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Compliance Q & A: SAR Information, Billboard Advertising Considerations

Tuesday, January 08, 2013   (0 Comments)
Posted by: Erin Thacher
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Compliance Q & A: SAR Information, Billboard Advertising Considerations

Compliance questions regarding SAR-supporting documentation and what "Initial "Detection means, and billboard advertising regulations.

What is considered SAR-supporting documentation?

Question: My credit union just received a request from law enforcement for SAR-supporting documentation that seems fairly broad. How can we tell what documents are within (or outside) the scope of a SAR?

Answer: Credit unions must retain copies of suspicious activity reports (SARs) and supporting documentation for five years from the date of filing the SAR; and credit unions must provide all documentation supporting the SAR upon request by appropriate authorities (e.g., FinCEN, federal law enforcement agency, your regulator).

According to the FFIEC’s Bank Secrecy Act/Anti-Money Laundering Examination Manual, supporting documentation refers to "all documents or records that assisted the credit union in making the determination that certain activity required a SAR filing.” No legal process is required for disclosure of supporting documentation to appropriate authorities. If the information or documentation sought by law enforcement is within the scope of the SAR, then the credit union must comply with the request and turn over the information to the government agency.
If the credit union determines that the requested information or documentation is outside the scope of the SAR, the credit union should request that the law enforcement agency comply with the Right to Financial Privacy Act by submitting a subpoena or summons, a search warrant, or a formal written request. The request for information should specifically identify the financial records, documentation or information required. But, requests may often be worded very broadly.

What is "Initial Detection" for purposes of filing a SAR?

Question: Does "initial detection" mean: When we flag a transaction for review or when we determine that the activity may involve illegal activity?

Answer: The suspicious activity reporting rules require that a SAR be filed no later than 30 calendar days from the date of the "initial detection” of facts that may constitute a basis for filing a SAR. If no suspect can be identified, the time period for filing a SAR is extended to 60 days.

According to the FFIEC Bank Secrecy Act/Anti-Money Laundering Examination Manual, the phrase initial detection should not be interpreted as meaning the moment a transaction is highlighted for review:

"There are a variety of legitimate transactions that could raise a red flag simply because they are inconsistent with an accountholder’s normal account activity. For example, a real estate investment (purchase or sale), the receipt of an inheritance, or a gift, may cause an account to have a significant credit or debit that would be inconsistent with typical account activity. The bank’s automated account monitoring system or initial discovery of information, such as system-generated reports, may flag the transaction; however, this should not be considered initial detection of potential suspicious activity. The 30-day (or 60-day) period does not begin until an appropriate review is conducted and a determination is made that the transaction under review is "suspicious” within the meaning of the SAR regulation.”

FinCEN’s 2006 SAR Activity Review also provides useful guidance:

"Upon identification of unusual activity, additional research is typically conducted, and institutions may need to review transaction or account activity for a customer to determine whether to file a SAR. The need to review a customer’s account activity, including transactions, does not necessarily indicate the need to file a SAR, even if a reasonable review of the activity or transaction might take an extended period of time. The time period to file a SAR starts when the institution, in the course of its review or as a result of other factors, reaches the conclusion in which it knows, or has reason to suspect, that the activity or transactions under review meets one or more of the definitions of suspicious activity.”

So, the red flag alone doesn’t trigger the SAR filing; but the red flag plus your investigation may trigger a SAR filing if all the facts taken together form the basis for filing a SAR.

What should be considered when advertising Open-End Loans on billboards?

Question: The marketing department at a credit union wants to advertise its Visa credit cards on billboards that are located along a very busy four-lane highway. The credit union has never advertised on billboards, so the marketing department asked the credit union’s compliance officer for help in determining the minimum advertising requirements for a billboard ad. Is the compliance officer correct if they respond that the credit union only needs to indicate on the billboards its name and the amount of finance charge in terms of the Annual Percentage Rate (APR) associated with credit union’s credit cards?

Answer: No, the compliance officer’s response is not correct. While there is actually no "minimum" disclosure requirement for a Visa billboard advertisement, there is also no exception from the advertising requirements for advertisements appearing on billboards either. The compliance officer has suggested that the ad use a triggering term without stating the other disclosures that are required if a triggering term is used. This would not comply with the advertising requirements in Regulation Z for open-end loans.

The advertising requirements for open-end loans can be found in Reg. Z Section 1026.16 and the Reg. Z Commentary to that same section. If an ad states a triggering term (such as the finance charge that may be expressed in terms of the APR or states the amount of any other charge that may be imposed as part of the plan) then certain other disclosures will be required.

These other disclosures are:

  1. Any minimum, fixed, transaction, activity, or similar charge that could be imposed;
  2. The APR; and
  3. Any membership or participation fee that may be charged.

If the credit union is careful not to state any "triggering terms,” the ad could simply state: "Apply for a Visa Account Today at ____ credit union." In addition, the credit union should make sure the ad is not misleading, and does not state any credit terms that are not actually available.