Suspicious activity report filings are on the rise for the third year in a row, according to a Jan. 30 report from the Financial Crimes Enforcement Network. The total volume of SARs filed by depository institutions during the first half of 2006 increased 11% — to 279,703 — compared with the same period in 2005, according to FinCEN, the Treasury Department unit that collects SAR data.

However, certain fraud areas outpaced others. The volume of suspected consumer loan fraud filings rose 94%, while the number of suspected mortgage fraud filings increased 51%. Filings reporting suspected false statements — such as incidents in which at least some loan information is untrue — rose 75%.

Meanwhile, filings reporting alleged bribery and gratuity violations fell 56% during the first half of 2006, according to FinCEN.

The surge in overall SAR filings does not necessarily indicate a jump in suspicious activity or fraud, said FinCEN spokeswoman Anne Marie Kelly. The increase stems from “a variety of factors,” Kelly said, including better familiarity with the SAR program and increased awareness about certain types of fraud or possible criminal occurrences.

“Banks are becoming much more aware of news events and activities,” said Caruso, founder of Colonial Heights, Va.-based compliance advisory firm Dominion Advisory Group Ltd. When law enforcement emphasizes a type of activity to look out for, banks become more vigilant for that type of activity and ratchet up related filings.

Improved due diligence on the part of financial institutions could also be a contributor to the growing volume of filings, Kelly added.

However, Gwenn Bezard, research director at Boston-based advisory Aite Group LLC, believes the results of FinCEN's report are a poor indicator of fraud trends in the financial industry. Rather, the spikes in certain SAR filings are most likely a result of “defensive filing” — a term used to describe overzealous filing by financial institutions.

“Banks are just filing because they're afraid of regulators,” Bezard said. “Banks are increasingly worried about what's at stake.”

Still, Bezard does not advocate scrapping the existing SAR reporting system. The process should move away from its current “bureaucratic feel,” he said, where banks file to avoid government reprimand.

FINCEN FEEDBACK Though FinCEN does a good job apprising banks of fraud trends — releasing periodic industry guidance and advisories on reporting requirements — the agency fails to provide “meaningful, useful information” on the SARs it collects, Caruso said. For example, FinCEN should release more detailed statistical reports.

Not all agree with Caruso view.

“In some categories, the government has shared more information with banks,” such as mortgage fraud trends, said Richard Riese, director of the American Bankers Association's Center for Regulatory Compliance. “FinCEN is making a serious effort in providing feedback on the data that it's getting.”

Banks must rely on constant reports from FinCEN to determine which are the most prominent incidents — the ones for which SARs should be filed, Riese said. By better filtering potential SAR data, the industry will avoid artificial spikes in filings.