of spikes between October 2001 and May 2002.

Listed below is more information about these SARs that reference terrorism.

• Seventy-three financial institutions, including six foreign banks licensed toconduct business in the United States, filed SARs.

• The suspicious activity reported in the SARs occurred in 29 states and theDistrict of Columbia.

• Violation amounts ranged from $0 to $48 million.

• Financial institutions indicated that 113 (15.76%) SARs were referreddirectly to law enforcement. (Box 40 was checked on the SAR.)

Most of the SARs filed (531 or 74.05%) were the result of apparent matches ofnames on the Office of Foreign Assets Control (OFAC) and FBI watch lists, namesgleaned from media reports, and as a result of subpoenas issued by lawenforcement.

The activity cited in the SARs remained consistent with the activity described inIssue 4 of the SAR Activity Review (August 2002). The activity included wiretransfers predominantly to and from Middle Eastern countries, the use ofAutomated Teller Machines (ATMs), and large cash transactions.

One hundred and fifty-three (21.33%) SARs were filed as the result of reviews ofaccounts with foreign indicators, unusual account activity, or unusual relationships

27

446

324

215292

112

241

141

312

114 10242 24

050

10 0150

2 0 02 503 0 03 504 0 04 5050 0

Sep' 0 1

Oct' 0 1

N o v'0 1

D ec' 0 1

Jan' 0 2

F eb' 0 2

M ar'0 2

A pr' 0 2

M ay' 0 2

Jun'0 2

Jul' 0 2

A ug' 0 2

Sep' 0 2

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that were not typical for a particular type of account. The focus of those SARsincluded:

• charitable organizations and Islamic foundations;

• individuals presenting personal identification from such countries as Iraq,Afghanistan and certain West Asian countries;

• aviation (plane rentals and aviation schools);

• wire activity to or from suspect countries (mostly the Middle East);

• large cash deposits followed by wires out to suspect countries — usuallystructured to avoid reporting requirements; or

• large and frequent ATM activity.

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Section 3 - Other SAR Analysis IssuesThis section of the SAR Activity Review outlines examples and patterns ofsuspicious activity reported in a SAR. The value of this information is thatfinancial institutions reported these activities as suspicious and these examplescan be used to help other financial institutions identify similar suspicious activitiesthat may be occurring within their operations.

Section 352 of the USA PATRIOT Act prescribes requirements for anti-moneylaundering (AML) programs for all financial institutions. The definition of"financial institution" in Sections 5312(a)(2) and (c)(1) of the BSA is broad andincludes institutions already subject to federal regulation such as banks, savingsassociations, credit unions, MSBs, registered securities broker-dealers andfutures commission merchants. The BSA definition of "financial institution"also includes a variety of businesses that have not yet been brought underFinCEN's regulations; indeed, most have never been subject to any federalregulation. Travel agencies, automobile and boat dealers, pawnbrokers, lifeinsurance companies, and segments of the securities industry are some of thenew entities being studied by FinCEN in conformance with the mandate ofSection 352.17

On September 26, 2002, FinCEN issued proposed AML program rules for lifeinsurance companies and unregistered investment companies. In November 2002,these institutions, along with all others not yet subject to a final rule mandatingAML program requirements, were granted an extension of temporary deferral ofthe AML program requirements. In the meantime, FinCEN completed an analysisof SARs filed that related to some of these institutions in order to determine theirmoney laundering vulnerability and to identify possible indicators of suspiciousactivity occurring through those institutions. The following is the result of thatanalysis.

SAR Analysis – Indications of SuspiciousActivity Related to the Travel Industry

The SAR database was searched for terms such as "travel" and "tour" to identifySARs where the suspects were listed as travel agents or travel agencies. Thequeries returned 5,406 unique SARs. A sample of 1,081 SARs was selected atrandom and reviewed, identifying 995 suspects as travel agents or travel agencies.

17 Currently, these entities must file IRS Form 8300, Report of Cash Payments Over $10,000 Received in aTrade or Business. See 31 CFR Part 103.30 for additional information related to this reporting requirement.

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The most frequently reported activity was structuring of currency deposits. Otherfrequently reported activities were deposits of large amounts of currency,structured currency withdrawals, electronic transfer of funds from the suspect'saccount, check fraud, and suspicious currency deposits. The following aresummaries of these types of activities.

The most frequently reported suspicious activity involved structured deposits.

• The majority of the reports described either sequential daily transactionsnear the reporting threshold, or frequent deposits in amounts between$9,500 and $10,000.

• Also reported were multiple same-day deposits at different branches andsame-day deposits at the same branch. Each of the deposits was wellunder the reportable level but daily total deposits exceeded $10,000. TheSAR filer often noted that the bank had reported the transactions by filinga currency transaction report (CTR) for the same-day deposits.

Structured currency withdrawals were also reported.

• Frequent withdrawals of currency in amounts at or just below $10,000were typically conducted by cashing checks written on the customer'saccount.

• Some reports indicated the withdrawal of a specified amount of currency.For example, one report described the withdrawal of $29,000 over threedays where each transaction fell below the reporting limit. The reportnoted that the original funds were provided through an incoming wire fromEast Asia.

• Other reports showed same-day withdrawals in excess of $10,000 thatwere structured among different tellers, different branches, and ATMs sothat no single transaction exceeded the reportable amount.

Suspicious currency deposits were identified.

• Currency deposits by travel agencies were reported as suspicious becausethe aggregate amounts were considered excessive for the filer. Such SARsdescribed a series of deposits over a short period of time that totaled to a"large" amount.

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• Other SARs described ongoing deposits that were considered notcommensurate with the business of the customer.

• In some instances, the filer simply listed a travel agency's currency deposittransactions without any comment as to why such activity was deemedsuspicious on the SAR.

Outgoing wire transfers were sent from travel agencies' accounts.

• Other wire transactions were apparently deemed suspicious because of theamounts involved. For example, one bank reported two domestic wiretransfers that totaled $200,000.

• " Structured" outgoing wires were also reported. Those included small-dollar wires from different persons to a single beneficiary, or multiplesmall-dollar wires from the same person. For example, an MSB reportedseveral remittance agents for numerous small wire transfers to Colombia.(The MSB has a special identification rule for transfers to Colombia thatexceed $1,000.)

Check fraud was another reported violation involving the travel industry.

• The most commonly reported violation was check fraud by personsidentified as travel agents withdrawing funds against worthless checks. Inthose cases, the travel agent deposited checks he knew were worthless andthe bank honored withdrawals against those "uncollected" funds.

• Other common check fraud violations noted were the withdrawal of fundsagainst checks with forged endorsements or maker 's signatures, andcounterfeit checks.

• The cashing of "credit card checks" for accounts that had been closed wasalso reported.

SAR Analysis – Indications of SuspiciousActivity Related to the Automobile RetailIndustry

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A search of the SAR database revealed 1,765 SARs containing the terms "usedcars," "car dealership," "automobile dealership," "automobile sales," or "carsales" in the narrative portion of the SAR. The top three reported violations were:1) BSA /Structuring/Money Laundering (864 SARs); 2) Consumer Loan Fraud(257 SARs); and 3) Check Fraud (175 SARs). Forty-one SARs reported noviolation.

Approximately 350 (20%) of the SARs were reviewed. The following aresummaries of these types of activities.

The most common scenario involved Structuring.

• Individuals working in the automobile retail industry withdrew and/ordeposited cash just under the CTR reporting requirements. Someindividuals did so with unusual frequency within a short period of time(days) at various bank branches within close proximity. The SARsindicated that these transactions were unusual for that type of business.One SAR reported a used car dealer making numerous cash deposits, twicedaily and all under $10,000, at different area bank branches of the samebank. Deposits for one month totaled $750,000. The owner of this cardealership also owns a grocery market. Within one day of each deposit,checks drawn on the car dealership account were written to the grocerymarket. These checks temporarily depleted the dealership account.Another SAR described a small used car dealer located in a poorneighborhood that typically maintained just 10-12 used cars on the lot onany given day. During a two-month period, the car dealer made deposits ofcash and checks totaling over $410,000. The cash deposits were alwaysmade under CTR reporting requirements.

• While attempting to conduct a transaction, some customers altered thecash amount transacted to fall below the CTR reporting requirements wheninformed a CTR would be completed.

• Individuals structured deposits and claimed the funds were derived fromprofits they made, on their own, buying and selling used cars. However,those individuals were not affiliated with any automobile retail business orformally involved in the automobile industry. The SARs described thesuspicious activity but made no mention of similar withdrawals that mayhave been used to acquire the used cars. Suspects claimed to have

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acquired the funds by selling used cars but there was no account activitythat would suggest how they initially obtained the vehicles.

• Customers purchased cars by submitting structured checks/money orders.

Consumer Loan Fraud was also a frequently reported violation.

• Incidents of consumer loan fraud primarily involved the submission offalse or forged statements by loan applicants in their attempt to purchase acar. These applicants were both automobile dealers and retail purchasers.Both dealers and retail consumers submitted loan applications with falsefinancial information, addresses, phone numbers, social security numbers,and forged signatures. Dealers, in applying for a loan, knowinglyunderstated the automobile mileage to the lending institution. Thisfraudulently inflated the value of the vehicle and resulted in a larger thanjustified loan.

• SARs also reported out-of-trust sales, by used car dealers, of vehicles in theirpossession whose acquisition was financed by various financial institutions.Some car dealers altered lien information on duplicate titles in order toobtain a 'clear' certificate of title. These vehicles would then be sold with aloss incurred by the lending institution. The banks advanced payment for thevehicles but failed to receive payment when they were sold.

• Automobile dealers used personal information of their customers, withoutthe knowledge or consent of those individuals, in order to obtain loans.

• SARs also reported the development of relationships between bankemployees and car dealerships. Some situations involved the inappropriatemanipulation of loan applications by bank employees that enabled applicantsfor automobile loans to obtain credit in violation of bank guidelines. Thebank employees earned commissions on these fraudulent loans and theautomobile dealership made money on the sales.

Check Fraud was the third most frequently reported violation.

• SARs reported that checks, later returned for " insufficient funds available,"were used to purchase automobiles from various car dealerships.

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• Some SARs reported the theft of checks from car dealerships and thenfraudulently negotiated by unauthorized individuals, in some cases by formeremployees.

• Other reports indicated that stolen, forged, and counterfeit checks wereused to make payments on vehicles at various dealerships.

• Forged reproductions of a bank's counter-checks were made payable to aused car dealer located in a Gulf State. It is believed that these checkswere computer generated.

Identity Theft was also reported.

• Individuals used someone else's social security number and personal datain order to obtain a car loan in that person's name. Fake identification(driver's license) was also used and forged signatures were employed.Some SARs reported that employees of the automobile dealerships wereaware of this fraud. One incident involved a car salesman providingcustomers a "reference number" so they could qualify for the loan. This"reference number" appeared to be someone else's social security number.

• An unknown suspect established fraudulent bank accounts using theidentities of numerous individuals. The only connection establishedbetween the victims was that each of them purchased automobiles from thesame automobile dealership. The suspect deposited counterfeit checks intothese accounts. The suspect then withdrew funds from these accounts viadebit cards. The cash was then used to purchase postal money orders.

Commercial Loan Fraud also occurred involving automobile dealerships.

• Banks advanced loan funds to car dealers via floor plan lines of creditsecured by the automobiles in inventory. This collateral was later sold,out-of-trust, and the proceeds were not applied to the loan, thus creating aloss for the lender.

