Fraud is on the rise almost everywhere, and there is no indication of a slowdown anytime soon, according to the statistics behind SARs filings
The number of suspicious activity reports (SARs) — the documents that financial institutions must file with the federal government’s Financial Crimes Enforcement Network (FinCEN) whenever behavior by employees or customers is detected that may be associated with money laundering, fraud, or other types of criminal activity — is one of the most accurate measures of the prevalence of financial crime in any given year in the United States. Not surprisingly, the number of SARs have been steadily rising.
A surge in SARs
In mid-2023, a Thomson Reuters Institute special report on the surge in SAR filings predicted that approximately 3.75 million SARs would be filed in 2023, a 4.5% increase over 2022 SARs and a historic record. That prediction was accurate but fell a bit short — the final SARs tally for 2023 ended up being 3,809,823 SARs, a 5% increase over 2022 and yet another record in terms of filing volume.
Prior to the pandemic, SARs were increasing at a rate of roughly 2% to 3% year-over-year, but several converging factors have accelerated those statistics. A surge in fraud during the pandemic kickstarted the trend, which was then followed by a series of massive data breaches that exposed the personal data of millions of people, sparking an increase in all types of electronic fraud, including synthetic identify theft, account takeovers, and various forgery-related activities.
Given that SARs filings over the past few years have shown no signs of slowing down, there is little reason to believe 2024 will be any different. Indeed, SARs filings in 2024 are expected to continue increasing at a rate of 4% to 5%, which has quickly become the new normal for SARs filing volumes, according to Jacob Denman, Risk and Fraud Product Manager at Thomson Reuters.
Prior to the pandemic, SARs were increasing at a rate of roughly 2% to 3% year-over-year, but several converging factors have accelerated those statistics.
“I don’t see much slowing down in 2024,” Denman says. “Anti-money-laundering (AML) activity will probably remain flat, but I think account takeovers, identity fraud, and forgeries are going to continue to grow because of so many data breaches,” he adds. “I also think we’re going to see big growth in synthetic identity fraud, because AI [artificial intelligence] technology and the general availability of personal data makes it easier than ever to create and nurture fake identities.”
The rise in check fraud
Denman says he even expects areas of fraud that declined slightly in 2023, such as check fraud, to maintain a steady pace into 2024 as well. “Honestly, it’s hard to see how check fraud could go any higher,” Denman offers, but he concedes that it might.
Until 2021, check fraud averaged about one quarter-million SARs per year, but the number of check-fraud SARs began rising in 2021, and almost doubled — to more than 683,000 in 2022, compared to more than 350,000 SARs the previous year.
Interestingly, that timeframe coincides to when national and international crime rings began raiding mailboxes and stealing mail from postal carriers. Then — in a practice called checkwashing — criminals change the payee on any checks they steal and cash them or deposit them electronically into another account.
The number of check-fraud SARs fell slightly in 2023, to 665,505, but even that number is shocking, Denman says. “Check fraud accounts for almost 20% of all SARs filed,” Denman says. “And if you consider that more than half of all SARs are filed by the top five or six banks in the country, and those banks are getting hit close to 100,000 times a year — that’s nuts.”
Other types of fraud
Elder financial exploitation is another type of fraud that is growing rapidly, Denman says, adding that elder exploitation SARs filings have more than doubled over the past three years. There were 160,394 elder exploitation SARS filed in 2023, up from 106,754 in 2022, which itself was up from 72,173 in 2021 — a 122% increase in just three years.
“Account takeover fraud also has grown 72% over the last two years, additionally we are seeing notable growth in Automated Clearing House (ACH) and electronic fund transfer fraud, that includes payments made by large payment processors such as PayPal, Venmo, Cash App and social media platforms,” Denman says.
SARs from credit unions were up 22% in 2023 as well, a rapid acceleration over previous years. “Credit unions don’t file many SARs in total, but to see growth like that is surprising,” Denman notes. “My hypothesis is that credit unions are broadly expanding outside their local or historical customer base, and we’re seeing the growing pains associated with expanding footprints, onboarding BaaS [backend as a service] businesses, and their own digital transformations during a global massive uptick in fraud.”
SARs can also alert authorities to other criminal activities such as human trafficking, which people don’t always associate with financial crime.
The most viable solution, he says, is for credit unions to emulate larger banks by increasing their investment in anti-fraud technologies and strengthening their AML and know-your-customer (KYC) protocols.
Human trafficking
SARs can also alert authorities to other criminal activities such as human trafficking, which people don’t always associate with financial crime. Yet there is a strong correlation between SARs filings and human trafficking, Denman explains, and the trend lines are not promising. “There was a 153% increase in human trafficking SARs from 2022 to ‘23, which correlates fairly decently with the uptick in fraud.”
Common fronts for human trafficking, such as foreign-owned nail salons and massage parlors, have long been known to authorities, but the fastest-growing form of human trafficking is tied to organized call centers in foreign countries. These call centers use forced labor to make phone calls to people all over the world in an attempt extract money from them through various investment scams — a practice known as pig butchering.
Of course, SARs only report instances of possible, not actual, fraud, and they do not account for unreported fraud. The Federal Trade Commission received 2.6 million fraud reports in 2023, and states that consumers lost more than $10 billion to fraud; however, estimates of losses due to unreported fraud go into the hundreds of billions of dollars.
“I think a lot of that money is being reinvested into scamming and crime infrastructure,” Denman laments—yet another indication that fraud is not likely to slow down anytime soon.
