What’s the difference between an internal and an external suspicion report?

When it comes to anti-money laundering (AML) reporting, two types of report play a central role: the internal suspicion report and the external suspicion report (called a Suspicious Transaction Report (STR) by FATF).

Both deal with suspicions of potential criminal activity. But they serve different purposes at different stages of your AML process. 

The internal suspicion report alerts your business’ officer in charge of reporting money laundering (sometimes called the MLRO) to a potential issue. The external suspicion report alerts law enforcement once your MLRO has assessed the suspicion and decided it needs to be disclosed.

What is an external suspicion report?

An external suspicion report, known as a SAR in the UK, an SMR is Australia and an STR in many other countries, is the formal notification sent to law enforcement when you know or suspect that someone is engaged in money laundering, terrorist financing or proliferation financing. 

FATF’s Recommendation 20 requires countries to make this reporting obligation a legal one. Wherever you’re regulated, the principle is the same: once suspicion exists, reporting isn’t optional and it can’t be delayed.

Your report should include:

• the details of the individual or business involved;
• a clear description of the suspicious activity;
• supporting evidence or context (dates, transaction values, behaviour);
• your contact information as the reporting professional.

What is an internal escalation report?

An internal suspicion report is filed within your business, to your MLRO. It’s the first step in the reporting process and, as an employee, this is where your obligation ends. Once you’ve raised your concerns with your MLRO in writing, it’s up to them to act from there.

Every member of staff must raise an internal report if they have knowledge or suspicion of money laundering, terrorist financing or proliferation financing, even if they’re not certain. FATF’s Recommendation 18 requires businesses to build this kind of internal reporting structure into their compliance arrangements. The MLRO then decides whether an external report should be submitted to law enforcement.

An internal suspicion report should record:

• who raised the concern;
• who or what the concern relates to;
• the reason for suspicion;
• any documentation or communications that support it.

You must never discuss the report with the client or anyone outside the AML reporting chain. FATF’s Recommendation 21 requires countries to prohibit staff from “disclosing… that a suspicious transaction report… is being filed,” known as tipping off.

How the two reports differ

The difference between an internal suspicion report and an external suspicion report lies in who receives it, what triggers it and the legal consequences that follow.

An internal suspicion report stays within your business and goes to your MLRO as soon as you have any suspicion of money laundering, terrorist financing or proliferation financing. It’s an internal warning designed to trigger a review by the MLRO.

An external suspicion report, on the other hand, is the step that leaves the building. The MLRO submits this to law enforcement once they’ve assessed the suspicion. This is a formal disclosure, required by FATF standards and given legal force through your country’s own AML law.

In simple terms, one raises a concern internally while the other reports it officially to the authorities. Both are mandatory and both form critical parts of your AML reporting chain.

Why the distinction matters

Failing to report internally signals a weak culture of AML compliance and can lead to disciplinary action or financial penalties from your supervisor. Any inspector will expect to see these internal reports and documentation on the steps your MLRO took after receiving them, along with the reasoning for their decisions.

Your process should ensure:

Frontline awareness: Staff know how and when to escalate concerns internally.

MLRO oversight: The MLRO documents their reasoning for whether an external report is made or not.

Audit trails: Every decision, from initial suspicion to outcome, is logged and accessible.

An internal suspicion report raises the alarm within your business. An external suspicion report takes that alarm to law enforcement. Both are essential parts of your AML defence, and both carry different thresholds and different audiences. Understanding when, and how, to make each one is the foundation of effective compliance.