• SARs reported that multiple suspects applied for used vehicle loans via theinternet. After normal screening, the loans were approved and drafts weresent. These funds were intended to purchase used cars. No payments werereceived on the loan and attempts to repossess the vehicles were futile.Vehicle Identification Numbers (VIN) given were found to be non-existent.Attempts to locate the suspects failed. One SAR reported that the NewJersey State Police are currently investigating approximately 100 cases ofthis type of fraud.

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Check-Kiting schemes were also reported. Owners of car dealerships wereutilizing the float by writing checks on various accounts at different banks.

SAR Analysis – Indications of Suspicious ActivityRelated to the Boat/Yacht Retail Industry

A search of the SAR database revealed 61 SARs containing the terms "boatsales," "boat dealership," "yacht sales," or "yacht dealership" in the narrativeportion of the SAR. The top three reported violations were: 1) BSA/Structuring/Money Laundering (28 SARs); 2) Consumer Loan Fraud(14 SARs); and 3) Commercial Loan Fraud (12 SARs). One SAR reported noviolation. Violation amounts ranged from $0 to $28,500,000. Twenty-sevenSARs reported a violation amount between $10,000 and $99,999. TwentySARs were between $100,000 and $999,999. The violation amount on eightSARs exceeded $1,000,000. A total of 13 SARs were forwarded directly tofederal, state or local law enforcement or regulatory authorities. The followingare summaries of these types of activities.


• Individuals working in the boat retail industry withdrew and/ordeposited cash just below the CTR reporting requirements. Someindividuals conducted these transactions with unusual frequency withina short period of time (days) at various bank branches within closeproximity. The SARs indicated that the transactions were unusual forthat type of business. It was noted that many deposits were regularlymade, even during the boat sale off-season. Cash is not typically usedto purchase boats. One boat dealer deposited over $255,000 fromJanuary 2002 to May 2002. Forty-three deposits were made, typicallyranging from $5,000 to $9,000 (none over $10,000). Another SARrevealed that the owners and employees of a particular boat dealerpurchased cashier 's checks, with cash, at a bank with which they hadno relationship, and then deposited the cashierís checks in thedealership's business account at another bank. All transactions fellbelow $10,000 and were, believed by the filer, to be intended to avoidCTR reporting requirements.

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• When informed of CTR reporting requirements, while attempting toconduct a transaction, some customers would alter the cash amounttransacted to fall below reporting requirements.

• Individuals structured deposits and claimed the funds were derivedfrom boat sales.

• Customers purchased boats by submitting structured checks/money orders.

• Customers purchased boats by submitting large, one-time payments (insome cases in excess of $100,000). During a two-month period in 2001, ayacht sales company received $2,685,000 in seven wire transfers from thesame individual located in a Middle Eastern country.

• One internet-based yacht brokerage firm filed a SAR regarding asuspicious acting customer. The customer wished to purchase a $28.5million yacht through the firm. The customerís behavior was erratic andthe deal was never consummated.

Incidents of Consumer Loan Fraud primarily involved the submission of false orforged statements by loan applicants in their attempt to purchase a boat.

Commercial Loan Fraud also occurred involving boat dealerships.

• Several SARs reported boats may have been sold to more than one owner;serial numbers on boats were altered; and boats stored at the dealership/marina by legitimate owners were represented as inventory. Theseviolations were discovered during audits performed by the lender.

• More than one bank financed the same boat (duplicate loans) maintainedby a boat dealer. The invoices on these boats were later found to befraudulent.

• Boat dealers, maintaining large lines of credit, substantially overstated thevalue of their boat inventory. A large portion of the overstatement resultedfrom the out-of-trust sale of boats without forwarding the sale proceeds to

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the banks. It is believed that the borrowers may never have owned boatspledged to the loan.

• Boat dealerships diverted sales proceeds due the financing institution andloans from the financing institution to improper uses.

SAR Analysis – Indications of SuspiciousActivity Related to Pawn Brokers

A search of the SAR database revealed 272 SARs containing the terms "pawnbroker," "pawnbroker," "pawn shop," or "pawnshop" in the narrative portion ofthe SAR.

A total of 326 violations were reported in the 272 SARs (note that a SAR mayindicate no violation, one violation, or multiple violations). The top five reportedviolations were: 1) BSA/Structuring/Money Laundering (52.15%);2) Other (8.28%); 3) Credit Card Fraud (7.97%); 4) Check Kiting (7.36%); and 5)Check Fraud (4.91%). Nineteen SARs (5.83%) reported no violation.

Violation amounts ranged from $0 to $9,000,000. The violation amounts fell intothe following categories: 27.94% reported a violation amount of $0; 24.26% werebetween $1 and $9,999; 31.62% fell between $10,000 and $99,999; 12.87%between $100,000 and $999,999; and 3.31% exceeded $1,000,000.

A total of 40 SARs (14.7%) were forwarded directly to federal, state, or local lawenforcement or regulatory authorities. Of these referrals, 31 SARs (77.5%) werereferred to state and local law enforcement organizations, three SARs (7.5%) werereferred to the FBI, and two SARs (5%) were referred to the IRS.

Two hundred and forty-six SARs (90.4%) were reviewed from the years 1996through 2002. The following are summaries of these types of activities.


• Numerous pawnbrokers withdrew and/or deposited cash just falling underthe CTR reporting requirements. Some customers did so with unusualfrequency within a short period of time (days) at various bank brancheswithin close proximity.

• When informed of CTR reporting requirements, while attempting toconduct a transaction, some customers would alter the cash amount

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transacted to fall below reporting requirements. Some individuals walkedaway without completing the transaction.

• Some pawnbrokers structured cash deposits and made large withdrawalsvia checks written for cash on their own accounts.

Possible BSA/Structuring and Check-Kiting violations were found in asignificant percentage of SARs.

• Fifty-seven SARs (21%) involved suspected BSA/Structuring and check-kiting violations. Numerous checks to various individuals and businesses,drawn on the accounts of a number of businesses, were cashed. Thechecks were large in number and amount. The SARs reported it is highlyunusual for an individual to go to a pawnshop to cash checks in such highamounts.

• Check-Kiting schemes were also reported in which individuals wereutilizing the float from writing checks at various banks and pawnshops.

A number of pawnbrokers conducted unusually large cash deposits andwithdrawals, relative to the type of business, at various alternating bank branches.SARs were filed on those pawnbrokers exhibiting a high frequency of this activityrelative to other closely located pawnshops.

Another scenario involved the use of fraudulently obtained or stolen credit cards.

• Stolen credit cards or those obtained fraudulently, via identity theft, wereused to purchase merchandise at various pawnshops.

• Fraudulently obtained credit cards were used to purchase merchandise atnon-pawnshop, retail outlets. This merchandise was later sold for cash atlocal pawnshops.

• In some instances, the owners/managers of pawnshops made purchasesusing fraudulently obtained credit cards.

Several SARs involved stolen, forged, and counterfeit checks.

• Numerous incidents involved the theft and forging of checks subsequentlycashed at pawnshops. Occasionally, forged checks were used to purchasemerchandise at a pawnshop.

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• One incident involved 56 named suspects in a counterfeit check ring thatutilized pawnshops to cash these checks.

• In a few instances, the owner/employee of the pawnshop called the bank toinquire as to the legitimacy of a suspect check. According to one filing,the FBI notified the bank that a particular owner of a pawnshop was thevictim of check fraud.

Commercial Loan Fraud also occurred involving pawnshops.

• Most incidents involved individuals who defaulted on a loan and then soldpersonal property to a pawnshop that had been used as collateral for theloan. In some instances, a court order required the pawnshop to transferthe property to the bank.

• A few pawnshop owners/employees reportedly submitted fraudulentinformation while applying for a loan.

Incidents of embezzlement and theft were also reported.

• Banks reported employee theft of bank or customer property that was laterdiscovered to have been pawned for cash. This property mostly consistedof computer equipment (laptops) or customer property held in safe depositboxes.

SAR Analysis — Indications of SuspiciousActivity Related to Life Insurance

In August 2002, FinCEN conducted an analysis of all SARs submitted bydepository institutions, affiliates of depository institutions, and those voluntarilyfiled by broker-dealers, MSBs, or gaming businesses from the years 1996 through2002 in which activity was reported in the narrative section that could be linked toa set of specific terms related to the insurance industry. This analysis was notconducted to assess the money laundering risks associated with the insurancesector; rather, it was conducted to provide a snapshot of what SAR filers werereporting regarding key terms related to the insurance industry.

A search of the SAR database revealed 1,032 SARs containing the term "lifeinsurance" in the narrative portion of the SAR.

• A total of 97 SARs were filed by eight life insurance companies/providers.

• A total of 1,130 violations were reported in the 1,032 SARs (note that a SARmay report no violation, one violation, or multiple violations.)

• The violation amounts reported in the SARs fell into the following categories:69% - $51 to $99,000; 19.7% - $100,000 to $975,000; and 5.8% - $1 millionto $500 million. [Note: 57 SARs (5.5%) reported no violation amount.]

• The BSA/Structuring/Money Laundering violation totaled 19.2% of all theviolation categories reported.

• A total of 154 SARs (14.9%) were forwarded directly to federal, state orlocal law enforcement or regulatory authorities. Of these referrals, 50SARs (32.5%) were referred to the FBI, 40 SARs (26.0%) were referred tothe Drug Enforcement Administration (DEA), and 30 SARs (19.5%) werereferred to state and local law enforcement organizations.

A sample of 206 SARs (20.0%) was randomly selected and reviewed from theyears 1996 through 2002. The following are summaries of these types ofactivities.

The most common scenario found involved fraud with respect to checks of lifeinsurance companies.

• The principal check fraud involved counterfeit checks. There werenumerous reports of counterfeit checks on the accounts of life insurancecompanies that were deposited into the suspect's bank account. Often, thefalse checks cleared and the suspect transferred the funds before the bankwas notified that the checks were counterfeit.

• Another check fraud involved checks written by life insurance companiesthat were altered by the suspect. Often, the checks were stolen and thesuspect altered the payee, dollar amount, or both. In many cases, thesuspect was able to withdraw funds against these altered checks.

• Blank checks of life insurance companies were also reported as havingbeen stolen and then made out to the suspects for various amounts. Themaker's signature was forged and the suspect deposited the forgedinstrument and withdrew the funds.

• There were also many reported instances of checks that were stolen and thepayee's signature forged by the suspect.

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Another common scenario involved the suspicious transfer of funds to or fromlife insurance companies.

• Financial institution customers made structured cash withdrawals from anaccount funded with the proceeds of a life insurance company check.

• Withdrawals and transfers from accounts funded with the proceeds of alife insurance company check were reported as suspicious. Some ofthese transfers were to persons or accounts located in foreign countries.

• Some financial institution customers made structured cash depositsinto an account and then transferred the funds, by wire or check, to alife insurance company. Other customers made structured cashpurchases of cashier 's checks made out to life insurance companies.

• When informed of the CTR reporting requirements when attempting tocash a check from a life insurance company, customers either reducedthe amount of cash back or demanded to have the transactioncompleted without filing a CTR. Some individuals walked awaywithout completing the transaction.

A significant percentage of SARs that contained the term "life insurance"described various types of loan fraud.

• Borrowers who had pledged life insurance policies as loan securitycashed-out the policies and then defaulted on the loans.

• Credit applicants overstated the cash value of life insurance policies oncredit applications or listed term life policies as whole life policies.

• Borrowers pledged life insurance policies to obtain loans from onefinancial institution while such policies were already the security forloans from other financial institutions.

Life insurance companies were targets of "Nigerian Advanced Fee" scams.There were reports of letters and e-mails from purported former governmentofficials of African countries (Nigeria, South Africa, Sierra Leone, Congo)who were seeking assistance in moving millions of dollars to accounts in theUnited States. The solicitor promised the participant fees up to 35% of theamount to be transferred.

