How effective are suspicious transaction reporting systems?

Abstract

Purpose

A fundamental element of international anti‐money laundering (AML) systems is the requirement that financial institutions file suspicious transaction reports (STRs) with financial intelligence units. Although the Financial Action Task Force (FATF) has established global standards, there is a range of national laws, practices and experiences with STR systems. The purpose of this paper is to assess the effectiveness of national STR systems, by using Switzerland as a case study.

Design/methodology/approach

Primary source documentation, complemented by observations at FATF meetings, are relied on to evaluate STR systems.

Findings

The FATF ratings of a country's compliance with international standards are objective, expert driven and consistent in application, but are limited as performance measures in that they ignore the costs of AML and STR measures. The effectiveness of the Swiss STR system is questionable because of serious under reporting of suspicious transactions. The Swiss STR system is efficient to the extent that there is a high usage of STRs and that large amounts of money are automatically frozen under the mandatory reporting obligation.

Research limitations/implications

Evaluation of national STR systems is limited because of a lack of reliable statistics on the extent of money laundering.

Practical implications

This paper is addressed to policy makers who are concerned with assessing the effectiveness of STR systems. Future research would deal with STR systems in developing countries and the role of STRs in uncovering the financing of terrorism.

Originality/value

Insider/outsider description of the FATF mutual evaluation process. Compilation and interpretation of statistical data on STR systems, as performance measures.

Citation

Chaikin, D. (2009), "How effective are suspicious transaction reporting systems?", Journal of Money Laundering Control, Vol. 12 No. 3, pp. 238-253. https://doi.org/10.1108/13685200910973628