According to the Financial Action Task Force‘s (FATF) Recommendation 20, a suspicious transaction report (STR) or a suspicious activity report (SAR) is filed by a financial institution or, by a concerned citizen, to the local Financial Intelligence Unit if they have reasonable grounds to believe that a transaction is related to criminal activity.
A suspicious transaction is a transaction that causes a reporting entity to have a feeling of apprehension or mistrust about the transaction considering its unusual nature or circumstances, or the person or group of persons involved in the transaction. Reporting entities assess the suspicion according to a risk-based approach for customer due diligence, real-time payment screening, transaction monitoring and behavioural monitoring, to identify changes in the respondent’s transaction risk profile.
Some countries have a STR-based reporting regime: a STR scope is broader as it may not include any transaction, but reveals any inconsistency with a customer’s business or industry practice.
The Interpretative note of FATF Recommendation 10 on Customer Due Diligence underlines four categories of risk factors such as product, service and transactions; customer risk factors; country and geography related risk factors; and distribution channel risks.
In countries with robust AML/CFT framework, it is required by law to file a suspicious transaction report promptly upon discovery.