Is the SARs regime fit for purpose?

In February 2015, the Home Office launched a “call for information” on the Suspicious Activity Reports regime. The call recognised that the current system needed to be reviewed, and requested responses to a number of questions, including improved identification, information sharing, efficiency of reporting and consent and international best practice.

In October 2015, the Home Office and HM Treasury published the UK’s national risk assessment of money laundering and terrorist financing. The objective of the risk assessment was to better understand the UK’s money laundering and terrorist financing risks, inform the efficient allocation of resources and mitigate those risks. The report indicated that:

  • There are significant intelligence gaps, in particular in relation to ‘high-end’ money laundering,  relevant to major frauds and serious corruption, where the proceeds are often held in bank accounts, real estate or other investments, rather than in cash.
  • The effectiveness of the supervisory regime in the UK is inconsistent.
  • The law enforcement response to money laundering has been weak for an extended period of time.
  • SARs form a critical intelligence resource, and enable law enforcement agencies to intervene to prevent suspicious transactions. The SARs regime also provides SARs reporters with a mechanism to obtain a statutory defence from a money laundering or terrorist financing prosecution when they report suspicion.
  • In December 2014 the government committed to reviewing the regime. This will provide an opportunity for individuals and firms in the regulated sector, supervisors and law enforcement agencies to make proposals for improvements to the regime.

The risk assessment was reported in an earlier blog.

In March 2016, the National Crime Agency (NCA) published its annual review of SARs for the period October 2014 to September 2015. The review suggested

  • The total number of SARs submitted to the NCA increased by 7.82% on the previous year, to 381,882 in 2014/15.
  • The number of consent SARs showed a slight increase, from 14,155 to 14,678. Of these, the number refused decreased from 1,632 to 1,374.
  • The total sum of money restrained as a result of consent SARs was £43,079,328. This was substantially down from the previous reporting period (£141,517,652). However, this explained by the NCA as last year’s figure skewed by five large cases with a cumulative value of £119milion.
  • The number of financial intelligence requests made by the UKFIU to overseas authorities increased from 1,359 to 1,801.

There is clearly a significant discrepancy between the government’s estimates of the costs from organised crime, at least £24 billion a year, and the sums of money restrained as a result of consent SARs – £43million.

More importantly, the report does not provide information on the effectiveness of the SARs regime prior to reporting. There is no consideration of the number of genuine suspicions actually detected, the number referred to and processed correctly by nominated officers or the number of investigations and prosecutions or appropriate regulatory action following reporting.

Part of the problem is surely the lack of focus on money laundering. Whereas the NCA is the lead agency for reporting and intelligence, no particular body takes the lead in the investigation and prosecution of suspected money laundering, and despite the handful of high profile successes, the number of prosecutions  arising from reported breaches is miniscule. Transparency International has suggested the UK should consider replacing the existing patchwork and inconsistent structure of multiple AML supervisors with a single, well-resourced supervisor.

If the risk assessment is to be acted upon, there will need to be improvements in all agencies tasked with a role in tackling money laundering. With the fourth AML directive due to be in force through updated domestic money laundering regulations by June 2017, and an inspection of the UK by the FATF due the same year, now is surely the time to make those improvements.

For more information on the current reporting regime, see Practice note, Reporting suspicious activities: overview. 



Practical Law David Bacon

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