Written by: Huang Wenjing
As 2025 draws to a close, major players are still expediting their licensing efforts: from Zodia Custody, a custody institution under Standard Chartered, to payment giant Stripe, and crypto-native companies such as Coinbase, Kraken, and Circle, they have all obtained key licenses such as MiCA or US banking licenses.
However, obtaining a license is just the beginning, not the end. A license brings not only entry qualifications but also long-term compliance responsibilities. In today's increasingly stringent regulatory environment, if a licensed institution fails to continuously fulfill its compliance obligations, its license may become a "legitimate reason" for regulatory penalties.
Looking back at Binance's record-breaking $4.3 billion settlement and the Binance TR penalty in Turkey, the core regulatory accusation points to the same deficiency: the failure to establish an effective suspicious transaction reporting mechanism. STR and SAR—these two abbreviations that keep compliance officers on edge—are far more than just filling out forms.
What regulatory logic and practical risks lie behind these practices? This article will provide an in-depth analysis based on legal practice.
Clarifying Concepts: The Difference Between STR and SAR
These two terms are often used interchangeably in the industry, but they have distinct differences in emphasis within the legal and regulatory systems of different countries.
Suspicious Transaction Reports (STRs) are commonly found in regions influenced by common law systems, such as Hong Kong, Singapore, and Dubai. They primarily focus on whether transactions that have already occurred are suspicious.
For example, when the system detects that an account frequently has funds flowing in and out within a short period of time, and the fund path involves high-risk addresses (such as coin mixers or the Dark Web), it is necessary to submit an STR (Signature Transaction Record) for this specific transaction.
SAR (Suspicious Activity Report) is used in some jurisdictions (such as the FinCEN system in the United States) to emphasize the suspiciousness of the behavior itself, even if no actual transaction has occurred. This concept was involved in the Binance case.
For example, if a user repeatedly tests the boundaries of Know Your Customer (KYC), frequently changes their IP address to bypass regional restrictions, or tentatively asks customer service "whether it is possible to send money to a restricted region," they may trigger the SAR reporting obligation.
Mankiw cautions: Using the STR (Statistical Reference Scale) concept does not mean focusing solely on transaction flows. In fact, all compliance systems emphasize substance over form. Focusing only on fund flows while ignoring user identity and behavioral patterns can still lead to omissions in reporting and create compliance risks.
Regulatory Compass: Key Points for Reporting Under Different Licensing Systems
In the process of expanding Web3 overseas, the choice of which region to license in dictates compliance with the core regulatory rules of that region. The focus of attention differs significantly across different regions:
North America: FinCEN's "Comprehensive Monitoring"
- The core of regulation is to comply with the Bank Secrecy Act and fulfill the obligation to report suspicious activities, with the logic being "report all that should be reported".
- Key Challenges: The FinCEN system processes massive amounts of reports and enables cross-departmental data sharing, placing extremely high demands on an organization's monitoring and reporting capabilities. Strict adherence to these requirements is essential whenever business involves US users.
- Mankiw cautions: Whenever business involves Americans, strict adherence to requirements for monitoring and reporting suspicious activity is mandatory. The Binance case demonstrates that knowingly failing to report risks (such as those in sanctioned regions) will be considered intentional misconduct with serious consequences.
EU region: Deeply intertwined travel rules
- Key regulatory point: STR requirements are closely linked to the Travel Rule, especially after the implementation of the MiCA Act.
- Key challenge: When a user transfers more than €1,000 to a non-custodial wallet, the platform must verify wallet ownership. If verification is not possible or a risk is detected, the transaction must be blocked and a suspicious report submitted.
- Mankiw points out that while implementing travel rules and considering user experience, aligning with suspicious transaction reporting requirements is key to balancing compliance and business operations.
Dubai Area: 48-Hour Delivery Time and "Localization" Responsibility
- Key regulatory points: Emphasis on extremely rapid response (e.g., reporting within 48 hours) and genuine local performance of duties by anti-money laundering whistleblowers.