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A number of SARs were filed relating to the embezzlement or theft ofinsurance proceeds by bank employees.

• A bank employee sold an annuity issued by a life insurance company toa bank customer. The customer and his beneficiary both died shortlythereafter. The bank employee then diverted the annuity's death benefit tohimself.

• Several bank officers used bank funds, without proper authorization, topurchase whole life insurance policies on their lives.

• One bank employee conspired with the bank's life insurance agent to havepremium rebates paid to the bank employee instead of the bank.

SAR Analysis – Indications of Activity Related tothe Securities Industry

A small part of the total volume of SARs filed is for reports filed voluntarily18 bybrokers and dealers in securities that are not affiliated with banks. In August2001, FinCEN conducted a study to determine the number of SARs being filedvoluntarily. Between April 1996 and April 2001, securities, investment, andbrokerage services had filed 1,930 SARs of the 572,835 SARs filed.

FinCEN has not performed a full analysis of the SARs that were submittedspecifically by broker-dealers. However, FinCEN's staff conducted an analysis ofall SARs submitted by depository institutions, affiliates of depository institutions,and those voluntarily filed by broker-dealers, MSBs or gaming businesses fromthe years 1996 through 2002. These SARs were identified by searching thenarrative section for key words related to the securities industry (e.g., investmentcompanies, mutual funds, hedge funds, private investment trusts, venture capitalfunds, investment advisers). This analysis was not conducted to assess the moneylaundering risks associated with securities sector; rather, it was done to provide asnapshot of what SAR filers were reporting related to the securities industry.

18 Some broker-dealers have filed SARs for years, either since 1996, pursuant to bank regulatorsí rules forbank holding company affiliates, or since 1989, voluntarily pursuant to guidance issued by the NewYork Stock Exchange and National Association of Securities Dealers. (Note: Effective January 1, 2003,all broker-dealers were required to file SARs.)

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For each of the sets of SARs linked to the terms, an analysis was conducted toidentify baseline statistical information, including the total number of BSAviolations reported; the range of violation amounts; and violation categories. Inaddition, an analysis was conducted to identify the primary types of suspiciousactivity reported by the filing institutions. Due to the large number of SARsidentified for several of the terms, those data sets were sampled to provide aworkable number of significant findings from the narratives. The followingprovides a synopsis of the data related to key terms of the securities industry.

INVESTMENT COMPANIES

Baseline Statistical Information

! The terms "investment company" or "investmentcompanies" were found in 536 SARs.

! Securities broker/dealers filed 13 SARs.

! 630 violations were identified.

! The reported range of violations consisted of the followingamounts:

$700 to $99,000 39.9%$100,000 to $891,000 25.7%$ 1 million to $ 1 billion 25.8%Other amounts 8.6%

! BSA/Structuring/Money Laundering violations accountedfor 49.2% of the violations.

Significant Findings from a Review of 114 Sample SARs

The most common scenario involved the suspicious movement of funds throughwire transfers and checks and cash deposited and withdrawn from investmentcompany accounts.

The wire transfer activity into and out of investment companies indicated thatwires originated from the Philippines, Hong Kong, Macao, Vietnam, Israel,Nigeria, Russia, Japan, Latin America, and Austria. Outgoing wire transfers were

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to the Philippines, United Kingdom, Singapore, India, Vietnam, Indonesia,Thailand, Lebanon, Korea, and the UAE.

Numerous examples cited deposits and withdrawals using a combination of theseactivities, whereby funds were deposited into investment companies' accounts andsoon after (same day or within days), withdrawals were made from the accounts.

Examples of this activity include:

• wire transfers and cash deposited into investment accounts followed bychecks used to transfer funds to other accounts;

• wire transfers received from an investment company and deposited into apersonal account followed by checks used to move the funds to otheraccounts; and

• large cash deposits into personal accounts followed by large-dollar checkswritten to investment companies.

Another common scenario involved the use of structured cash deposits under$10,000 or cash withdrawals under $10,000 involving investment companies'accounts. Financial institutions indicated that the structured cash deposits andwithdrawals did not seem commensurate for an investment company.

• Financial institution customers often made structured cash deposits into anaccount and then used wire transfers or checks to transfer funds into aninvestment company account.

• Structured deposits often occurred on the same day or over several days inthe same week.

• When informed of the CTR reporting requirements, customers eitheraltered or reduced the amount deposited or demanded to have the depositmade without completing a CTR form. Some individuals walked awaywithout completing the transaction.

Other SARs of interest are described below.

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• Seven SARs were filed by financial institutions as a result of mediareporting that the owners of the investment companies were underinvestigation in other countries for fraud and corruption.

• Five SARs were filed relating to September 11th activity and the OFAClist of "specially designated global terrorists" — organizations andindividuals engaged in international terrorism. Two SARs identifiedactivity of investment companies on the OFAC list. Three SARs describedactivity of individuals or entities on the OFAC list that includedtransactions involving investment companies.

INVESTMENT ADVISORS


! The terms "investment advisors" or "investment advisers" were found in 128 SARs.


! BSA/Structuring/Money Laundering violations accounted for 34(26.6%) of SARs filed.

! Embezzlement-defalcation and misuse of position were cited in20 SARs (15.6%) as the major violation.

Significant Findings from a Review of Sample SARs

Many SARs describe mismanagement of investor funds through variousfraudulent schemes. One particular scheme involved a "collateralized investmentagreement" that offered to pay a specified rate of return for a fixed period andclaimed that it would be fully protected or collateralized by a pool of securitiesequal to the amount of the principal investment. Clients who invested in thisscheme suffered a combined loss of approximately $71 million.

Fifteen SARs filed described three Ponzi/pyramid schemes being operated bynumerous individuals and companies. Over 350 bank customers, whoseinvestments exceeded $26 million, invested in these schemes based on advice oftheir financial advisors.

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Twelve SARs noted check fraud as the main violation. Most of the narrativesdiscuss checks being provided to the advisor for investments in previously agreedfunds, but were never invested or were redirected to other companies without theclient's knowledge.

Three SARs described fraud by the investment advisor assigned to a familycustodian trust. Each advisor had submitted fraudulent bills/fees for payment forservices never rendered or forged documents/checks.

Other SARs include the following scenarios:

• An investment advisory company introduced three accounts to a majorinvestment corporation (broker-dealer). It was later learned that one of theaccount holders utilized an alias when setting up the account and that theaccount was actually for the widow of a deceased Colombian narcoticstrafficker. During the period of December 1995 to February 1999, theaccount was credited with $1.5 million in the form of wire transfers fromU.S. banks and financial institutions and debited $1.4 million via wiretransfer and checks. The monies remaining in the account were transferredto another account in the same alias and another individual. In October1999, the remaining monies were transferred to a third account owned bytwo individuals domiciled in Medellin, Colombia.

• An investment advisor, with a 12-year relationship with a brokeragecompany, wire transferred $3.25 million during a four-month periodthrough a third party. He then requested that the originator's name not beused on the wire transfer record. His explanation for the third partyaccount was that he wanted to "break the trace" between both banks.

• An investment advisor operating in the United States provided fraudulentbrokerage statements to a Canadian client, resulting in a loss in excess of$300 million.

VENTURE CAPITAL


! The term "venture capital" was found in 60 SARs.

! Securities broker/dealers filed four SARs.

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The SAR narratives depicted several different scenarios. The most common ofthese scenarios discussed suspicious wire transfers to and from accounts held byventure capital companies.

• Incoming wires originated from Switzerland, France, the United Kingdom,Germany, Liechtenstein, Luxembourg, Poland, Egypt, Israel, China,Taiwan, Hong Kong, Singapore, Barbados, the Bahamas, Guinea, andCanada.

• Outgoing wires were sent to Nicaragua, the Netherlands, and Poland.

• The wire totals were high-dollar amounts.

• Nine of the 22 SARs that discussed wire transfers ranged between$260,000 to $999,962.

• Thirteen SARs had aggregate totals that ranged from just over $1 millionto $16 million.

• Some banks reported that funds for the wire activity appeared structured toavoid CTR reporting requirements.

Six SARs reported various attempted scams perpetrated against a bank.

• Two SARs involved Nigerian scams that attempted to bilk millions ofdollars from the financial institutions under the guise of venture capital.

• Some SARs reported schemes to defraud individuals to allegedly raisestart-up capital by offering high rates of return on investment.

Three SARs described the use of false letters of credit allegedly issued by foreignbanks. When the filing banks attempted to verify the letters, they usually foundthat the foreign bank did not issue the letters of credit. The bearers of the letterswere seeking to invest in venture capital companies.

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Two SARs involved identity theft.

• Stolen bona fides were used to obtain an application into an investment/venture capital company.

• Stolen identity was used in an attempt to secure an indirect loan through aventure capital company.

PRIVATE INVESTMENT TRUST


! No SARs contained the term "private investment trust."

! The term "investment trust" appeared in 54 SAR narratives.

! Securities broker/dealers filed eight SARs.

! 61 violations were reported.

! BSA/Structuring/Money Laundering violations accounted for 29% ofSARs filed.

! 51.9% of the SARs were filed in 2001 and 2002.

Significant Findings from a Review of Sample SARs:

The most common activity identified in the narratives involved suspicious wiretransfers, and suspicious checks, cash, and money orders deposited into andwithdrawn from investment trust accounts. The wire transfer activity into and outof investment trust accounts indicated that wires originated from Nigeria,Lebanon, Saudi Arabia, and the Netherlands. Outgoing wire transfers were toSaudi Arabia, Taiwan, and Pakistan.

• Numerous examples cited deposits and withdrawals using a combinationof these activities, whereby funds were deposited into investment company

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accounts and soon after (the same day or within days) withdrawals weremade from the accounts.

• Wire transfers and checks were deposited into an investment trust accountfollowed by wire transfers to other accounts.

• Wire transfers were deposited into an investment trust account followed bycash withdrawals.

Other SARs of interest included the following scenarios.

• A large amount of cash was removed from a safe deposit box anddeposited into a checking account. On the same day as the cash deposit, a"debit memo" of approximately the same cash amount mentioned abovewas taken out of the checking account and placed into an investment trust.The movement of money from the safe deposit box was consideredsuspicious by the financial institution.

• An investment trust account was involved in several instances of allegedfraudulent activities involving investment instruments such as "reportguarantees." The financial institution reported this as a possibleinvestment fraud/advance fee scheme.

HEDGE FUNDS


! The term "hedge funds" was found in 17 SARs.

! Securities broker/dealers filed seven SARs.


The most common activity described the use of false statements and possiblefraudulent activities.

• Three narratives described employees/broker dealers misusing theirposition for personal gain. The SARs included insider trading,embezzlement, and a foreign corporation routing its hedge fund accountfunds through the United States before routing to its final destination in

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order to avoid the money laundering identification documentationregulation in the United Kingdom.

• Several instances were reported about the use of false documentation andfalse statements to attempt to open hedge fund accounts. New accountswere declined when the reporting financial institution was unable toconfirm the credentials supplied by requestors.

Some SARs described suspicious wire transfer activity involving hedge fundaccounts, including two that involved international activity.

• Suspicious transactions conducted the same day were reported involving awire transfer sent to a hedge fund account by its managing service. Thewire transfer activity was followed by large cash withdrawals from thehedge fund and from a personal account by a managing service employee.

• Two investment firms wire transferred $2.2 million from their accounts inMassachusetts to their accounts in California; the following day, they wired thefunds to the credit of an individual account at another California financialinstitution. The names for both firms included "hedge fund" and the accountswere opened and closed within a five-day period.

