Earlier this week, the National Crime Agency (NCA) published the Suspicious Activity Reports (SARs) Annual Report for 2017, which covered 18 months between October 2015 and March 2017. SARS are received by the United Kingdom Financial Intelligence Unit (UKFIU). Unsurprisingly, UKFIU has continued to experience a year on year increase in the number of SARs received. The next report is likely to be more interesting, given the significant number of developments scheduled to the “anti-money laundering” provisions in 2017-18.
The NCA is the UK’s principle body for receiving notifications of suspicious activity for money laundering purposes. For more information, see Practice note, National Crime Agency: overview.
Both the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000 (TACT) impose a duty on firms in the regulated sector (and on their employees) to make a report where they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering or terrorist financing, in respect of information coming to them within the course of business in the regulated sector (sections 330 and 331, POCA and section 21A, TACT). For more information, see Practice note, Reporting Suspicious Activities: overview and Note for the board on when to make a disclosure on money laundering
The Annual Report – overall SARs:
The overall number of SARs received by the UKFIU over the 18 month period of October 2015 to March 2017 was 634,113. This included 43,290 received in March 2017, which was the most SARs ever recorded for one month, an increase on 7,406 from the previous March. Compared with reporting periods of previous SAR Annual Reports, the UKFIU received 419,451 SARs between October 2015 and September 2016, which was an increase of 9.84% on the same period for 2014–15 (381,882).
The vast majority of SARs came from credit institutions, the number from banks totalling 525,361 or 82.85% of all SARs. Other key figures include:
- Accountants and tax advisers: 6,693 (1.06%).
- Independent legal professionals: 4,878 (0.77%).
The SARs report also demonstrates a significant growth in the number of cases where a “defence against money laundering” (DAML) has been requested (27,471). The UKFIU introduced the term “defence against money laundering” as it had found that the term ‘consent’ was being frequently misinterpreted. POCA allows reporters a defence against a money laundering offence by seeking the consent of the NCA to undertake an activity which the reporter believes may constitute one of the three principle money laundering offences (see Practice notes, Acquisition, use and possession offence, Arranging offence and Concealing offence).
The report suggests that the term ‘DAML’ is aimed at improving submissions by clarifying what the UKFIU can or cannot grant. A similar procedure in place enables requests for a defence against terrorism financing (DATF).
The total amount of assets denied to criminals as a result of DAML requests (both those refused and granted) over the 18 month period was £56,541,579. In comparison to the 2014-15 figure of £46,375,449, the total for 2015-16 was £33,433,271, a decrease of 27.91%. The total restrained over 2015-16 as a result of refused DAML requests was £14,089,147, a considerable reduction from the £43,079,328 figure for 2014-15. The suggested reason for the drop is because 2015’s figures were skewed by two very large refusals, in the region of £10m and £9.2m.
However, the amount of cash seized from refused DAML requests for 2015-16 saw an increase of 1,127.09%, from £1,313,437 to £16,117,014. The reason for this was a cash detention/seizure of over £15m in 2016. For more information see Practice note, cash seizure.
Certainly, the sums recorded in the SARs report are trivial when compared with the varying estimates of how much money is laundered every year, to such an extent that the headline cash seizure and restraint figures do not really justify the SARs process. There are however three further benefits of the SARs regime, which are touched upon in the report.
First, the extent to which the process contributes to the UK’s criminal intelligence. The UKFIU screens and analyses SARs on a daily basis for opportunities to prevent and detect crime, and can fast-track suspicions to law enforcement agencies. Over the reporting period the UKFIU disseminated 513 SARs relating to NCA subjects of interest.
The UKFIU is also able to identify SARs containing information on potential financial crimes that target vulnerable members of society. In the reporting period 3,424 vulnerable person intelligence packages were disseminated to Law enforcement authorities (LEAs).
