How Suspicious Activity Can Get You Debanked
What makes an activity “suspicious”? Maybe you picture someone hiding their face in a trench coat as they pace outside of a bank. Or, maybe you picture someone looking around nervously as they stuff items in their pockets. But what about someone depositing cash at a bank?
Under the Bank Secrecy Act, one of the most common reasons for filing a suspicious activity report (often abbreviated as SAR) is because someone deposited or withdrew nearly $10,000 in cash. That’s all it takes for you to get labeled as “suspicious” in an official report to the government.
These reports rarely catch actual criminals. Yet, each report is like a red mark on your banking record, nonetheless. And getting too many of these reports filed on you can quickly spell trouble. If you rack up multiple reports (often as few as three), banks will close the account. The bank might know you are likely innocent, but the risk of regulators punishing them for inaction is too high. Fines for failing to report real criminal activity can reach into the millions.
It’s much safer for the bank to close the account than risk fines later, especially if it is a smaller account.
Most people have no idea that they were under such scrutiny when they find out their account was closed. In fact, it’s common to get no explanation when the account is closed. It might feel like poor customer service (if not worse), but it’s by law. It is against the law for a bank to tell you if a suspicious activity report was filed against you.
When you’re left in the dark, it’s natural to assume the worst. That’s partly why so many people have accused banks of political and religious discrimination. However, my latest report finds that the real drivers of debanking are government pressure and restrictive regulations. In other words, banks stay ultra-cautious because the rules (and regulators) push them to eliminate any perceived risk.
These unintended consequences are serious: innocent people are getting caught up in a system meant to catch criminals, losing access to banking, and never being told why.
Fortunately, Congress can act. As I explain at length in my report, reforming the Bank Secrecy Act, eliminating reputational risk regulation, and changing the confidentiality rules would help ease these pressures. For more details and potential solutions, read the full Understanding Debanking report here.