• A Middle Eastern business wire transferred $2.1 million to four offshore hedgefunds accounts, most of which was eventually returned to the U.S. accounts ofthe business and then wire transferred to an account in Switzerland. All wiretransfer activity took place over an approximate two-month period.

Two SARs described financial institutions closing hedge fund accounts due to namesimilarities between their clients and individuals mentioned in the media who aresuspected of laundering money.

MUTUAL FUNDS


! The terms "mutual fund" or "mutual funds" were found in 557 SARs.


! 631 violations were reported.

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! Violation amounts, ranging from $1 to $50,000, were reported in 223SARs (40%).

! BSA/Structuring/Money Laundering violations accounted for 25.20% ofSARs filed.

! 44.17% of the SARs were filed in the years 2001 and 2002.

Significant Findings from a Review of 92 Sample SARs

The most common scenario described the use of checks that were stolen, altered,and used along with forged signatures to either establish mutual fund accounts orredeem funds.

• Numerous examples were cited of established corporate or individual bankcustomers as fraud victims via theft of corporate or personal checksthrough the U.S. mail system. These checks were later used to establishpersonal checking accounts (with funds later transferred to mutual fundaccounts) or mutual fund accounts. Corporate theft cases often involvedcompany employees with access to company mail. Most other thefts weredetermined to be principally through U.S. Postal delivery sites as well asother family members.

• Numerous examples were cited of recent or low bank account balanceholders using stolen or altered checks, or checks later returned as "non-sufficient funds" to establish mutual fund accounts.

Another common scenario described the use of structured cash deposits orwithdrawals under $10,000 involving mutual fund accounts.

• Bank customers often made structured cash deposits on the same day or onmultiple days during a week, and then used a personal check or purchaseda bank or cashier's check to deposit into a mutual fund account.

• Bank customers deposited checks from a mutual fund account intopersonal checking accounts and would then redeem funds through a seriesof structured withdrawals via the branch or ATM over days or weeks.

• When informed of the CTR reporting requirements when making adeposit, bank customers either altered or reduced the amount deposited ordemanded to have the deposit made without completing a CTR form.

A small percentage of transactions involved suspicious wire transfers to or frommutual fund accounts based either in the United States or abroad.

• Incoming wires into U.S.-based bank accounts often described proceedsfrom "offshore mutual fund accounts" located in countries includingSwitzerland, Brazil, Venezuela, and the Bahamas.

• Outgoing wires from U.S. accounts were sent to locations includingThailand, Cayman Islands, and the Netherlands Antilles.

• Wire transfer aggregate totals were of dollar amounts significantly higherthan the average transaction.

Other SARs of interest included the following scenarios.

• Two bank customers who operated various business investment accountsvalued in the millions of dollars were under investigation by the Securitiesand Exchange Commission for multiple violations of the securities andbanking regulations, including illegal operation of a mutual fund.

• A bank customer operated a convalescent center and deposited $540,000 inpatients' Social Security/Medicare/Medicaid checks. Funds were movedfrom the convalescent center's business account to a personal checkingaccount, and then wired to a personal mutual fund account, then back tothe convalescent center business account.

• A bank customer conducted nearly $2 million in suspect wire transfersusing mutual fund accounts inside as well as outside the United States overa period of several months.

SARs filed by Money Services Businesses

The suspicious reporting requirements of the BSA became applicable to certainMSBs, effective January 1, 2002.19 Money transmitters and issuers, sellers, and

19 See 31 CFR Part 103.20.

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redeemers of money orders and travelerís checks are now required to reportsuspicious activity.

A search of the SAR database from January 1, 2002 through September 31, 2002,revealed 16,692 SARs submitted by MSBs. The MSB SARs were filed by 518separate entities, including both money transmitter companies and/or individualauthorized agents.

Violation amounts ranged from $0 dollars to $705 million (which included anunsolicited e-mail offer for foreign exchange totaling more than $700 million; nocurrency or other monetary instruments were actually involved.) The following isa breakout of violation amounts reported:

Dollar Range Number of Filings Percentage$0 583 3.49%$1 -$9,999 11,374 68.14%$10,000 - $19,999 2,657 15.91%$20,000 - $29,999 737 4.41%$30,000 - $39,999 350 2.09%$40,000 - $49,999 241 1.44%$50,000 - $59,000 353 2.11%$60,000 - $99,999 249 1.49%$100,000 - $999,000 129 Less than 1%Over 1 million 19 Less than 1%

The MSB SARs were filed in 49 states as well as the District of Columbia, Guam,Puerto Rico, Canada, the Dominican Republic, and Japan (by the U.S. NavyExchange.) The following top five state filers (by volume) accounted for 57.33%of all filings:

State Number of Filings PercentageNew York 4,145 24.83%Colorado 2,405 14.40%Arizona 1,908 11.43%California 691 4.13%Florida 425 2.54%

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The MSB SARs referenced 15,235 violations. Often, more than one violation wascited per SAR. In 1,408 (8.43%) cases, the violation field was blank. The topthree reported violations were: BSA/Structuring/Money Laundering - 12,304(80.76%); Other-1,282 (8.41%); and Wire Transfer Fraud - 686 (4.50%).

More than half of the narratives dealt with structured money transfer activity.The majority of those SARs described outgoing wire activity and to a lesserdegree, incoming wires. Outgoing wires were primarily destined for recipients inCentral America (predominantly the Dominican Republic), as well as within theUnited States, the Middle East, and Europe. The typical scenarios involvedmultiple senders to the same recipient, individual senders to multiple recipients ina very short period of time (often within minutes), and an individual remitter to asingle recipient.

Other reported activity dealt with the suspicious purchase of money orders.

• Customers purchased excessive amounts of money orders for noapparent reason.

• The source of cash used for the purchases was unknown.

• Individuals purchased money orders in structured amounts at multiplelocations.

• The purchaser line on the money order was left blank or was illegible.

• The payee and purchaser names on the money order were the same.

Identity theft or fraud was reported in a number of SAR narratives. Oneparticular MSB reported numerous cases of identity theft where the perpetratorobtained the log-in and user ID to access victimsí accounts on-line. Theperpetrator then moved funds to his own accounts or used the victimsí money toeffect wire transfers to a third party.

Most high-dollar violations reported by MSBs dealt with "Nigerian AdvanceFee" scams via unsolicited faxes or e-mails.

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Section 4 - Law Enforcement CasesThis section of the SAR Activity Review provides law enforcement agencies withthe opportunity to summarize investigative activity in which SARs and other BSAinformation played an important role in a successful investigation and/orprosecution of criminal activity. Each issue of the SAR Activity Review includesnew examples based on information received from law enforcement.

SAR Initiates Investigation of Illegal MoneyTransfers to Iran

In February 2002, SAR information provided by an investment account firmrevealed wire transfers in excess of $500,000 originated from an individual'saccount, through a trading company in Dubai, UAE, for transfer to Iran.Investigation disclosed the account holder had made comments to the reportingfirm indicating the money was being wired for investment in Iran, in violation ofthe U.S. embargo.

In April 2002, USCS and IRS agents executed a search warrant on the accountholder's residence, which resulted in the seizure of considerable documentationsubstantiating the allegation, along with several computer systems. Review of thedocuments and records seized identified other bank records revealing the accountholder used other accounts to wire transfer funds from London, England, toDubai, and ultimately Iran. In addition, an account was being used to wire transferfunds to various Iranian individuals in the United States, including one for$50,000, made at the direction of a suspect in Iran. Investigations continue in theUnited States, Hong Kong and the United Kingdom. (Source: U.S. CustomsService)

SARs Lead to Approximately $427,000 BeingSeized From an Unlicensed Money Remitter

Information gleaned from a review of SARs filed by financial institutionsidentified two brothers who are under investigation for operating an illegal moneyremitter business. USCS agents have documented in excess of $12 million beingwired to foreign locations, primarily Singapore and Indonesia, over the past threeyears.

In October 2002, federal agents executed a seizure warrant on a bank accountcontrolled by one of the subjects. Pursuant to the warrant, approximately

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$318,000 was seized. A search warrant was also executed on one of thesubject's residences, where approximately $74,000 in currency, along withnumerous documents related to the operation of a wire remitter service wasseized. Approximately $35,000 was seized from the other subject's bankaccount.

Both subjects admitted to operating a hawala-type business from the residence.(Source: U.S. Customs Service)

SARs Lead to $3 Million Being Seized From anUnlicensed Money Remitter

In January 2002, an investigation was initiated, subsequent to receiving SARs,into the operation of an unlicensed money remitter.

A foreign bank account, containing approximately $3 million, was frozen at therequest of USCS agents. A federal search warrant was also executed at thesubject's residence. The subject admitted to using the Italian bank account as ameans to further forward the funds to his brother 's bank account in the MiddleEast.

Both subjects admitted to operating as an unlicensed money remitter. (Source:U.S. Customs Service)

SAR Assists in Identifying Money RemitterSending Money to Iraq

In March 2002, as a result of a lead provided from a SAR, an investigation wasinitiated into an individual doing business as an unlicensed money remitter. Thefunds were being wired to a bank account in Jordan.

In October 2002, U.S. Customs agents executed a search warrant on threeresidences and seized approximately $6,600, along with computers andnumerous documents. The subject admitted during an interview to sendingmoney to Iraq through his brother in Jordan. Moreover, the subject admittedthat he knew a portion of the funds was going to Saddam Hussein, as part of thecost of doing business in Iraq.

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In conjunction with the search warrants, agents interviewed clients of theunlicensed money remitter, who admitted that they knew the money was beingsent to Iraq via Jordan. (Source: U.S. Customs Service)

SARs Assist in Money Laundering InvestigationInvolving the Insurance Industry

Information generated from cooperating individuals during OperationsCornerstone, a major narcotics trafficking investigation in the Miami area,revealed narco-traffickers placed their drug proceeds into investments in theinsurance industry. Policies were identified in various Channel Island insurancecompanies containing the criminal proceeds. The investigation determined that anetwork of insurance brokers in the United States, soliciting clients in Colombiaand other South American countries, deposited drug proceeds into investmentaccounts on behalf of narcotics traffickers. Financial institutions submitted threeSARs to report structuring and suspicious activity by the insurance brokers.

To date, this investigation has resulted in the seizure of approximately$9.5 million dollars. The seizures are being made through 18 U.S.C. 981 and thefunds are being forfeited as proceeds of narcotics trafficking. (Source: U.S.Customs Service)

SARs Lead to Conviction of Former InvestmentFirm CEO

The former head of an investment firm was sentenced to nearly five years inprison as a result of a guilty plea to one felony count each for mail fraud and filinga false tax return, in a $146 million dollar scheme that targeted senior citizens.The subject pled guilty for his role in the investment scam that defrauded over1,800 investors over a four-year period. This individual operated a company thatclaimed to run a real estate investment program and promised investors a 12% to15% annual return. In reality, the company operated as a Ponzi-type scheme,paying early investors with funds obtained from later investments. The averageage of the investors was 67. The case was initiated from the filing of SARs by alocal financial institution detailing the subject's activity. The information wasprovided by the financial institution to local and federal law enforcementauthorities, which successfully investigated the allegations.

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Agencies participating in this investigation included the IRS-CriminalInvestigation, FBI and local law enforcement authorities. (Source: IRS-CriminalInvestigation)

SARs Assist in Conviction of Pharmacist

A business owner who ran a pharmaceutical business that defrauded drugmanufacturers was sentenced to nearly two years in prison, three months ofsupervised probation and ordered to make restitution of $513,369.40. Thesentence resulted from a guilty plea to one felony count each for conspiracy tocommit mail fraud and money laundering. The target pled guilty for his role inobtaining pharmaceuticals at a greatly reduced price based on false representationsto drug manufacturers and buying groups that the drugs would be only sold toinstitutional customers such as nursing home patients and adult foster homeclients. However, the target diverted the pharmaceuticals and resold them towholesalers, generating large and illicit profits. This case was initiated fromevaluation of informant information and supplemented by a review of SARs,which described large unexplained currency deposits.

