What should a financial institution do if it suspects a customer is engaged in suspicious activity?

When a financial institution suspects that a customer is engaged in suspicious activity, the appropriate response is to file a suspicious activity report (SAR). This action is essential for complying with regulatory requirements established under laws such as the Bank Secrecy Act (BSA). Filing a SAR allows the institution to report potentially illegal activities to the relevant authorities, such as the Financial Crimes Enforcement Network (FinCEN), enabling them to investigate further.

Addressing suspicious activity is crucial for maintaining the integrity of the financial system, detecting and preventing financial crimes, such as money laundering and fraud. By producing a SAR, the institution contributes to broader law enforcement efforts to address and combat financial crimes, which ultimately protects not only the institution itself but also its customers and the financial system at large.

Other options would not fulfill the regulatory obligations or could result in negative consequences for the institution. For instance, ignoring the activity overlooks potential criminal behavior, while terminating an account without proper procedure might violate legal rights and regulations. Consulting legal counsel can be part of the proper response, but it should not be the sole action taken, as failing to file a SAR could leave the institution vulnerable to compliance violations.