Suspicious activity reports (SARs) are a vital part of the fight against money laundering and financial crime. They alert law enforcement to potential criminal activity, providing critical evidence in any investigation.
The International Compliance Association (ICA) is a professional membership and awarding body. ICA is the leading global provider of professional, certificated qualifications in anti-money laundering; governance, risk, and compliance; and financial crime prevention. ICA members are recognized globally for their commitment to best compliance practice and an enhanced professional reputation. To find out more, visit the ICA website.
The U.K. National Crime Agency (NCA) reported a record number of SARs received and processed (573,085—a 20 percent increase on the previous period) in 2019/20. The majority of reports were submitted by credit institutions, such as banks and building societies. Few SARs were submitted from the service sector, such as accountants, lawyers, and estate agents.
Banks’ systems focus on the financial transactions they administer, highlighting those that either breach predetermined thresholds or involve regions or individuals known to be associated with money laundering or terrorist financing activity. For lawyers and accountants, focus is more around client behaviors. When you consider the vast client base these professions are involved with, one might expect exposure to more episodes of suspicious activity than the number of SARs submitted suggests.
|Summary of SARs reporting by sector – U.K. National Crime Agency|
|April 2019 to March 2020||Volumes||% of total|
|Credit institution – banks||432,316||75.44%|
|Credit institution – building societies||30,579||5.34%|
|Credit institution – others||8,080||1.41%|
|Financial institution – MSBs||17,701||3.09%|
|Financial institution – others||58,930||10.28%|
|Accountants and tax advisers||5,347||0.93%|
|Independent legal professionals||3,006||0.52%|
|Trust or company service providers||31||0.01%|
|High value dealers||370||0.06%|
|Gaming / leisure (including casinos)||5,150||0.90%|
|Not under MLRs||10,714||1.87%|
The low number of reports has not gone unnoticed. Lawyers and accountants have been singled out in the past by the NCA for not submitting enough SARs. It’s not just a U.K. issue, with the Financial Action Task Force also drawing attention to the lack of reporting from these professions.
SARs and the service sector
What can the service sector do to address this issue? Knowing your clients (KYC) is crucial, and that applies to them as individuals as well as businesses.
Through KYC, firms can recognize associated patterns of behavior and occasions where this behavior becomes irregular or unusual. Perhaps the client has taken on a new account for a particularly demanding customer, or maybe they’re operating in a new jurisdiction. If these are driving behavioral change, then more vigilance needs to be applied to activity around these areas.
A client might also provide accounts, or other documentation, that are either incomplete or do not contain clear references or identity documents. When challenged, the client might make excuses to delay the provision of this information. Or perhaps they simply refuse to provide it at all. This is another potential warning sign something isn’t right. If this happens, the obvious question is, “What are they trying to hide?”
This could lead to the client attempting to coerce or bribe you to make the problem go away. Such behavior should raise questions around the honesty and integrity of the client and, again, prompt you to consider what they are trying to hide.
Part of the issue is that service sectors rely heavily on banks and building societies to identify and report any activity deemed to be suspicious. They don’t view it as a fundamental obligation of their own activity. This mindset needs to change through industry-focused training that looks at the likely money laundering risks associated with the clients of lawyers, accountants, estate agents, and other service-facing roles and the controls that can be introduced to alleviate these risks.
Guidance was issued by The Law Society in June 2021 on suspicious activity reporting to inform all firms, whether working in the regulated or nonregulated sector, of their obligations. Fundamentally, if you know or suspect money laundering is taking place, you must file a SAR.
It’s important to note not all suspicious activity will be found to be criminal; in fact, quite a bit of it is likely to be legitimate. This truth doesn’t mean it should not be reported if your suspicions are well-intended. It might be a crime not to report, so it’s a delicate line to be walked.
Having the courage to raise your concerns is key to stopping money laundering. Increasing reporting in the service sector will, undoubtedly, result in more criminal activity being thwarted.
If you work in the service sector and have concerns around how suspicious activity is managed at your firm, speak to your money laundering reporting officer about how this issue can be addressed. Extra training is an excellent way to bring SARs to the attention of all staff within the company and might result in more financial crime activity being detected.
The International Compliance Association is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.