Agencies participating in this investigation included IRS-Criminal Investigation,FBI, and the Food and Drug Administration. (Source: IRS-CriminalInvestigation)

SARs Identify Internal Fraud at Local Bank

On December 12, 2002, the Delaware State Police obtained a federal convictionfor bank fraud against a former bank employee. The subject was sentenced to twoyears federal incarceration and an additional five years federal probation. TheDelaware State Police received information from a local city bank that a currentbank employee was responsible for a bank fraud scheme at their bank. Thesubsequent investigation revealed that the subject was drafting cashiers checks inhis own name, and adjusting bank entries in an attempt to conceal the transactions.SARs were used to identify previous similar transactions by the subject, whichoccurred during employment at another bank. Also, BSA records assisted in theexpansion of the case investigation. Use of the SAR data and other BSA recordsof banking transactions were instrumental in the investigation to identify bankaccounts and the identification of expensive automobile and other cash purchases.(Source: Delaware State Police)

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Section 5 - Tips on SAR FormPreparation & Filing

Importance of Accurate and CompleteNarratives

Law enforcement and regulatory agencies, the primary users of SAR data,continue to report to FinCEN that SARs are filed with missing and incompletedata. Approximately 1% of SARs filed have neither an activity characterizationnor sufficient narrative to explain what activity is being reported. This conditionmost often occurs when filers check the activity characterization box marked"other" but fail to specify the suspicious activity on the line provided. Theproblem is compounded when filers enter the phrase "see attached" in thenarrative section of the form and attach items such as spreadsheets or computerprintouts as documentation. When forms are received at the IRS DetroitComputing Center (DCC), only information in an explicit, narrative format iskeypunched; thus, tables and other numeric data are not included in the narrative.SARs that do not specify the suspicious activity being reported or fail to providean explanation as to what led the institution to become suspicious are of minimalvalue to law enforcement or regulators.

Financial institutions should review and follow the instructions found in the"Suspicious Activity Information Explanation/Description" section of the SARform. Remember, the narrative section of the report is critical. The care withwhich it is written may make the difference in whether or not the describedconduct and possible criminal nature are clearly understood by law enforcementand regulators. Also, do not attach any supporting documents to the SAR butrather, provide a detailed description of the documentation in the narrative andretain the documentation for five years. Also, always select and mark theappropriate box(es) in the "summary characterization of suspicious activity"section.

Reporting Potential Terrorist-Related Activity ona SAR Form

General Instructions for Completing the SAR Form

FinCEN has received a number of calls from financial institutions requestingassistance in completing a SAR when the suspicious activity may be terrorist-related. The following guidance is offered: 1) report the information on the SARaccurately and completely; and 2) complete the narrative section by describing thesuspicious transaction as completely as possible and include the followinginformation, if applicable — any correspondent bank name/account information;names/locations of business entities; names of cities, countries and foreignfinancial institutions linked to the transaction, especially if funds transfer activityis involved; and account numbers and beneficiary names.

Specific Instructions for a Particular Industry

Financial institutions reporting potential terrorist-related activity on Form TD F90-22.47 are requested to check the "Other" box on Part III, Line 35(s) of theform and note the word "terrorism" in the space following the box. However, insome situations, the suspicious activity may also involve money laundering;therefore, the institution should also check Box 35(a).

Casinos and card clubs reporting potential terrorist-related activity on Form TD F90-22.49 (SARC) are requested to check the "Other" box on Part III, Line 32(n)and note the word "terrorism" in the space following the box. If the suspiciousactivity also involves money laundering, Box 32(h) or 32(j) should also bechecked.

MSBs reporting potential terrorist-related activity on Form TD F 90-22.56 shouldcheck Box 28 (c) (Terrorist financing) on Part II, Line 28. If the suspiciousactivity also involves money laundering, Box 28(a) should also be checked.

Regardless of which form is used, all filers should ensure that the narrativeincludes as much detail as possible regarding the potential terrorist-related andmoney laundering activities.

It is important to remember that a SAR should not be filed based on a person'sethnicity. In addition, a SAR should not be filed solely because a person appearsto have the same name as individuals identified by the media as terrorists.

Transactions to or from, or conducted by persons with possible affiliations withjurisdictions associated with terrorist activity should not be the only factor thatprompts the filing of a SAR. However, this information may be relevant andshould be considered in conjunction with other relevant information in decidingwhether a SAR is warranted, as set forth in 31 CFR 103.18 and the regulationsprescribed by the bank regulatory agencies, such as a lack of any apparent legal or

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business purpose to a transaction or series of transactions. Resources that shouldbe consulted about such jurisdictions include: the State Department's list of Statesponsors of terrorism20; the Treasury Department's OFAC's lists of foreignterrorists21; and FATF's list of non-cooperative countries and territories.22

Special SAR Form Completion Guidance forReporting Potential Informal Value TransferSystem Activity

Financial institutions should be alert to the use of IVTS in the movement of fundslinked to laundering of criminal proceeds or used to finance terrorism. The indicatorsof IVTS abuse for those purposes may be found in Section 2 — Trends and Analysis,of this publication. If any financial institution knows or suspects that an IVTS isbeing used in illegal funds transfer, a SAR should be filed.

Specific Instructions for a Particular Industry

Financial institutions reporting any known or suspected criminal or terrorist-relatedactivity conducted through IVTS on Form TD F 90-22.47 are requested to check the" Other" box in Part III, Line 35(s) of the form and note the abbreviation "IVTS" inthe space following the box. However, in some situations, the suspicious activitymay also involve money laundering; therefore, the institution should also check Box35(a). If the activity involves terrorism and an IVTS, check the "Other" box in PartIII, Line 35(s) and note the phrases, " Terrorism/IVTS" in the space following thebox. Also, the narrative should include an explanation why the financial institutionknows or believes an IVTS may be involved in the reported activity.

20 Pursuant to Section 6(j) of the Export Administration Act of 1979, the Departments of Stateand Commerce have designated the following countries as state sponsors of terrorism: Cuba,Iran, Iraq, Libya, North Korea, Sudan, and Syria. Further information about thesedesignations is available at www.state.gov. Additional information about countries in whichterrorists are highly active is available on that site in the State Department's Travel Warningsand Public Announcements page http://travel.state.gov/warnings_list.html.

21 OFAC designates and blocks the assets of specially designated global terrorists (SDGTs) -organizations and individuals engaged in international terrorism. For further information, seeOFAC's website at www.ustreas.gov/ofac.

22 FATF is an international organization, of which the United States is a member, established tocombat money laundering. Among other things, FATF evaluates the adequacy of countries'counter-moneylaundering systems, and designates those that have inadequate systems as non-cooperative countries and territories (NCCTs). Currently, FATF lists as NCCTs the following:Cook Islands, Egypt, Guatemala, Indonesia, Myanmar, Nauru, Nigeria, Philippines,St. Vincent and the Grenadines, and Ukraine.

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Financial institutions reporting any known or suspected criminal or terrorist-relatedactivity conducted through IVTS on Form TD F 90-22.56 (MSB SAR) are asked tocheck the "Other" box in Part II, Line 28(d) on the form and note the abbreviation" IVTS" in the space following the box. However, in some situations, the suspiciousactivity may also involve money laundering and/or terrorist financing; therefore, theinstitution should also check Box 28(a) and/or Box 28(c). Additionally, the narrativeshould include an explanation why the financial institution knows or believes anIVTS may be involved in the reported activity.

Casinos and card clubs reporting any known or suspected criminal or terrorist-relatedactivity conducted through IVTS on Form TD F 90-22.49 (SARC) are requested tocheck the "Other" box in Part III, Line 32(n) and write the abbreviation "IVTS" inthe space following the box. In some situations, the suspicious activity may alsoinvolve money laundering; therefore, the institution should also check Box 32(h). Ifthe activity involves terrorism and an IVTS, check the "Other" Box in Part III, Line32(n) and note the phrases, " Terrorism/IVTS" in the space following the box. Thenarrative should include an explanation why the financial institution knows or believesan IVTS may be involved in the reported activity.

Where to Send Completed SAR Forms

SARs (Treasury Form TD F 90-22.47) filed in paper format by either a depositoryinstitution, broker/dealer in securities, or others should be mailed to:

FinCENDetroit Computing CenterP.O. Box 33980Detroit, MI 48232-0980

SARs for Money Services Businesses (Treasury Form TD F 90-22.56) filed inpaper format should be mailed to:

FinCENDetroit Computing CenterATTN: SAR-MSBP.O. Box 33117Detroit, MI 48232-5980

SARs for casinos (Form TD F 90-22.49) filed in paper format should be mailedto:

FinCENDetroit Computing CenterATTN: SARC

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P.O. Box 32621Detroit, MI 48232-5980

SARs or SARCs filed by magnetic media/diskette format, should be mailed to:

IRS Detroit Computing CenterAttn: Tape Library985 Michigan Ave.Detroit, MI 48232

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Section 6 – SAR News Update

Expansion of SAR Requirements to New Industries

FinCEN is in the process of expanding SAR requirements to other financialservices industries and will be evaluating additional industries for future SARrequirements.

In September 2002, FinCEN issued a final rule that requires casinos and cardclubs to report suspicious transactions that involve or aggregate at least $5,000 infunds or other assets.23 The applicability date for suspicious transaction reportingby casinos and card clubs is March 25, 2003. All casinos and card clubs willreport suspicious transactions to FinCEN by submitting Treasury Form TD F 90-22.49, Suspicious Activity Report by Casinos (SARC). The reporting deadlinesand record retention requirements mirror those for other financial institutionsalready subject to SAR reporting requirements.

In October 2002, FinCEN issued a notice of proposed rulemaking to requireinsurance companies to report suspicious transactions that involve or aggregate atleast $5,000 in funds or other assets.24 The rule applies to businesses that offer lifeinsurance policies, annuity contracts, and other insurance products with similarfeatures used to store value and transfer that value to another person. The ruleapplies only to insurance companies rather than their agents or brokers. Thesuspicious transactions would be reported using a new form, the SuspiciousActivity Report by Insurance Companies (SAR-IC). Written comments on theproposed rule were due on or before December 16, 2002.

Also, in October 2002, a notice of proposed rulemaking was issued to requirecurrency dealers and exchangers to report suspicious transactions.25 The proposedrule amends 31 CFR 103.20(a)(2) by adding a fourth reporting category fortransactions suspected to involve the use of a money services business to facilitatecriminal activity. Currency dealers and exchangers will report suspicioustransactions by filing Treasury Form TD F 90-22.56, Suspicious Activity Reportby Money Services Business. Written comments were due on or before December16, 2002.

61

23 See 31 CFR Part 103.2124 See 31 CFR Part 103.1625 See 31 CFR Part 103.20

Proposed Revision of the SuspiciousActivity ReportIn November 2002, a notice and request for comments, issued jointly by FinCENand the federal regulatory agencies (OCC, OTS, FRB, FDIC, and NCUA), waspublished in the Federal Register. The notice proposes three minor revisions tothe SAR Form to add two new check boxes for terrorist financing and identitytheft in Part III, Box 35, suspicious activities, and to update the language in theSafe Harbor provision to that contained in the USA PATRIOT Act. The OCC isalso soliciting comments on all information collections contained in 12 CFR Part21. No new reporting requirements are being added. The deadline for writtencomments was on or before January 3, 2003.

