Introduction
As the end of 2025 approaches, major players in the industry are still racing to secure “licenses”: from Zodia Custody (a custodial institution under Standard Chartered), to payment giant Stripe, and crypto-native enterprises such as Coinbase, Kraken, and Circle—all have successively obtained key permits, including MiCA licenses or U.S. banking licenses.
However, “obtaining a license to operate legally” is merely a starting point, by no means the finish line. A license brings not only market access qualification but also long-term compliance obligations. In today’s increasingly stringent regulatory environment, if a licensed institution fails to continuously fulfill its compliance duties, the license in its hand may instead become a “legitimate basis” for regulatory penalties.
Looking back at Binance’s $4.3 billion record settlement and the penalty imposed on Binance TR in Turkey, the core regulatory allegations all point to the same deficiency: 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 kind of regulatory logic and practical risks lie behind them? Based on legal practice, this article will provide an in-depth analysis.
Concept Clarification: The Difference Between STR and SAR
These two terms are often used interchangeably in the industry, but they have distinct focuses under the legal and regulatory systems of different countries.
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STR (Suspicious Transaction Report): Commonly adopted in regions influenced by common law, such as Hong Kong, Singapore, and Dubai. It primarily focuses on whether a completed transaction is suspicious.
Example: When the system detects that an account has frequent fund inflows and outflows within a short period, and the fund path involves high-risk addresses (e.g., mixers, darknets), an STR must be submitted for that specific transaction.
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SAR (Suspicious Activity Report): Emphasized by some jurisdictions (e.g., the U.S. FinCEN framework) on the suspicious nature of the activity itself, even if no actual transaction occurs. This concept was involved in the previous Binance case.
Example: If a user repeatedly tests the boundaries of Know Your Customer (KYC) verification, frequently changes IP addresses to bypass regional restrictions, or tentatively asks customer service questions like “Can I remit money to a restricted region?”—such behaviors may trigger the obligation to file a SAR.
Note: Regulatory systems that adopt the STR concept do not mean they only focus on transaction records. In fact, all compliance systems emphasize “substance over form.” If an institution only monitors fund flows while ignoring user identities and behavioral patterns, it may still miss required reports and face compliance risks.
Regulatory Trends: Key Reporting Points Under Different License Frameworks
In the process of Web3 overseas expansion, choosing a license from a specific region means complying with that region’s core regulatory rules. The focus of supervision varies significantly across regions:
North America: FinCEN’s “Full-Dimension Monitoring”
- •Regulatory Core: Comply with the Bank Secrecy Act (BSA) and fulfill the obligation to report suspicious activities, following the principle of “report all that should be reported.”
- •Key Challenge: FinCEN’s system processes massive volumes of reports and enables cross-departmental data sharing, placing extremely high demands on institutions’ monitoring and reporting capabilities. Strict implementation is mandatory as long as the business involves U.S. users.
- •Note: As long as a business reaches U.S. users, it must strictly implement suspicious activity monitoring and reporting as required. The Binance case serves as a lesson: if an institution internally knows about risks (e.g., transactions involving sanctioned regions) but fails to report them, it will be deemed intentional non-compliance with severe consequences.
EU Region: Deep Integration with the “Travel Rule”
- •Regulatory Core: STR requirements are closely linked to the Travel Rule, especially after the implementation of the MiCA Regulation.
- •Key Challenge: When a user transfers more than €1,000 to a non-custodial wallet, the platform must verify the wallet’s ownership. If verification fails or risks are identified, the transaction must be blocked and a suspicious report submitted.
- •Note: Balancing compliance with business operations requires addressing how to align suspicious transaction reporting requirements while implementing the Travel Rule and maintaining user experience.
Dubai Region: 48-Hour Timeliness and “Localization” Responsibilities
- •Regulatory Core: Emphasizes ultra-fast response (e.g., reporting within 48 hours) and the genuine local performance of duties by the Money Laundering Reporting Officer (MLRO).
- •Key Challenge: If an MLRO is a “nominal” role with actual operations handled by an overseas team, the individual’s qualification may be revoked, and the licensed institution will be affected.
