SARs and Illicit Finance: Are we really winning?

The compliance industry has spent decades building increasingly sophisticated systems to combat money laundering – implementing complex monitoring systems, investing in AI solutions, and filing millions of Suspicious Activity Reports (SARs). Yet a fundamental question remains unasked: Are we fighting the right battle?

The Fundamental Challenge

At the heart of our current approach lies a critical misunderstanding. Money laundering is consistently treated as a national security threat, when in reality, it’s merely a process – the movement and concealment of illicit funds. The real threats to national security stem from the predicate offenses: drug trafficking, corruption, and human trafficking. This fundamental misalignment has shaped our entire approach to financial crime prevention.

This misidentification has led to what we might call “compliance theater”. Our current system has evolved into one where financial institutions generate unprecedented numbers of low-value SARs, while expensive technology merely automates existing detection patterns rather than enhancing actual crime detection. The focus has shifted dramatically from preventing crime to documenting compliance, while human expertise is increasingly overshadowed by automated solutions that may miss crucial contextual nuances.

Perhaps most troublingly, we’ve created a system where success is measured by activities rather than outcomes. The industry celebrates the number of reports filed and transactions monitored, while paying relatively little attention to the more meaningful metric of criminal activities prevented or detected.

A Path Forward

The path to more effective financial crime prevention requires a fundamental shift in perspective. We need to move beyond the narrow confines of “money laundering” to embrace a broader “illicit finance” framework. This means developing a deeper understanding of specific predicate offenses in our operational contexts and restoring the proper balance between human expertise and technological support. Resources should be allocated based on actual impact rather than perceived risks or regulatory expectations.

For compliance teams, this translates into several concrete changes in approach. Risk assessments need to be reoriented toward predicate offenses rather than just money movement patterns. Staff training should emphasize analytical skills development over procedural knowledge. Technology should be positioned as a tool to enhance human decision-making rather than replace it. Most importantly, we need to shift our focus from the quantity of suspicious activity reporting to its quality and effectiveness.

These changes cannot happen in isolation. The industry as a whole needs to engage in an honest dialogue about the effectiveness of current approaches. We need a recalibration of regulatory expectations, better alignment between compliance efforts and law enforcement outcomes, and enhanced information sharing between stakeholders. Only through such collaborative effort can we hope to create a more effective system.

Looking Ahead

As compliance professionals, we must move beyond comfortable but ineffective practices. The measure of success should be our contribution to preventing and detecting serious criminal activity, not the volume of reports filed or transactions flagged.

The current system needs recalibration – not abandonment. By focusing on actual threats rather than processes, we can develop more effective strategies for combating financial crime and its underlying causes.