Treasury Department Invokes USA PATRIOTAct/Section 311 AuthoritySection 311 (31 U.S.C. 5318A) authorizes the Treasury Department to designate aforeign jurisdiction, financial institution, class of transactions, or type of accountas being of "primary money laundering concern" and to impose one or more offive "special measures." In December 2002, this authority was invoked for thefirst time.26

On December 20, 2002, the Treasury Department, in consultation with other U.S.agencies, designated Ukraine as being of primary money laundering concern.Unless Ukraine demonstrates that it has taken proactive steps to address theconcerns giving rise to its designation, the Treasury Department may imposeconditions based on Special Measures 1— 4 of Section 311, which establishinformation gathering and record keeping requirements upon U.S. financialinstitutions dealing directly with Ukraine, or dealing with those having directdealings with Ukraine.

Also on December 20, 2002, the Treasury Department, in consultation with otherU.S. agencies, designated Nauru as being of primary money laundering concern.The Treasury Department may impose Special Measure 5, which will prohibitU.S. financial institutions from opening or maintaining correspondent accountswith Nauru-licensed financial institutions except the Bank of Nauru (which servesas the Central Bank for the country) to ensure the people of Nauru can continue tomeet their legitimate banking needs.

62

26 See Federal Register Notice, Vol. 67, No.248, December 26, 2002, p. 78859-78863.

The deadline to submit comments on certain aspects of the designation notice tothe Treasury Department was January 27, 2003.

FATF, through its NCCT process, works to generate the necessary political will tobring about national legislative and regulatory reforms to combat moneylaundering by the designated countries. As a result of their failure to put into placesufficient anti-money laundering frameworks, FATF called upon its members toimpose countermeasures with respect to Ukraine and Nauru.

63

Section 7 - Issues and GuidanceThis section of the SAR Activity Review discusses current issues raised with regardto the preparation and filing of SARs. This section is intended to identify SAR-related issues and then provide meaningful guidance to filers. In addition, thesection reflects the collective positions of the government agencies that requireorganizations to file SARs.

FinCEN Introduces the PATRIOT ActCommunication System

Pursuant to Section 362 of the USA PATRIOT Act, FinCEN was tasked withdeveloping a highly secure network to allow financial institutions to electronicallyfile certain BSA forms. FinCEN met this goal by making the PATRIOT ActCommunication System (PACS) available to the financial community on October1, 2002. Initially, only the forms filed by depository institutions, the CurrencyTransaction Report (Form 4789 or CTR) and the Suspicious Activity Report(Form TD F 90-22.47 or SAR) will be accepted through the electronicfiling process.

Financial institutions are not mandated to use PACS, but the system does providea third, cost effective option for filing CTRs and SARs. PACS allowsparticipating financial institutions to electronically file CTRs and SARs in ahighly secure fashion via the Internet, including both single forms and electronicbatches of forms. PACS enhances the security of the BSA form filing processthrough the use of digital signatures and secure Internet connectivity. PACSaccelerates the delivery of BSA information to federal and state law enforcementand it reduces the expense to the financial institution by eliminating the need formagnetic tapes and paper forms.

An institution incurs no cost to sign up or use PACS. However, financialinstitution personnel may access PACS only after they have applied for andreceived a digital certificate.

Visit the PACS website at http://www.pacs.treas.gov to find out more informationabout how PACS operates and how to become a PACS user.

65

66

Status of the USA PATRIOT Act Section314(a)/Information Requests

On November 4, 2002, FinCEN's Section 314(a) system began operation. Thesystem is designed to enable law enforcement to transmit the names of suspectedmoney launderers and terrorists to financial institutions through e-mail andfacsimile, and obtain responses of positive matches for certain account andtransaction information for the suspects within seven business days. Tentransmissions were made, arising from both money laundering and terroristfinancing investigations. Although, only the first request went through the entireprocess, each request resulted in the provision of useful information to lawenforcement. However, responding financial institutions raised a number ofquestions and issues. The concerns led FinCEN, after consultation with thefederal functional regulators and law enforcement officials, to place a moratoriumon the Section 314(a) process until the issues could be addressed. On February 17,2003, a public notice announced the resumption of the Section 314(a) system.

Court Agrees With FinCEN That SARs AndDocuments That Would Disclose Existence Of ASAR Are Absolutely Privileged From DiscoveryIn Civil Litigation

The previous issue of The SAR Activity Review discussed cases finding thatSection 5318(g)(2) of the BSA and its implementing regulations prohibit thedisclosure of a SAR in civil litigation. In a recent case, a magistrate judge inChicago determined that these regulations protect not only the SAR itself, but alsodocuments that would disclose that a SAR had been prepared and filed. Cotton v.Privatebank, ___ F.Supp.2d ___ (N.D. Ill. 2002), available at 2002 U.S. Dist.LEXIS 22155.

In Cotton, the principal of an entity that had established a trust to pay a structuredsettlement to a personal injury victim converted the funds. The victim sued thebank that had originally been the settlement fund trustee, as well as the broker-dealer at which the account was held during the period. (The converter pled guiltythree years prior to this decision). The bank sought discovery from the broker-

67

dealer to prove that the broker-dealer knowingly permitted improper withdrawalsfrom the account, including documents relating to an internal investigation, andany SAR and documents referring to the SAR. The broker-dealer (an affiliate of abank holding company and thus, subject to the SAR requirement) resisteddiscovery, citing the BSA, and notified FinCEN of the demand. In response to amotion to compel by the bank, FinCEN wrote to the magistrate-judge explainingthe legal and policy bases that should lead the court to deny the motion. Themagistrate-judge agreed, finding that the regulations issued by FinCEN and thefederal bank regulators establish an absolute privilege, even if the discovery isnecessary to raise an affirmative defense. He further found that the regulationswere valid. Finally, he found that the regulations require the withholding of anydocuments that discuss whether a SAR has been prepared or filed, as opposed tounderlying factual documents, which are not privileged.

Remember, an institution that finds itself in the position of receiving a request fordisclosure of a SAR as part of discovery in civil litigation should notify the courtof the prohibition from disclosure and, also, pursuant to the regulations of thefederal financial institution supervisory agencies, notify its federal supervisor, or ifit has no such supervisor, notify FinCEN that such a demand has been made.

69

Section 8 - Industry ForumIn each issue of the SAR Activity Review, representatives from the financialservices industry offer insights into some aspect of compliance management orfraud prevention that presents their view of how they implement the BSA withintheir institution. Although the Industry Forum Section provides an opportunity forthe industry to share its views, the information provided in it may not representthe official position of the regulators. In this issue, the American BankersAssociation (ABA) offers their "Check Fraud Loss Report" from the second quarterof 2002. For more information, please contact John Byrne, ABA Senior Counseland Compliance Manager, at [email protected].

TOP FIVE LOSS CATEGORIES (by Number ofAccounts)

1. Forged maker's signature (2)

2. Counterfeit (1)

3. NSFs (4)

4. Return losses excluding closed accounts, NSFs, stop payments, refer to maker,government reclamations, and uncollectable funds (other return loss reasons)(3)

5. Closed accounts (5)

*Last quarter 's rank in parentheses

HIGHLIGHTS:

• In the second quarter, check-related losses averaged $1.02 per transactionaccount. This is an 11 percent decrease from the previous quarter and ayear ago (both at $1.14 per transaction account). Losses decreased 22.5percent in the West region, 7.8 percent in the Southwest region, 4.5 percentin Central region, and 0.3 percent in the Southeast region. There was a 5.6percent increase in losses in the Northeast region.

70

• The West had the highest losses per transaction account (at $1.19),followed by the Southwest (at $1.02), Southeast (at $0.99), Central (at$0.99), and the Northeast (at $0.80).

• Overall, forged makers signature became the number one loss category,followed by counterfeits, NSFs, other return loss reasons, and closedaccounts. By region, the top loss categories were forged makers signaturein the Northeast, Southeast, and Southwest regions, and counterfeit in theCentral and West regions.

• Three check fraud loss categories showed an increase in losses this quarter.Government reclamations increased by 26.4 percent, followed by kiting(25.4% increase) and forged maker's signature (10.6% increase). Otherreturn loss reasons decreased the most, down 30.1 percent, followed bystop payments (down 25.9%), NSFs (down 20.7%), and closed accounts(down 18.1%).

• Compared to the same period last year, losses decreased in mostcategories. Only two categories showed an increase from the previousyear, closed accounts (increased by 3.5%) and forged makers' signature(increased by 2.3%). By contrast, kiting decreased 65.5 percent and otherreturn loss reasons decreased 53.7 percent.

• Nationally, losses per case averaged $1,405, lower than $1,503 in theprevious quarter, but higher than the $1,169 a year ago. Losses per caseaveraged $2,822 in the Northeast, $1,444 in the Central region, $1,271 inthe West, $1,183 in the Southeast, and $1,150 in the Southwest.

• New account losses decreased in the second quarter to $0.26 pertransaction account or $7.32 per new account ($0.27 and $8.15,respectively, in the first quarter). By region, new account losses increasedin the Northeast and Southeast, but decreased in the Central, Southwestand West regions. New account losses were 25.4 percent of total losses insecond quarter, higher than the 23.6 percent in the first quarter.

• Losses from identity fraud increased to $0.05 per transaction account inthe second quarter, compared to $0.03 in the first quarter.

Appendix 1Characterization of Suspicious Activity by

States and Territories by Year

Appendix 1

72

27136

119

39

00001001

Alabama1996199719981999200020012002TOTALAlaska1996199719981999200020012002TOTAL

Wire

Tra

n sfe

r Fra

ud

Oth

er

Violations by State by Year For the Period April 1, 1996 through October 31, 2002

BSA/

Stru

ctur

ing /

Mon

ey L

aund

erin

g

State/Territory Violation

B rib

ery/

Gra

tui ty

Chec

k Fra

ud

Chec

k Ki t i

ng

Com

mer

c ia l

Lo a

n Fr

a ud

Com

pute

r Int

rusio

n

Coun

terfe

i t Ch

eck

Coun

terfe

i t In

st rum

ent (

Oth

er)

Cred

i t Ca

rd F

raud

De f

a lca

tion /

Embe

zzle

men

t

F alse

Sta

teme

nt

Misu

se o

f Po s

it ion

or S

el f D

e al in

gM

ortg

a ge

Loa n

Fra

u d

Mys

terio

us D

isapp

eara

n ce

77899391

179315267

1,111

393695

119285233272

1,079

01102149

00000000

466871

121162267245980

9668

16112278

38444663929585

463

5266

1118

39

71414

915201291

01002003

0000244

10

00000202

8171810182124

116

01004308

1951243247

10584

362

2221259

23

1029232

19

00000000

1112234

14

00124119

9201926254628

173

0014572

19

11324

111537

10102015

23524761778868

416

273468

1343

8171410372723

136

002243

1021

9202127454632

200

316011

1123

Cons

u mer

Loa

n F r

aud

Cou n

terfe

it Cr

e di t/

Deb

i t Ca

rd

Deb

it Ca

rd F

raud

27384970

114195153646

44

1012242646

126

25534833333229

253

3432523

22

221443

1834

0021365

17

73

00000000

12241

511

239

81418

00016029

5384

136138479472928

2,290

American Samoa

1996199719981999200020012002TOTALArizona1996199719981999200020012002TOTAL

00000011

9101030517255

237

Wire

Tra

nsf e

r Fra

ud

Oth

er

BSA /

S tru

ctu r

i ng /

Mo n

ey L

aun d

eri n

gBr

iber

y/G

ratu

it y

Chec

k F r

aud

Chec

k K

i t in g

Com

mer

cial

Loa

n F r

aud

Com

put e

r In t

rusi o

n

Coun

t erf e

it Ch

eck

Coun

t erfe

it In

st rum

ent (

Oth

er)

