Legal Definitions - SAR

SAR can refer to two distinct legal concepts:

• 1. Stock-Appreciation Right (SAR)

  A Stock-Appreciation Right (SAR) is a form of executive compensation that grants an employee the right to receive a payment, typically in cash or company shares, equal to the increase in the value of a specified number of company shares over a predetermined period. Unlike stock options, the employee does not have to purchase the underlying shares; they simply benefit from the appreciation in the stock's price, providing an incentive to increase company value without requiring an initial investment from the employee.

  • Example 1: Tech Startup Executive Compensation

    The Chief Technology Officer (CTO) of a rapidly growing software startup is granted 50,000 SARs as part of their compensation package. If the company's valuation (and thus its implied stock price) increases from $5 to $25 per share over the vesting period, the CTO would receive a payment equivalent to the $20 appreciation per SAR, totaling $1,000,000. This incentivizes the CTO to develop innovative products that drive the company's growth and increase its market value.

  • Example 2: Senior Management Bonus in a Public Company

    A senior vice president at a publicly traded manufacturing company receives SARs as part of their annual bonus. The value of these SARs is tied to the company's stock performance over the next three years. This encourages the vice president to make strategic decisions that contribute to the company's long-term financial health and stock price appreciation, directly linking their personal reward to the company's success in the market.

• 2. Suspicious-Activity Report (SAR)

  A Suspicious-Activity Report (SAR) is a document that financial institutions (such as banks, credit unions, money service businesses, and casinos) are legally required to file with a government agency (like the Financial Crimes Enforcement Network, or FinCEN, in the United States) when they identify transactions or activities that suggest potential money laundering, terrorist financing, or other financial crimes. SARs are a critical tool for law enforcement to detect and investigate illicit financial flows and protect the financial system.

  • Example 1: Bank Detecting Structuring

    A bank customer makes several cash deposits of $9,000 each over a week, always staying just below the $10,000 threshold that triggers automatic reporting to the IRS. The bank's anti-money laundering software flags this pattern as potential "structuring," an attempt to avoid reporting requirements. The bank's compliance officer then files a SAR to alert authorities to this suspicious activity, allowing them to investigate the source and purpose of the funds.

  • Example 2: Online Payment Processor Identifying Unusual Transfers

    An online payment processing company notices a user account that receives numerous small, seemingly unrelated payments from various international sources, which are then immediately transferred out to multiple different bank accounts in different countries. This rapid inflow and outflow, combined with the diverse origins and destinations, prompts the payment processor to file a SAR, suspecting the account might be used for money laundering or to funnel funds for illicit purposes.

  • Example 3: Casino Reporting Potential "Chip Washing"

    A casino's surveillance and compliance team observes a patron who frequently buys a large amount of chips with cash, plays at a table for a very short time with minimal betting, and then cashes out the majority of the chips, often requesting a check rather than cash. This behavior, known as "chip washing," is often used to obscure the source of funds by making them appear to be gambling winnings. The casino's compliance department would file a SAR to report this suspicious activity to financial authorities, enabling them to investigate the origin of the cash.