A nearly 10% increase in the number of Suspicious Activity Reports (‘SARs’) received by the UK Financial Intelligence Unit (‘UKFIU’) between April 2017 to March 2018, and a 20% increase in the amount of Defence against Anti Money Laundering (‘DAML’) requests made in the same period, appears to justify the confidence of Donald Toon (Chair of the SARs Regime Committee and Prosperity Director of the National Crime Agency (‘NCA’)) in the anti-money laundering (‘AML’) regime and the contribution made by the UKFIU. As he states in the NCA Annual Report on the matter the UKFIU “has improved its internal processes to make the current regime more effective and better able to achieve operational outcomes”.
The UKFIU attributes the purported success of the regime to its published guidance; its 2017 campaign to promote its work and the value of SARs called “Spotlight on UKFIU”; the aptly named anti-money laundering campaign “Flag it up”; the Criminal Finances Act 2017, which was developed by the UKFIU working closely with the Home Office; and the UKFIU’s contribution to SAR information technology.
The key question remains as to what extent a percentage increase in received SARs is truly evidence of the success of the present AML model? Indeed, is an increase in the number of SARs submitted a valuable key performance indicator of the AML regime at all? The logical answer appears to be ‘no’.
In addition to reporting the percentage increase in the amount of SARs received, the report further asserts that £51,907,067 was “denied to criminals as a result of DAML requests”. There is a notably absent statistic in the SARs Annual Report. It fails to identify how many of the 463,938 SARs (and 22,619 DAML requests) received have actually led to enforcement action. In other words, the report/statistics and purported basis for confidence and asserted success, reveals nothing about the quality of the SARs that are being submitted or the true worth of the numbers.
Given that the making of a SAR is the responsibility of AML personnel across financial sectors, a percentage increase in the volume of reporting is not necessarily indicative or even correlative to any assertive enforcement action on the part of the NCA or the regulators. It could just be a case of AML officers having a better understanding of their role within the sector and applying the letter of the law/guidance on the issue and/or businesses becoming more compliance focussed. Alternatively the figures might simply demonstrate an overly risk averse approach, which creates problems for those charged with enforcement as much as the customers of those reporting. Cynically, financial institutions may think that they can demonstrate their support for a tough stance on fighting financial crime by filing as many SARs as possible.
We predict that percentage increases in the numbers of SARs are likely to continue, as the fear of regulatory action looms and institutions apply a lowest common denominator approach to money laundering decision making rather than adopting a more considered one. The filing of ever increasing numbers of SARs is an indication of the inefficiency and oversensitivity of detection systems within financial institutions with potentially grave consequences for those who wish to conduct lawful business in a timely way.
For the institution this is a zero sum game in which only the customer can lose. There is no penalty for filing SARs in relation to which no criminal activity is identified or for filing too many SARs. The consequence of a failure to file is significant – potential criminal liability and regulatory censure. Of course a SAR merely represents a suspicion that a customer has engaged in wrongdoing – no definitive determination has been made. The responsibility for action falls to be determined by the NCA. The NCA rely heavily on the proper application of UKFIU Guidance Note “SARs Regime Good Practice – Frequently Asked Questions – DAML” where it is emphasised that it is “crucial that reporters include all the information they have…[and] the NCA may request additional information from the reporter to make an informed decision”. Further detail is included in that Guidance as to what information the NCA requires, namely information as to the grounds for the knowledge, suspicion or belief of the reporter, a description of the property in relation to which there is a suspicion or belief and a description of the prohibited act for which a defence is sought. To that extent the success of a SAR at first instance is wholly dependent on the quality of the report that is made. It is hard to imagine that the increase in quantity is matched by an improvement in the quality and detail.
To suggest that the increased prevalence of SARs is in any way an indication of greater enforcement per se is perhaps misplaced. Rather it is more indicative of the increased focus on and work in compliance. However, this is no bad thing. Prevention rather than cure should not be underestimated.
But at least statistics should be reported in a way that enables a proper analysis of the qualitative performance of this core element of the AML regime. More broadly for those that represent the subjects of a SAR, the statistics should not create a sense that they are struggling against a tide in which objection is pointless. Rather these figures emphasise the need to investigate the quality of a SAR, which now appears to be more widely possible through the extended moratorium period regime which allows court scrutiny and the subject of the SAR to play a role, even if the battle for disclosure of the SAR itself has to be won first.
Michael Drury has a practice ranging from extradition (having successfully represented senior Ministers in former Soviet Union states, defeating extradition claims and securing removal of/preventing the issue of Red Notices) to representing individuals in regulatory proceedings brought by the FCA (in LIBOR and other matters); acting for corporates and individuals in bribery and corruption cases and other criminal investigations by the SFO (e.g. LIBOR); acting in investigations by the Information Commissioner’s Office (in the spin off from NCA investigations into ‘blagging’); and representing individuals in arenas as wide ranging as the Metropolitan Police investigation into the alleged involvement of British officials in the transfer of individuals to Libya under the regime of Colonel Muammar Gaddafi to fraud investigations by a variety of police forces in England and Wales.
Natasha Sammy is a barrister at BCL specialising in corporate crime, fraud, bribery and corruption and regulatory enforcement matters. Natasha has particular expertise in investigations and prosecutions by the SFO and HMRC in respect of both individuals and corporates.