A robust AML/CFT program should include procedures for when and how to exit a relationship with a SAR subject. But when and how to end a banking relationship is a risk-based decision unique to each financial institution. Consider these best practices to build exit strategies into your SAR relationships:
Correctly identify and file supplemental and continuing activity SARs
A continuing activity or supplemental SAR should only be marked “continuing activity” on the SAR form if filed within 120 days of the previous SAR filing. If 120 days have lapsed from the last SAR filing, a new, initial SAR should be filed instead. It would be best to reference the original SAR in the narrative that previous SARs were filed. Also include the previous SAR’s amount, dates, violation types, Document Control Number (DCN), and internal control number. Just ensure you check “Initial SAR” on the first page of the SAR form. This will ensure proper tracking of actual continuing activity. This tracking should be used to make informed, risk-based decisions on when exiting the relationship may be considered.
Determine criteria for exiting a repeat SAR subject
How many SARs are too many? Three? Ten? Twenty-five? A decision should be made to determine how many SARs can be filed on a subject before they are considered for exiting. What type(s) of AML/CFT violations are of utmost concern for your institution? Some institutions draw a hard line at activities related to human trafficking or smuggling, transactions involving certain countries the institution has deemed high-risk, activity indicative of terrorist financing, or some other risky scenario. It is essential that your financial institution clearly identifies any type of activity that it wants to consider a “one and done” offense.
There may not be any activity that falls into this category, and that is okay. All these decisions are risk-based, and each financial institution is unique. Ask your board or executive leadership to consider the following: What is their tolerance for certain types of risk? What types of activity are they okay with or not okay with having in the institution? Discuss these things before a problem arises and you have a suspicious activity relationship on the line.
Determine an appropriate timeline for your institution to exit a repeat SAR subject
Once your institution has determined to exit a repeat SAR subject, how much time should you give them to move their banking relationship to another institution? There should be a deadline that marks when the exit must be complete. It is generally acceptable to give 30 days’ notice after an intent to exit letter is sent to the customer or member, allowing them time to set up a new direct deposit or change bill pay information. But if it has been determined that their activity poses a significant risk to the institution, a rapid exit may be appropriate. For example, suppose you have reason to believe an account is being used for terrorist financing, or you have legitimate proof of money laundering activity. In that case, it may be appropriate to end the banking relationship on an escalated timeline. Contacting law enforcement may also be suitable, depending on the activity types involved.
Determine which departments are needed for cross-functional support and engage those department leaders to facilitate the account closure process
Especially in medium or large institutions, the BSA department may not be the only one involved in an exit. A different department, such as deposit operations, may process the account closure. Dedicated account representatives should be notified of the intent to exit and be prepared to answer potential questions from their customers.
You may receive pushback from some employees if an exit decision has a significant financial impact on an employee or the institution. This is why buy-in from all department leaders is crucial. If pushback occurs, consider creating a process for departments to make a case for maintaining the relationship to present to executive leadership (such as the board and BSA officer) outlining why the benefits of keeping the relationship outweigh the AML/CFT risks.
A well-documented memo detailing the decision to maintain or exit the relationship should be retained and included with other due diligence, readily available to present to auditors or examiners if requested. Remember: maintaining a relationship is different from accepting or condoning suspicious activity. If there is suspicious activity present, SAR reporting should continue accordingly. Remember, the final decision to retain or exit a suspicious relationship should be with the BSA officer as the ultimate AML/CFT authority.
Engage the legal department to draft an account closure letter for relationships closed for AML/CFT reasons
Utilize your legal department to ensure your institution is adhering to all regulatory requirements, reducing the risk of potential law violations. You may also draft the letter, have the legal department review it, and provide input. The legal department may need to review and update account disclosures to include the types of closures and reasons for closures at the institution’s discretion.
Develop and train customer-facing employees to handle ending banking relationships
Work with department leadership to coordinate training efforts for exiting relationships. People will likely have questions about the institution’s decision to exit. Training should address how to handle potentially unhappy customers or members. Training is critical to ensure employees are not speaking about “BSA closures” to others. An AML/CFT-related closure should be private to the institution and discussed on a “need-to-know” basis. Implement this training in annual and new staff training plans as needed based on each employee’s role within the institution.
Assist other departments in developing procedures for the account closure and exiting process
While procedures for the BSA department are necessary, other departments that facilitate the account closure process (i.e., deposit operations, business banking, consumer deposits, etc.) will also need procedures outlining the steps of receiving an account closure request, processing the request, notification of exited party, and final distribution of account funds. Cooperate with department leaders or the points of contact responsible for drafting procedures to adequately address any concerns or questions.