C red

i t C a

rd F

raud

Def

alca

t ion/

E mbe

zzl e

men

t

F al s

e St

a tem

ent

Misu

se o

f Pos

i t io n

or S

e lf D

eali n

gM

ortg

age

L oan

Fra

ud

Mys

t eri o

us D

i sap p

eara

nce

00002024

361598955

1,5261,7262,3174,531

12,014

00000011

00000336

00001113

187290317268435643647

2,787

00000000

71575251

10282

104519

00000000

34286

121247

00000000

00000325

00000000

87592030224460

322

00010001

38141179206213245162

1,184

00000000

413113748

50

00000000

2121,232

559191798432

2,8066,230

00000000

7272322433923

184

3070221

15

8216210283

130191125875

00000000

73552330598061

381

00001012

13283245386642

264

Con

sum

er L

oan

Frau

d

Coun

terf e

i t C r

edi t/

Deb

i t C a

rd

Deb

i t C a

rd F

rau d

00001001

86

137

1628

987

00000000

2586

1317

163214


74

Arkansas1996199719981999200020012002TOTALCalifornia1996199719981999200020012002TOTAL

07386

161050

6821,025

759599638

1,0741,3146,091

Wire

Tra

nsf e

r Fra

ud

Oth

er

B SA/

Stru

ctur

i ng/

Mon

ey L

a und

eri n

gBr

i ber

y/G

rat u

i ty

Che

ck F

raud

Che

ck K

it ing

Com

mer

cial

Loa

n Fr

a ud

Com

pute

r Int

rusio

n

Coun

terf e

i t C h

eck

Coun

terf e

i t In

st rum

ent (

Oth

er)

C red

i t C a

rd F

raud

Def

alca

t ion/

Embe

zzl e

men

t

F al se

St a

t em

ent

Mi s

u se

o f P

o sit i

on o

r Sel

f Dea

li ng

Mor

t gag

e Lo

an F

rau d

Mys

teri o

us D

isapp

eara

n ce

44958696

164199238922

5,2419,202

13,49816,51332,13939,06739,110

154,770

0210751

16

12131312273569

181

224742

12310398

147582

2,4382,9603,1143,0374,0345,3134,719

25,615

19374063597655

349

278480479347482812844

3,722

6281521405440

204

58115104170156141109853

00002237

0000

10512586

3111018242912

107

281488402570782

1,390744

4,657

477

18482229

135

7671,2371,331

9231,5161,9791,9509,703

00000011

17242234

12219746

462

1123136

17

1325293959

10152

318

45

171712162596

78203274413637788325

2,718

0212351

14

258597

184239190175995

23414234384742

267

7671,2231,2761,0261,0491,064

7947,199

6301513183122

135

512564440639813616580

4,164

2117

919283529

158

112185171169219246229

1,331

Con

sum

er L

oan

F rau

d

Coun

t erf e

i t C r

e dit /

Deb

i t Ca

rd

De b

it Ca

rd F

raud

233445

11588

127205637

536906

1,2451,0171,1102,4682,6949,976

26242720436437

241

61166215122135153103955

6518

10131154

356561

102114202223802


75

Colorado1996199719981999200020012002TOTALConnecticut1996199719981999200020012002TOTAL

54

1918325745

180

4121620202513

110

Wir

e Tr

ansf e

r Fra

ud

Oth

er

B SA /

Stru

ctur

ing /

Mo n

ey L

aund

erin

gB r

iber

y/G

ratu

it y

Che

ck F

raud

Che

c k K

i ting

Com

mer

cial

Loa

n Fr

a ud

Com

pute

r Int

rusio

n

Cou

nter

f ei t

Che

ck

Coun

terf e

it In

stru m

e nt (

Oth

er)

Cre

dit C

a rd

Frau

d

Def

a lc a

ti on /

E mbe

zzl e

men

t

F als

e St

atem

ent

Misu

se o

f Pos

i tion

or S

elf D

ealin

gM

ortg

age

Loan

Fra

u d

Mys

terio

u s D

i sapp

e ara

nce

275420602832

1,0881,8174,6699,703

149373480583868874

1,2284,555

02

100259

28

00010214

156283299245310469351

2,113

60115114

77164152212894

347164

108142169113701

30605540432848

304

2779

17211982

567

1094

69110

00002

152

19

00000134

15171518215350

189

9213111

91515

111

58568283

181219126805

122745506663

108371

544

12284

39

0110363

14

08427

111850

1097

1037

37

204099

110444767

427

2232013234532

158

57

101913221086

005274

1331

4552897098

14283

579

26604635344264

307

22192426447366

274

6153427182248

170

11213423345053

226

111315

812

92391

Con

sum

er L

oan

F rau

d

Cou

n ter

f ei t

Cre

dit /D

ebi t

Card

Deb

i t C

ard

Frau

d

52163146114143346394

1,358

567974

17985

8352,0153,323

24334334416240

277

15152414322531

156

17

403

102146

128

137

129

142369


76

0136453

22

510

716

141154

06

2254

1263522

265

146368

1139

Delaware1996199719981999200020012002TotalDistrict ofColumbia1996199719981999200020012002TOTAL

4121115395257

190

00103026

57210317211347669736

2,547

82023195178

110309

2100

14145

73235

1003

1146

25

Wire

Tra

n sf e

r Fra

ud

Oth

er

BSA /

Stru

ctu r

ing/

Mo n

ey L

aund

erin

g

B rib

ery/

Gra

tui t y

Che c

k F r

aud

Chec

k K

it ing

Com

mer

cial

Loa

n Fr

a ud

Com

put e

r In t

rusi

on

Cou n

t erfe

i t C

hec k

Cou

nter

f ei t

Inst

rum

ent (

Oth

er)

Cred

it Ca

rd F

raud

De f

alca

t i on/

E mb e

zzle

men

t

F al s

e S t

a tem

ent

Mi su

se o

f Po s

it ion

or S

elf D

eal in

gM

ortg

age

Loan

Fra

u d

Mys

t eri o

us D

i sap

pear

ance

124540

170128123251769

536680

146242313311

1,211

00010113

01000203

28132229253427651793

2,513

355969677079

102481

12801823

1,080933

1,0973,243

121594

116

1067

0035826

24

0131413

13

00001438

00000101

11

113444

132280503

6263

1172

37

30136205290496420476

2,053

10212135474340

217

118

26

2214

972

2131323

15

153811800795

1,1891,6752,5287,951

052414

2339

1355

10716

9146

2431834

25

5131223242418

119

14143915393429

184

511101014211990

3765

1118

858

810108999

63

2224

1167

34

Con s

umer

Loa

n Fr

a ud

Coun

terf e

i t C

redi

t/Deb

i t Ca

rd

Deb

i t Ca

rd F

raud


77

00100001

2,3024,1494,8735,0775,8817,4878,808

38,577

FederatedStates ofMicronesia

1996199719981999200020012002TOTALFlorida1996199719981999200020012002Total

00000000

0388

84131

29263

02101015

200368399517804842

1,4044,534

00000000

4458

110358420416413

1,819

Wir

e T r

ansf

er F

raud

Oth

er

BSA/

Stru

ctur

ing/

Mon

ey L

aund

eri n

gB r

iber

y/G

ratu

i t y

Che

ck F

raud

Che

c k K

i ting

Com

mer

cial

Loa

n Fr

a ud

Com

put e

r Int

rusi

on

Co u

nter

f eit

Che c

k

Coun

t erf

eit I

n stru

men

t (O

the r

)

Cre

dit C

a rd

Frau

d

Def

alca

t i on/

Embe

zzl e

men

t

False

St a

t em

ent

Mi su

se o

f Pos

i tion

or S

elf D

eal i n

gM

ortg

age

Loan

Fra

u d

Mys

t eri

o us D

i sapp

e ara

nce

00000000

885

1011101264

01101003

672925573677991

1,3511,8677,056

01000012

158235130173278277395

1,646

00000000

19251633657170

299

00000011

00002

161230

00000011

511266893

231117141827

00001001

34148190458511497798

2,636

00001001

8181915248943

216

00000011

1155

142245158222455

1,288

00000000

14181520746149

251

12010004

105198171210306274222

1,486

00000112

69112

64102186155118806

00202116

39596482

1227097

533

Cons

umer

Loa

n F r

aud

Cou

n ter

f ei t

C red

i t/D

ebi t

C ard

Deb

it C a

rd F

raud

00000022

67886982

1169277

591

00000000

1726462656

106140417


78

28779491966393

542

03120107

Georgia1996199719981999200020012002TOTALGuam1996199719981999200020012002TOTAL

1337247096

103187530

00000000

Wir

e Tra

nsfe

r Fra

ud

Oth

er

B SA /

Stru

ctur

i ng/

Mon

ey L

a und

eri n

gBr

i ber

y/G

ratu

it y

Chec

k Fra

ud

C hec

k Ki t i

ng

Com

mer

cial

Loa

n Fr

a ud

C om

put e

r Int

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207473648926

1,2461,3631,8486,711

5192947394263

244

1320585

24

00041005

68262259286574834870

3,153

514

8599

1565

36100

6786

104156195744

0134730

18

7183523262723

159

10001305

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182

20

00000000

2030526068

10483

417

03000216

15123141241383537394

1,834

00000426

0534

20313093

00000000

289

113

121560

00001102

74193119164111230265

1,156

01000113

28

1311362428

122

01411000

16

6096

130115145143135824

16246

109

38

25536286583852

374

2014323

15

17466057596549

353

132

12677

38

Cons

umer

Loa

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C oun

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red i

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it Ca

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Deb

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raud

66122162147336516652

2,001

615111710111686

511

813334063

173

11100205


79

Hawaii1996199719981999200020012002TOTALIdaho1996199719981999200020012002TOTAL

1000458

18

3132633

21

Wire

Tra

nsf e

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u d

Oth

er

BSA/

Stru

ctur

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Ch e

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Che

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Com

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Loa

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Com

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Coun

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Cou n

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Oth

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Cred

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Def

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Embe

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St a

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Mis

use

of P

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224348369382579799634

3,335

11394275

274183143767

00105017

00000101

44403937314338

272

17331934355443

235

611

44

1317

863

7181221242418

124

2101321

10

1232062

16

00000235

00001203

0805647

30

14344

111441

106

2114153024

120

417

176

112268

0134204

14

00100001

10011126

00001023

21616

713

76

67

1343224

19

11301219

02001407

24311719251810

144

7281516193715

137

6540305

23

27348

171556

4338813

30

176

11314

33

Con

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Coun

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edit /

Deb

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Deb

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628291694959

251663

3161020133528

125

553

10605

34

1521641

20

1221107

14

01011148


80

Illinois1996199719981999200020012002TOTALIndiana1996199719981999200020012002TOTAL

