FinCEN: Reports of Securities Fraud Up 22%
June 1, 2009
The Financial Crimes Enforcement Network released last month its annual review of Suspicious Activity Reports, focusing for the first time on the securities industry.
The 2009 SAR Activity Review covered 15,104 reports, more than triple the 4,267 filed in 2003 by financial services firms to FinCEN.
All told, 1,856 reports of securities fraud were filed in 2008, up 22 percent from the 1,520 filed in 2007. Twenty reports of futures fraud were filed, up from 20. Insider trading reports reached 499, up from 29 percent from 388.
Reports of wire fraud and significant wire transfers without significant economic purpose, both of which are commonly used to structure proceeds from financial crimes that victimized the industry, reached 1,831 reports (up 13 percent) and 1,813 (up 28 percent), respectively.
"Though relatively new to SAR filing responsibilities, brokers and dealers in securities have been required to report suspicious transactions since 2003," said FinCEN director James Freis.
Filings were mandated for futures commission merchants and introducing brokers in commodities and mutual funds in 2004 and mutual funds in 2006.
This information, Fries said, "is increasingly valuable. For example, the Commodities and Futures Trading Commission (CFTC) has recently credited FinCEN and SAR data with a number of important enforcement actions concerning Ponzi schemes and fraud."
No specific Ponzi schemes are mentioned in the report. FinCEN spokesman William Grassano would not comment on how long it took to produce the 2009 SAR Review or if the focus was changed to accommodate new concerns raised by the recent Ponzi schemes that have defrauded investors.
"I'm surprised that they don't have more of an ongoing emphasis on securities," said Richard DeLotto, an analyst with the Gartner Group, adding that industry was vulnerable to those who wanted to "launder big chunks of financial assets."
In addition, the 2009 SARs Review provides guidance on identifying and reporting transactions for clearing and introducing brokerage firms. Clearing and introducing brokers ranked one and two respectively on the number of SARs filed in 2008.
Although a SAR can be mailed as a paper document or filed electronically to the Bank Secrecy Act (BSA) E-filing system, the core of a SAR remains the written narrative that describes the suspicious activity.
As a result, SARs have had a tendency to resist the trend toward automation so pervasive in the industry, although that is changing. The report stated, however that "FinCEN promotes the use of BSA E-Filing because it is more efficient, faster, and more secure than paper filing." FinCEN's Grassano said that by April 2009, 73 percent of all firms filed electronically.
Separate data was not available for the securities industry.
While SARs filing for the banking industry have flat-lined, they've spiked for the securities industry. Banks have had a head start; they were required to adhere to money laundering requirements since the Bank Secrecy Act was passed in 1973 and have been filing SARs ever since.
