Original Author: Huang Wenjing

Introduction

As we approach the end of 2025, major players are intensifying their efforts to obtain licenses: from Zodia Custody, a custodian under Standard Chartered, to payment giant Stripe, and crypto-native companies like Coinbase, Kraken, and Circle, all have secured key licenses such as MiCA or U.S. banking licenses.

However, "obtaining a license" is just the starting point, not the end. The license brings not only access 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, the license in hand may become a "justifiable reason" for regulatory penalties.

Looking back at Binance's $4.3 billion settlement and the penalties faced by Binance TR in Turkey, the core regulatory accusations point to the same deficiency: failure to establish an effective suspicious transaction reporting mechanism. STR and SAR—these two acronyms that keep compliance officers on edge—are far more than just filling out forms.

What regulatory logic and practical risks are hidden behind them? This article will provide an in-depth analysis from a legal practice perspective.

Concept Clarification: The Difference Between STR and SAR

These two terms are often used interchangeably in the industry, but they have distinct emphases in different countries' legal and regulatory systems.

• STR (Suspicious Transaction Report) is commonly found in regions influenced by the Anglo-American legal system, such as Hong Kong, Singapore, and Dubai. It primarily focuses on whether a transaction that has already occurred is suspicious.

Example: When the system detects that a certain account frequently transfers funds in and out within a short period, and the fund paths involve high-risk addresses (such as mixers or the dark web), an STR must be submitted for that specific transaction.

• SAR (Suspicious Activity Report) in some jurisdictions (such as the U.S. FinCEN system) emphasizes the suspicious nature of the behavior itself, even if no actual transaction has occurred. This concept was involved in the previous Binance case.

Example: If a user repeatedly tests the boundaries of identity verification (KYC), frequently changes IP addresses to bypass regional restrictions, or tentatively asks customer service "if it is possible to remit to a restricted area," such behaviors may trigger the obligation to submit an SAR.

Mankun Reminder: The systems that adopt the STR concept do not mean they only look at transaction flows. In fact, all compliance systems emphasize substance over form. If one only focuses on the flow of funds while neglecting user identity and behavior patterns, it may still lead to reporting omissions and compliance risks.

Regulatory Barometer: Reporting Key Points Under Different Licensing Systems

In the process of Web3 expansion, choosing which region's license to obtain means adhering to the core regulatory rules of that locality. The focus of different regions varies significantly:

North America: FinCEN's "Comprehensive Monitoring"

• Regulatory Core: Compliance with the Bank Secrecy Act and fulfilling suspicious activity reporting obligations, with the logic being "report all that should be reported."
• Key Challenge: The FinCEN system processes a massive volume of reports and can achieve cross-departmental data sharing, requiring high monitoring and reporting capabilities from institutions. As long as the business involves U.S. users, strict implementation is necessary.
• Mankun Reminder: As long as the business reaches Americans, suspicious activity monitoring and reporting must be strictly implemented according to requirements. The lessons from the Binance case indicate that internal knowledge of risks (such as sanctioned regions) without reporting will be viewed as intentional violations, with serious consequences.

European Union: Deep Binding of the "Travel Rule"

• Regulatory Core: STR requirements are closely linked to the Travel Rule, especially after the implementation of the MiCA legislation.
• Key Challenge: When users transfer more than €1,000 to non-custodial wallets, the platform must verify wallet ownership. If verification cannot be completed or risks are identified, the transaction must be intercepted and a suspicious report submitted.
• Mankun Reminder: While implementing the travel rule and considering user experience, how to connect the requirements for suspicious transaction reporting is key to balancing compliance and business.

Dubai: 48-Hour Timeliness and "Localization" Responsibility

• Regulatory Core: Emphasizes rapid response (such as reporting within 48 hours) and the genuine local performance of the anti-money laundering reporting officer.
• Key Challenge: If the MLRO is merely a "figurehead" and the actual operations are handled by an overseas team, they will face personal qualification revocation, affecting the licensed institution.
• Mankun Reminder: Compliance work can be outsourced, but it must ultimately be overseen by a local MLRO, and responsibility cannot be shirked with "system issues."

Turkey: Focus on Combating Fraud and Gambling Funds

• Regulatory Core: Treats cryptocurrency service providers as financial institutions under strict regulation.
• Key Challenge: Regulation will dynamically impose additional requirements based on national enforcement priorities (such as fraud and gambling), for example, requiring reports for transactions related to such activities regardless of the amount.
• Mankun Reminder: Within the established framework, it is necessary to proactively monitor regulatory dynamics, maintain communication, and strengthen monitoring and reporting of related risks.

Industry Pain Points: Beware of "Defensive Reporting"

In specific cases handled, lawyers have found that many practitioners have developed a habit of "reporting more is better than reporting less" to avoid responsibility—reporting anything that triggers a system alert. This practice is known as "defensive reporting" and carries significant risks.

Financial intelligence agencies and regulators are also composed of professionals who need to process information efficiently. If institutions submit a large number of low-quality reports without providing valuable investigative leads, it may trigger regulatory scrutiny of their internal systems. Regulators may reasonably suspect: is it your risk control parameters that are improperly set, or do compliance personnel lack basic judgment?

Therefore, the core of compliance reporting lies in quality rather than quantity. Blind reporting not only fails to assist in risk prevention but may also expose internal capability deficiencies, attracting stricter regulatory attention.

Mankun Practical Suggestions: How to Establish an Effective Reporting System?

To balance compliance costs and regulatory safety, compliance teams in the cryptocurrency industry should focus on the following four key points:

1. Integrate "On-chain + Off-chain" Monitoring

Avoid separating the on-chain behavior of the same user from transactions within the platform due to cost considerations. This separation can lead to models and personnel being unable to grasp the full picture of the user, directly affecting the quality of STR/SAR reports. Data must be interconnected to achieve a panoramic risk view.

2. Dynamically Adjust Monitoring Thresholds

Rigid rules can generate a large number of ineffective alerts, leading to "alert fatigue," which may cause genuine high-risk situations to be overlooked. It is advisable to establish an internal sandbox mechanism, regularly combining regulatory dynamics and case feedback to retrospectively optimize system parameters and rules, ensuring alerts are precise and effective.

3. Cultivate "Narrative" Reporting Capability

High-quality reports are not just data accumulation; they need to tell a complete story. They should answer the 5W1H: Who, What, When, Where, Why suspicious, and How it operates. Among these, "Why suspicious" is the core, requiring logical coherence and alignment with regulatory bottom lines and institutional risk preferences, thereby proving that the "reasonable diligence" obligation has been fulfilled.

4. Establish a "No Reporting" Documentation Mechanism

Sometimes, "not reporting" requires more documentation than "reporting." When an alert is manually checked and decided not to report, the reasons for exclusion must be detailed in the system, along with relevant evidence. This will be a key credential for future regulatory inquiries and for protecting the institution and compliance personnel.

Through these 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 compliance, nor is there any luck in "the law does not punish the crowd."

From a global regulatory practice perspective, inspections in the cryptocurrency field have delved into requiring institutions to provide complete transaction data and conduct penetration analysis through self-developed regulatory models. Regulatory attention to STR/SAR is no longer limited to the quantity and timeliness of reports but is precise to whether each specific transaction "should be reported" and "why it was not reported."

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

If you are building an anti-money laundering internal control system or facing practical challenges with STR/SAR in specific jurisdictions, feel free to further communicate with Mankun Law Firm.

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