An STR, or Suspicious Transaction Report, is identified by financial institutions when they observe transaction activity that appears unusual or out of the ordinary. This means that the transaction deviates from what is expected based on the customer's profile, past behavior, or known business practices.
Key Indicators of an STR
Financial institutions are trained to recognize several red flags that could indicate the need to file an STR. These include:
- Unusual Transaction Patterns: This involves transactions that are inconsistent with the customer's usual activities.
- Example: Large, sudden deposits or withdrawals that don't match a customer’s historical behavior.
- Secrecy or Evasiveness: Instances where the individual involved attempts to conceal information or the source of funds are a strong indicator.
- Example: A client who seems hesitant to disclose the origin of a large sum of cash they are depositing.
- Abnormal Transaction Activities: Transactions that are abnormally large or structured to avoid detection often trigger STRs.
- Example: Making multiple smaller deposits that, in total, would constitute a large deposit to avoid scrutiny.
Examples of Potential STR Scenarios
To further clarify, here are some specific scenarios that would likely require the filing of an STR:
- Structuring Transactions: A customer repeatedly deposits cash amounts just below the reporting threshold to avoid automatic reporting requirements.
- Unexplained Wealth: An individual with a modest declared income engages in very large transactions or has a lot of unexplained cash flow.
- Sudden Increase in Activity: A customer that usually only makes small, regular deposits starts suddenly making very large deposits without clear explanation.
- Inconsistent Account Activity: Transactions are inconsistent with the customer's known business or stated purpose of the account.
How Financial Institutions Identify STRs
Financial institutions employ several mechanisms to identify these red flags:
- Transaction Monitoring Systems: These systems analyze customer transactions in real-time and flag those that deviate from established patterns.
- Employee Training: Bank staff and other financial employees are trained to identify unusual behavior or potentially suspicious transactions.
- Due Diligence Procedures: Banks and other institutions are legally required to perform background checks and ongoing monitoring of their customers to identify potentially suspicious patterns.
In essence, a financial institution files an STR when it observes any transaction activity that is out of the ordinary, such as attempts to hide information like the source of funds, or making or attempting to make abnormally large transactions.