- •Note: While compliance work can be outsourced, the local MLRO must ultimately take responsibility, and institutions cannot shirk liability by citing “system issues.”
Turkey Region: Focus on Combating Fraud- and Gambling-Related Funds
- •Regulatory Core: Regulates crypto asset service providers strictly as financial institutions.
- •Key Challenge: Regulatory requirements may be dynamically updated based on the country’s key crackdown priorities (e.g., fraud, gambling). For instance, transactions involving such activities must be reported regardless of their amount.
- •Note: Within the established regulatory framework, institutions must proactively monitor regulatory updates, maintain communication with authorities, and strengthen targeted monitoring and reporting of relevant risks.
Industry Pain Point: Beware of “Defensive Reporting”
In handling specific cases, lawyers have found that many practitioners, in order to avoid liability, have formed the habit of “reporting more is better than reporting less”—filing reports for all system-triggered alerts without distinction. This practice, known as “defensive reporting,” carries significant risks.
Financial intelligence units (FIUs) and regulatory authorities are also staffed with professionals who need to process information efficiently. If an institution submits a large number of low-quality reports without providing valuable investigation clues, it may instead trigger regulatory scrutiny of its internal systems. Regulators will reasonably question: Are your risk control parameters improperly set, or do your compliance personnel lack basic judgment?
Therefore, the core of compliance reporting lies in quality rather than quantity. Blind reporting not only fails to prevent risks but may also expose deficiencies in the institution’s capabilities, attracting stricter regulatory attention.
Practical Recommendations: How to Build an Effective Reporting System?
To balance compliance costs and regulatory safety, compliance teams in the crypto industry should focus on the following key points:
Integrate “On-Chain + Off-Chain” Monitoring
Avoid segregating the monitoring of a user’s on-chain behaviors and on-platform transactions due to cost considerations. This separation prevents models and personnel from gaining a comprehensive understanding of users, directly affecting the quality of STR/SAR reports. Data silos must be broken down to achieve a panoramic risk view.
Dynamically Adjust Monitoring Thresholds
Rigid rules lead to a large number of invalid alerts, causing “alert fatigue” and ultimately missing genuine high-risk cases. It is recommended to establish an internal sandbox mechanism, regularly review and optimize system parameters and rules based on regulatory updates and case feedback, and ensure alerts are accurate and effective.
Cultivate “Narrative” Reporting Capabilities
A high-quality report is not a mere pile of data but a coherent “story.” It should answer the 5W1H questions: Who (the involved party), What (the event), When (the timing), Where (the location), Why (why it is suspicious), and How (how the activity was conducted). Among these, “why it is suspicious” is the core—it requires logical consistency, alignment with regulatory bottom lines and the institution’s risk appetite, and serves as proof of fulfilling the “reasonable prudence” obligation.
Establish a Documentation Mechanism for “Non-Reporting” Decisions
Sometimes, “not reporting” requires more documentation than “reporting.” When an alert is verified manually and a decision is made not to file a report, the reasons for exclusion must be detailed in the system and supporting evidence preserved. This is critical evidence to respond to future regulatory audits and protect both the enterprise and compliance personnel.
By implementing the above four points, institutions can build a solid, effective, and self-verifiable compliance reporting system while controlling costs.
Conclusion
There are no shortcuts to anti-money laundering (AML) compliance, nor is there room for the luck of “the law does not punish the majority.”
From a global regulatory perspective, inspections in the cryptocurrency sector have become so in-depth that institutions are required to provide full transaction data, which is then subject to in-depth analysis using regulators’ self-developed models. Regulators’ focus on STR/SAR no longer stops at the quantity and timeliness of reports, but extends to the accuracy of judgments on “whether a report should be filed” and “why a report was not filed” for each specific transaction.
Understanding the difference between STR and SAR is only the starting point. The real key is to build a monitoring and reporting system that can both meet regulatory intelligence needs and support the smooth operation of the business—this has become a mandatory course for every institution.
If you are building an internal AML compliance system or facing practical challenges with STR/SAR in specific jurisdictions, please feel free to contact Mankun Law Firm for further discussions.