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Washington
FinCEN addresses BSA e-filing warns of tax fraud
WASHINGTON (4/2/12)—The Financial Crimes Enforcement Network (FinCEN) last week advised financial institutions on how to identify instances of tax refund fraud, and also provided additional guidance on how to use its e-filing system to file new versions of Suspicious Activity Reports (SAR) and Currency Transaction Reports (CTR).

FinCEN in a release noted that financial institutions "are critical in identifying tax refund fraud because the methods for tax refund distribution--direct deposit into demand deposit accounts, issuance of paper checks, and direct deposit into prepaid access card accounts--are often negotiated and deposited at various financial services providers."

The agency said signs of potential tax refund fraud include:

  • Multiple direct deposit tax refund payments that are made to a single accountholder;
  • Suspicious or authorized account opening at a depository institution, on behalf of individuals that are not present, with the fraudulent actor being named as having signatory authority;
  • Business accountholders that process third-party tax refund checks in a manner inconsistent with their stated business model or at a volume inconsistent with expected activity;
  • Accountholders that process a large number of tax refund checks for individuals that live out-of-state;
  • Processing of multiple refund checks that are for similar dollar amounts;
  • Processing of Treasury refund checks or bank checks that are sequentially numbered or are within a few numbers of each other; and
  • Discrepancies between the dollar amount of refund checks being deposited and the amount of currency being withdrawn to cover the cashing of these refund checks.
The elderly, minors, prisoners, the disabled, or the recently deceased are often victims of this type of fraud, FinCEN said. The agency encouraged institutions that believe this type of fraud is occurring to use the term "tax refund fraud" in the narrative section of their SAR and provide a detailed description of the activity.

FinCEN began accepting new versions of SARs and CTRs through its e-filing system last Friday, and the agency provided guidance for institutions that are using the new versions of these forms.

The new SARs and CTRs can be customized for the various institutions that file them, by greying out sections of the report that do not apply to a given financial institution. The new e-filing versions of SARs and CTRs also include extra data elements on various types of suspicious activities and financial fraud schemes. The agency has also marked certain sections that are "critical" to the reports being filed properly, and has limited the narrative section of the report to 17,000 characters.

FinCEN said it may need to develop additional guidance for the new SAR and CTR forms.

The E-Filing System will continue to accept submissions of the older SAR and CTR forms until March 31, 2013. FinCEN will require financial institutions to e-file all SAR and CTR reports beginning on July 1. A limited number of institutions may be granted a "temporary hardship exemption."

For FinCEN releases on tax fraud and SAR/CTR e-filing guidance, use the resource links.
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