FinCEN Issues Guidance on Mutual Fund SAR Compliance
Posted by Peter Mucklestone
The Financial Crimes Enforcement Network (FinCEN) recently issued guidance in question and answer format designed to help mutual funds in meeting their obligations to file suspicious activity reports (SARs). SARs are reports that identify and describe transactions that raise suspicions of illegal activity. Mutual funds must commence filing SARs with FinCEN with respect to transactions occurring after October 31, 2006.
The mutual fund SAR reporting requirement applicable to mutual funds is intended to be uniform with reporting requirements already established for other financial institutions, such as banks, broker-dealers, casinos, and money services businesses.
One of the questions addresses how a mutual fund determines what is a "suspicious activity." While the response states that there is no way to provide an exhaustive list of potentially suspicious transactions, it highlights certain "red flags" that may indicate a need to file a SAR, as follows:
- The activities vary substantially from the customer's normal practices.
- A customer refuses to provide information necessary for the mutual fund to verify the customer's identity, make reports, or keep records required by the Bank Secrecy Act.
- A customer provides information that the mutual fund determines to be false.
- Transmission or receipt of fund transfers without normal identifying information, or in a manner that may indicate an attempt to disguise or hide the country of origin or destination, or the identity of the person sending or receiving the funds, or the identity of the beneficiary receiving the funds.
- A customer seeks to change or cancel a transaction after being informed of information verification or recordkeeping requirements.
- Repeated use of the mutual fund as a temporary resting place for funds from multiple sources without a clear business (including investment) purpose.
The guidance can be found on the FinCEN website.