Secondly, over the 18 month reporting period the UKFIU also disseminated 1,955 SARs relating to politically exposed persons (PEPs) and 1,257 integrity SARs (SARs that relate to knowledge or suspicion of money laundering and/or terrorist financing that concerns an employee of an LEA or the civil service). This is the first time the UKFIU has included integrity SARs in the SARs Annual Report.
Finally, a key aspect not covered in the report is the issue of preventing the proceeds of crime entering the legitimate financial system in the UK. The great unknown is how many criminals avoid the UK banking sector, or other service sectors, because of concerns that the criminality will be picked up when applying due diligence within the regulated sector.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLR 2017) make a limited number of changes to a company’s anti-money laundering provisions (see Legal update, The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 published.) It is far too early to assess the impact of the 2017 regulations, but they clearly envisage that any issues of concern will be picked up before monies enter the system or particular services are instructed. The amount of money that does not enter the regulated sector due to the action taken by the various gatekeepers must be a consideration of any future reporting.
In April 2016 the Government published its Action Plan for Anti-Money Laundering and Counter-Terrorist Finance. The Action Plan includes a commitment to reform the SARs regime, making the necessary legislative, operational and technical changes. This was followed by an open consultation on the anti-money laundering supervisory review (see Legal update, HM Government launches open consultation on the Anti-money laundering supervisory review).
On 15 March 2017, the government published the Anti-money laundering supervisory regime: response to the consultation and call for further information. For more information, see Legal update, HM Government publishes anti-money laundering supervisory regime: response and call for further information.
The call for further information proposed:
- Clarifying the obligations on all supervisors through the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
- Creating a new Office for Professional Body AML Supervision (OPBAS), hosted by the Financial Conduct Authority (FCA), to improve coordination and consistency across the system. (See Blogpost, The Office for Professional Body Anti-Money Laundering Supervision (OPBAS): a welcome development.)
- Working with a reformed Money Laundering Advisory Committee (MLAC) to streamline the AML guidance provided to businesses. For an example see Legal update, Legal Sector Affinity Group publishes draft guidance on anti-money laundering.
The reforms seek to address a key risk identified in the 2015 UK National risk assessment of money laundering and terrorist financing (the NRA). The NRA found that the effectiveness of the UK’s supervisory regime is inconsistent and, whilst some supervisors are highly effective in some areas, there is room for improvement across the board. For more information, see Legal update, UK national risk assessment of money laundering and terrorist financing.
The reforms also complement work across government to deliver on the commitments in the 2016 Action Plan for anti-money laundering and counter terrorist finance (the action plan), which set out how the public and private sector will work together to tackle money laundering. For more information, see Legal update, Home Office and HM Treasury publish Action Plan for anti-money laundering and counter-terrorist finance.
Meanwhile, the Criminal Finances Act 2017 will also make changes to the SAR regime. The changes that will eventually appear on the statute book include:
- Law enforcement agencies will be able to apply for a court order to extend the moratorium period during which those who have filed a SAR and sought consent from the NCA to proceed with a transaction are prevented from doing so before consent is deemed to be given. An extension can be given for periods of up to 31 days, up to a total of an additional 186 days, in order to enable law enforcement agencies to conclude their investigations in relation to information contained in SARs.
- The power of the UKFIU to request additional information from reporting entities.
- Provisions to enable greater information sharing to take place between entities in the regulated sector to combat money laundering and terrorist financing, and an extension to the use of disclosure orders so that law enforcement agencies can compel the provision of information and documents in connection with a wider range of money laundering investigations and investigations into other offences.
- Authorisation to obtain, discharge or vary a disclosure order will be able to be given by an appropriate officer within the relevant investigating authority.
There is no commencement date yet for these SAR provisions of the CFA 2017.
In such circumstances, there is little that can be deduced from the SARs report. The key considerations for the next year will be whether the OPBAS will be a success and whether the new legislation will make much of a difference to the reputation of UK PLC as a global hub for money laundering. The Financial Action Task Force (FATF) is due to inspect the UK’s money laundering arrangements for the first time in a decade in 2017/18. How far the UK has come will be interesting.