- Key challenge: If MLRO is merely a figurehead and the actual operations are carried out by an overseas team, the individual's qualifications will be revoked, which will also affect the licensed institution.
- Mankiw advises that compliance work can be outsourced, but the local MLRO must ultimately oversee the process, and responsibility cannot be shirked by claiming it is a "system problem."
Türkiye region: Focus on cracking down on funds related to fraud and gambling.
- The core regulatory principle is to treat crypto asset service providers as financial institutions and regulate them strictly.
- Key challenge: Regulators may introduce additional requirements as the country focuses its efforts on combating key issues (such as fraud and gambling), for example, requiring all transactions involving such activities, regardless of amount, to be reported.
- Mankiw advises that, within the established framework, it is necessary to proactively monitor regulatory developments, maintain communication, and strengthen the monitoring and reporting of relevant risks in a targeted manner.
Industry pain point: Beware of "defensive reporting"
In handling specific cases, lawyers have found that many practitioners, in order to evade responsibility, have developed a habit of "reporting more is always better than reporting less"—reporting everything whenever the system triggers a warning. This practice, known as "defensive reporting," poses significant risks.
Financial intelligence agencies and regulators are also composed of professionals who need to process information efficiently. If an institution submits a large number of low-quality reports without providing valuable investigative leads, it may instead trigger regulatory scrutiny of its internal systems. Regulators will reasonably suspect: are your risk control parameters improperly set, or do your compliance personnel lack basic judgment?
Therefore, the core of compliance reporting lies in quality, not quantity. Blindly submitting reports not only fails to help control risks but may also expose deficiencies in one's capabilities, attracting stricter regulatory attention.
Mankiw's practical advice: How to establish an effective reporting system?
To strike a balance between compliance costs and regulatory security, compliance teams in the crypto industry should focus on the following four key areas:
1. Integrate "on-chain + off-chain" monitoring
Avoid separating on-chain behavior from platform transactions for cost reasons. This separation prevents models and personnel from gaining a comprehensive view of users, directly impacting the quality of STR/SAR reports. Data integration is essential to achieve a complete risk perspective.
2. Dynamically adjust monitoring thresholds
Rigid rules generate a large number of invalid warnings, leading to "warning fatigue" and causing genuine high risks to be missed. It is recommended to establish an internal sandbox mechanism to regularly review and optimize system parameters and rules based on regulatory updates and case feedback, ensuring that warnings are accurate and effective.
3. Develop narrative reporting skills
A high-quality report is not simply a collection of data, but rather a clear and complete narrative. It should answer the 5W1H questions: Who, What, When, Where, Why, and How. Among these, "Why is it suspicious?" is the core, requiring logical consistency and adherence to regulatory bottom lines and the institution's risk appetite, thereby demonstrating that "reasonable prudence" has been fulfilled.
4. Establish a record-keeping mechanism for "non-reporting".
Sometimes, "not reporting" is more important to record than "reporting." When an alert is decided not to be reported after manual verification, the reasons for exclusion must be recorded in detail in the system, and relevant evidence must be preserved. This is crucial evidence for dealing with future regulatory investigations and protecting the company and compliance personnel.
By using the above four points, organizations can build a solid, effective, and self-verifiable compliance reporting system while controlling costs.
Conclusion
There are no shortcuts to anti-money laundering compliance, and there is no such thing as "the law does not punish the masses."
Globally, regulatory scrutiny of the cryptocurrency sector has deepened to the point of requiring institutions to provide full transaction data and conducting thorough analysis using regulatory-developed models. Regulatory attention to STR/SAR is no longer limited to the quantity and timeliness of reports, but rather focuses on whether each specific transaction should be reported and why it wasn't.
Understanding the difference between STR and SAR is just the beginning. The real key is to establish a monitoring and reporting system that can both meet regulatory intelligence needs and support smooth business operations—this has become a mandatory course for every organization.