35465780

176183108685

04

106

313236

119

Wire

Tra

nsf e

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ud

Oth

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BSA /

S tru

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Com

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Coun

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Coun

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Oth

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Def

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Misu

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279670720

1,1091,6352,0583,704

10,175

148277379462551687

1,0563,560

699

13776

57

2002355

17

290809774

1,026941

1,1951,5696,604

5898

113198206282293

1,248

102242213206233289267

1,552

35507168828099

485

326155659394

120520

8121614272126

124

00006

3760

103

00000516

21615196

1607580

544

12203933313666

237

41121164339492442480

2,079

41826

103107129100487

019

64

2028

986

12100228

8165

2181

168162461

5014069

25

1498

103140104114208781

529

718212711

118

4271626344444

195

1757

115

1046

96244211277380400307

1,915

5698

104104115120

74671

28859155

106126117608

19261924433949

219

397586

112110144211777

10173434505830

233

Con

sum

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Frau

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Coun

terf e

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Deb

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Deb

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115287295268466542889

2,862

62102145141135163204952

62118123157130

90100780

26413472748356

386

621173542

115306542

26327

263985


81

Iowa1996199719981999200020012002TOTALKansas1996199719981999200020012002TOTAL

1203776

26

1447

14333598

Wire

Tra

nsf e

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ud

Oth

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B SA/

Stru

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Che

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Che

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Com

mer

cial

Loa

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Com

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Coun

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Coun

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Def

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Embe

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Mi s

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319691

169218245270

1,120

5073

123159153259439

1,256

00100113

01001248

2035334349

10578

363

254451

10074

10974

477

60595545416255

377

10202854316684

293

3231121322738

155

10182119434132

184

0000174

12

0000365

14

11410

95

173591

713

91012211991

364

15184228

116

294

26164131

129

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01101104

01110003

1124453

20

2202615144028

145

1177

157

242091

112

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37

0014299

25

14252927334927

204

17314455395349

288

10291821233658

195

10211518273844

173

89

1410113222

106

2111120202739

130

Con

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Coun

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Deb

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2971496077

228193707

5348408779

121341769

9101017132716

102

10212736375239

222

374758

1246

0372

119

2658


82

Kentucky1996199719981999200020012002TOTALLouisiana1996199719981999200020012002TOTAL

21174

179

41

10053

1110

948

Wire

Tra

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Oth

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BSA/

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Chec

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Com

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Com

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Coun

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Cred

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Def

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Mis

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76104144345362571687

2,289

154157193297

1,1631,3591,5094,832

1100224

10

112

00018

22

4378656795

130224702

64105

99180228301257

1,234

1127584650

135109436

5976809499

154149711

7201426182940

154

825

923223019

136

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15

0000182

11

6239

26262423

137

6261717485641

211

65

1436296359

212

1313777192

10462

432

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00101237

2110352

14

0323456

23

467

195

3278

151

8342128285334

206

54355

221660

4463258

32

19595955547757

380

41807673

116106

78570

69

1539253824

156

11342345402320

196

8271926364337

196

11383643634028

259

Con

sum

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Fra u

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Coun

terf e

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Deb

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Deb

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raud

286358

101140144253787

56518599

109121242763

27261628204040

197

26332928554720

238

33924

142560

373

126

112870


83

Maine1996199719981999200020012002TotalMarshallIslands1996199719981999200020012002TOTAL

00210003

00000000

1522

919124253

172

00000000

0221311

10

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Wire

Tra

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28576366

108100164586

00000011

00100203

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11395329346066

292

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31402030334527

226

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45

11141311

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28

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84

Maryland1996199719981999200020012002TOTALMassachusetts1996199719981999200020012002TOTAL

154748

156290245322

1,123

62211

9252724

124

Wire

Tra

n sfe

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BSA /

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Che c

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Com

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Loa

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Com

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rusi

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Cou

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Che

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235386600813893982

1,3025,211

384760971

1,6811,7941,4222,4109,422

01000269

120202

1421

121172143142291301345

1,515

34223364316367579721

2,604

37445138636470

367

22656769436140

367

915

9496

77129

5121719132319

108

00000347

0000547

16

10111813202224

118

11161115163820

127

112855

110193143203743

26416789

144118174659

00003429

0017364

21

2271234

21

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25

10445739263325

234

32626332131

9149

17

105

17181977

464

1421151781

5590

10786

138116

87679

3698757667

103137592

19453718493633

237

15343130618653

310

10172114274616

151

7392028273742

200

Con s

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f ei t

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F rau

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40799492

160268488

1,221

8592

153105193276491

1,395

23242948545545

278

8192224383359

203

65648

251569

3132022332940

160


85

Michigan1996199719981999200020012002TOTALMinnesota1996199719981999200020012002TOTAL

59

1247

412440293

1,223

280

1211212579

Wire

Tra

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206306274668

1,0331,9502,1496,586

5621,4551,1811,1791,5881,4212,3169,702

3470235

24

1021866

24

195361365581773843857

3,975

130326560719578709378

3,400

119254225144172188230

1,332

297687

137116182108735

10443620504139

240

2252519412143

176

00001

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13

33484271846563

406

56

1527333324

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41174308412447423260

2,065

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119156209103648

2223

1096

34

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84479

121458

0346823

26

84883

183459978

544

36

1716263931

138

10412344587437

287

6222260547512

251

108236254244283232251

1,608

3246689692

127103564

256786

108199185159829

153831304566

119344

28719296

1117260

530

22353041758935

327

Con s

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f ei t

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F rau

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130177183383345306456

1,980

44205130

78100311504

1,372

5591

10092

1119280

621

22412928605326

259

3959

222139

108

2953

11253590


86

BSA/

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Mississippi1996199719981999200020012002TOTALMissouri1996199719981999200020012002TOTAL

1303558

25

741463893

178149552

Wire

Tra

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23555669

277337353833

130178214237403651894

2,707

01111127

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12

17453542586663

326

107264324273250424319

1,961

31535135415537

303

3457438284

140116556

386

1518311899

13434235625451

300

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17221780

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113950

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102

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52

18613435384627

259

1133312

14

2161415134020

120

25422055485045

285

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738

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537373810

148

28494543

103125103496

18201139393231

190

20333652616136

299

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10232829647459

287

4394

147135295377345

1,436

6108

1312161883

3563666280

10167

474

2012335

16

211

58

104938

123


87

3536578

37

311

91416101679

Montana1996199719981999200020012002TOTALNebraska1996199719981999200020012002TOTAL

21102028

03444

106

31

Wire

Tra

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22394872

124120

84509

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114147294375569

1,604

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288

22233417

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13

00101338

2001056

14

02010306

0182321

97

536614

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413111211211789

12321825423323

185

2543597

35

52423191920

105215

75412

134

36

41488

252126

106

Cons

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10151523173840

158

1938402949

102275552

0210315

12

043335

872889


88

455

1326281798

23

202512

94

75

273466

1038

1110461

14

Nevada1996199719981999200020012002TOTALNewHampshire1996199719981999200020012002TOTAL

0215972

26

000

213

373

64

18668097

112225209807

315172011

391312769

2712

114461222

134

0032341

13

Wir

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322619718867

1,2521,5641,5256,867

436191

105128108197733

00201115

0003351

12

93183223275347416309

1,846

17236191250

97153117

1,061

51675450

185428453

1,288

5692537591715

227

256

1612

64

51

2231121

12

00000617

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18417711446536

1852

2,198

01242

103

22

75292

157194173120795

15

1428

141559

1438692

33

02100115

11112747

231217224768

3165140146135548336

1,473

154

1029181279

0311367

21

38636866945752

438

419

715

6111577

31272725221713

162

1131639

34

8131220179

21100

0714496

31

Cons

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89

New Jersey1996199719981999200020012002TOTALNew Mexico1996199719981999200020012002TOTAL

1391

226531104

8875

1,128

300223

1020

Wir

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343593

1,0581,8372,3882,6413,949

12,809

7572

128145172235461

1,288

111201

1016

00101147

174284317352669999836

3,631

35664545536298

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204968738892

175565

9122720153242

157

49

2518142144

135

121

1315

1033

00002125

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9142240389979

301

4005

12166

43

36123134147197194334

1,165

1099

1316172599

1323

2659

296

00102003

13998

5515

100

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3443566689386

395

25225

115

32

512101022

20931

299

2232152

17

71117144140225218193

1,108

29233019243622

183

24513186535470

369

73469

129

50

18382234424146

241

115

111113139

73

Cons

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149232275158336557600

2,307

25331438436784

304

41427656738273

443

1413219

112210

100

711

91526

103108279

023124

2234


90

New York1996199719981999200020012002TOTALNorth Carolina1996199719981999200020012002TOTAL

22804168

170215205801

3292723

143116126467

Wire

Tra

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2,4485,6677,971

11,25113,75115,91018,00975,007

317610831898

1,216954

1,1495,975

17231317214743

181

141022

1323

5781,2671,4741,8371,8922,7612,031

11,840

113274273358404379373

2,174

201323365306288247226

1,956

69153146184204157274

1,187

3911510615010593

121729

3201831262727

152

00005

301146

0000074

11

336170

109153292161879

8584986

124123119567

199631966926950

1,2211,2426,135

22135173252262148205

1,197

594

64417340

236

0852043

22

2472707594

104106545

34688

107

46

23173124271216257365

1,429

7879

176167

566316

635

17322231434349

237

01331317

2512

119

174377301327288280338

2,085

5799

123134139141122815

53211220164137171173

1,129

16525256648255

377

41108

91104

8083

102609

23655295837257

447

Con

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Deb

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601946

1,2971,1561,1921,8082,2459,245

75136188212252457449

1,769

61114118101

919294

671

32769660784744

433

23128136150182223356

1,198

5131223252541

144


91

North Dakota1996199719981999200020012002TOTALNorthernMariana Islands1996199719981999200020012002TOTAL

00000101

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313

925134649

158

4142213

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5148147

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1114342

16

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92

Ohio1996199719981999200020012002TOTALOklahoma1996199719981999200020012002TOTAL

56

215393

417171766

00266

151443

Wire

Tra

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179379754639969

1,3932,0155,728

124211174247293329411

1,789

112

1016

1031

0300126

12

122318329399551594852

3,165

235981

138140125119685

79232213262453342288

1,869

73635461655950

425

10171829598692

311

12283634312247

210

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168

27

00001528

216687

106106124202712

2117

3316121899

2059

132212297274366

1,360

6161438454247

208

0874

10215778

356

11001003

5837

10152068

4444625

29

13199120151259446168

1,356

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1311282911

100

6202522322237

164

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11862

36

102201217217253219171

1,380

22414872857554

397

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11567

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180

28517399

107124

86568

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141

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85185209210254435483

1,861

31546584

129140258761

31778998

118123131667

9191416313138

158

367

162057

119228

12

1663

142971


93

Oregon1996199719981999200020012002TOTALOverseas1996199719981999200020012002TOTAL

3869

18182082

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178360451615

1,5421,354

7155,215

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2,325

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2811579

10873

177211791

1220967

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9175

1310275

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94

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Palau1996199719981999200020012002TOTAL

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95

34834550706872

422

574276

1344

Pennsylvania1996199719981999200020012002TOTALPuerto Rico1996199719981999200020012002TOTAL

102035478064

125381

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459952975

1,7401,6051,9952,790

10,516

95475348234629983

1,0823,846

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1020723

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164496393475528632807

3,495

4212023

16166

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67124110122149206197975

1887

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137

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1,519

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1,076

10131515271719

116

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14331626

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98212258241261439595

2,104

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96

Rhode Island1996199719981999200020012002TOTALSouth Carolina1996199719981999200020012002TOTAL

0241524

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10231382631

240

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70127136255281226480

1,575

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2,120

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10221920222525

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97

South Dakota1996199719981999200020012002TOTALTennessee1996199719981999200020012002TOTAL

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858817281

11788

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3,515

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1122465

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8851,329

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126

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10292022293449

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1,2692,390

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41521252258

1,0971,242

4570

104107194195175890

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1112

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263

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98

Texas1996199719981999200020012002TotalU.S. VirginIslands1996199719981999200020012002TOTAL

0365

34381298

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1,0851,3324,760

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1,8632,7243,7704,8406,3428,4978,863

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