Anti-Money Laundering Reporting: The Common Pitfalls? How to Build a Compliant and Efficient Risk Management System?

Article by: Huang Wenjing

As 2025 approaches, major giants are still accelerating their “licensing”: from Standard Chartered’s custody institution Zodia Custody, to payment giant Stripe, and to native crypto companies like Coinbase, Kraken, Circle, etc., all securing key licenses such as MiCA or US banking licenses.

However, “getting licensed” is only the starting point, not the end. Licenses bring not only access rights but also long-term compliance responsibilities. In today’s increasingly strict regulatory environment, if licensed institutions fail to continuously fulfill their compliance obligations, their licenses may instead become legitimate reasons for regulatory penalties.

Looking back at Binance’s $4.3 billion hefty settlement case and the penalty incident involving Binance TR in Turkey, the core regulatory accusations all point to the same deficiency: failure to establish an effective suspicious transaction reporting mechanism. STR and SAR—these two abbreviations that make compliance officers nervous—are far more than just filling out forms.

What underlying regulatory logic and practical risks are hidden behind them? This article will analyze deeply from legal practice.

Concept Clarification: The Difference Between STR and SAR

These two terms are often used interchangeably in the industry, but in different countries’ legal and regulatory systems, they have clear emphasis differences.

STR(Suspicious Transaction Report) (Suspicious Transaction Report) is common in regions influenced by the common law system, such as Hong Kong, Singapore, Dubai, etc. It mainly focuses on whether a transaction that has already occurred is suspicious.

Example: When the system detects that an account is frequently transferring funds in and out within a short period, and the fund flow involves high-risk addresses (such as mixers, dark web), an STR must be submitted for this specific transaction.

SAR(Suspicious Activity Report) (Suspicious Activity Report) is emphasized more in certain jurisdictions (such as the US FinCEN system), focusing on the suspiciousness of the behavior itself, even if no actual transaction occurs. The Binance case previously involved this concept.

Example: If a user repeatedly tests the boundaries of KYC, frequently changes IP addresses to bypass regional restrictions, or tentatively inquires with customer service “whether they can transfer to certain restricted areas,” such behaviors may trigger SAR reporting obligations.

Mankiw’s Tip: Using the STR concept system does not mean only looking at transaction flows. In fact, all compliance systems emphasize substance over form. If you only focus on fund flows and ignore user identity and behavioral patterns, you may still miss reporting and face compliance risks.

Regulatory Barometer: Key Points of Reporting Under Different Licensing Systems

In the process of Web3 going global, choosing which region’s license to obtain means complying with the core regulatory rules of that region. The focus points vary significantly:

North America: FinCEN’s “Comprehensive Monitoring”

Regulatory core: Comply with the Bank Secrecy Act, fulfill suspicious activity reporting obligations, following the principle of “report all that should be reported.”

Key challenge: FinCEN’s system handles massive reports and enables cross-departmental data sharing, requiring high monitoring and reporting capabilities from institutions. As long as the business involves US users, strict implementation is necessary.

Mankiw’s Tip: As long as the business reaches US persons, suspicious activity monitoring and reporting must be strictly implemented. The Binance case’s lesson shows that knowingly involving risks (such as sanctions regions) without reporting will be regarded as deliberate violations, with serious consequences.

EU Region: Deep Integration of the “Travel Rule”

Regulatory core: STR requirements are closely linked with the Travel Rule, especially after the implementation of the MiCA regulation.

Key challenge: When users transfer more than 1000 euros to non-custodial wallets, platforms must verify wallet ownership. If verification fails or risks are detected, transactions must be intercepted and suspicious reports submitted.

Mankiw’s Tip: Balancing the implementation of the Travel Rule with user experience and integrating suspicious transaction reporting requirements is key to balancing compliance and business.

Dubai Region: 48-Hour Timeliness and “Localization” Responsibilities

Regulatory core: Emphasizes rapid response (e.g., reporting within 48 hours) and the real local duties of AML officers.

Key challenge: If the MLRO is just a “nominee” and the actual operation is handled by an overseas team, it may face revocation of personal qualifications and impact the licensed institution.

Mankiw’s Tip: Compliance work can be outsourced, but the final review must be done by a local MLRO, and responsibilities cannot be shirked with “system issues.”

Turkey Region: Focus on Combating Fraud and Gambling-Related Funds

Regulatory core: Cryptocurrency service providers are strictly regulated as financial institutions.

Key challenge: Regulations will dynamically add requirements based on national priorities (such as fraud and gambling). For example, transactions related to such activities, regardless of amount, must be reported.

Mankiw’s Tip: Within the established framework, proactively monitor regulatory developments, maintain communication, and strengthen the monitoring and reporting of related risks.

Industry Pain Point: Beware of “Defensive Reporting”

In actual cases, lawyers have found that many practitioners develop a habit of “better to report more than less” to avoid responsibility—reporting all alerts triggered by the system. This practice is called “defensive reporting” and carries significant risks.

Financial intelligence units and regulators are also composed of professionals who need to process information efficiently. If institutions submit大量低质量报告，却无法提供有价值的调查线索，反而可能引发监管对其内部系统的审查。监管会合理怀疑：是你的风控参数设置不当，还是合规人员缺乏基本判断力？

因此，合规报告的核心在于质量而非数量。盲目申报不仅无助于风险防控，还可能暴露自身能力缺陷，招致更严格的监管关注。

Mankiw’s Practical Advice: How to Build an Effective Reporting System?

To balance compliance costs and regulatory safety, crypto compliance teams should focus on these four key points:

1. Integrate “On-Chain + Off-Chain” Monitoring

Avoid separating on-chain behavior from platform internal transactions due to cost considerations. Such separation prevents models and personnel from grasping the full picture of the user, directly affecting the quality of STR/SAR reports. Data must be integrated to achieve a panoramic risk view.

2. Dynamically Adjust Monitoring Thresholds

Rigid rules can generate大量无效预警，导致「预警疲劳」，反而漏掉真正的高风险。建议建立内部沙盒机制，定期结合监管动态和案件反馈，回溯并优化系统参数与规则，确保预警精准、有效。

3. Cultivate “Narrative” Reporting Skills

High-quality reports are not just data accumulation but telling a complete story. They should answer the 5W1H: Who, What, When, Where, Why suspicious, and How. Among these, “Why suspicious” is the core, requiring logical coherence and compliance with regulatory bottom lines and institutional risk appetite, to demonstrate that “reasonable prudence” has been exercised.

4. Establish a “No-Report” Record Mechanism

“Not reporting” sometimes requires more documentation than reporting. When alerts are manually checked and a decision is made not to report, detailed reasons and relevant evidence must be recorded and preserved. This is crucial for future regulatory audits and protecting the enterprise and compliance personnel.

Through these four points, institutions can build a solid, effective, and self-verifiable compliance reporting system while controlling costs.

Conclusion

Anti-money laundering compliance has no shortcuts, nor does it rely on the false hope of “the law does not blame the many.”

From global regulatory practices, inspections of the crypto sector have deepened to require institutions to provide full transaction data and conduct penetrating analysis through self-developed models. The focus on STR/SAR is no longer on report quantity or timeliness but on whether each specific transaction “should be reported” and “why not.”

Understanding the difference between STR and SAR is just the starting point. The real key is to establish a monitoring and reporting system that can meet regulatory intelligence needs and support smooth business operations—this has become an essential course for every institution.