Welcome to the first of a series on suspicious activity reports (SARs) within the UK anti-money laundering (AML) regime. We will lay out the current status of suspicious activity reporting and highlight how important SARs are in combating a variety of crimes - economic and other. We will also examine examples where effective SARs have helped to combat a range of criminal activities, as well as recommending how reporting can be improved.
In this piece, we focus on what SARs are, as well as summarise feedback from experts on current SAR practice and explain how reporting can be enhanced. Although our series will focus on SARs within the UK AML regime, the content will be useful to AML practitioners working in similar reporting systems elsewhere.
What are SARs?
A SAR is a document which must be filed by a financial institution or associated business with the National Crime Agency (NCA) whenever an economic crime is suspected. The legal purpose of filing a SAR is to report on any suspicious activity by an entity, business or individual which raises the suspicion of money laundering or terrorist financing. SARs are investigated by the UK Financial Intelligence unit (UKFIU), which sits within the NCA.
SARs form a core part of the strategy of law enforcement in their battle against money laundering, terrorist financing, fraud, and other financial crime. The intelligence they provide on suspected criminals includes information such as phone numbers, addresses, company details, investment activity, bank accounts and details of other assets.
Who should file SARs?
SARs are required of anyone working in a regulated sector, primarily by part 7 of the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000, with support from the Money Laundering Regulations (MLRs) of 2017. It is possible that people and organisations working outside the financial sector may need to file SARs as well, and firms should seek clarity from their industry regulators, professional bodies, or legal advisors on what their obligations are.
The Financial Conduct Authority (FCA) published its Extension of Annual Financial Crime Reporting Obligations in August 2021. It noted that currently only banks, building societies or companies with total annual revenues of £5million or more must provide their financial information to the FCA if expected, but proposes widening the net considerably, targeting electronic money facilities, multiple types of trading platforms, and cryptoasset providers.
How are SARs used to combat financial crime?
Within the broader AML regime in the UK, SARs are used by law enforcement agencies and regulators to combat a range of crimes. The intelligence contained in SARs helps to thwart sex offenders, trace murder suspects, catch tax evaders, and crack online child pornography rings. Single SARs can be used by multiple agencies for different purposes, and multiple SARs can be used to target single crimes. This is in addition to combating money laundering, terrorist financing, fraud, tax evasion, and other serious economic crime.
The NCA’s 2020 Annual SARs Report noted the following overall successes for law enforcement during the period:
- 573,085 SARs were received and processed, up 20% from the previous reporting period.
- £172 million was denied to possible criminals suspected of money laundering, up 31% from the previous reporting period.
- HM Revenue & Customs (HMRC) seized £56 million by collating SARs with other data sets.
- Criminal trends exploiting the COVID-19 pandemic were identified through analysis of SARs, and the key industry players are now kept up to date through regular bulletins on the subject.
You can read about case-by-case SARs successes in 2020 for the UKFIU and other agencies in the regularly released SARs Reporter Booklet January 2021 edition.
Although the usefulness of good suspicious activity reporting is noted, the increase in money laundering and other financial crimes (on average, the UKFIU receives over 460,000 SARs per year), is a clear indication that all players in the AML regime must work together to finally beat the criminals. Reporters, law enforcement agencies, supervisors, regulators, trade bodies and other relevant partners will need to co-operate closely now and in the future.
What makes a good SAR and how can they be improved?
We have seen that well-written SARs can be highly effective in combating financial crime. The UKFIU guidelines emphasise conciseness, thoroughness of the information provided, and clarity about the reasons for suspicions being raised. A SAR Glossary Codes and Reporting Routes booklet, which is regularly updated, is also available.
The UKFIU also tracks areas in reporting which can be improved, since inadequate reports hamper the NCA’s allocation of resources and impede law enforcement agencies from making informed judgments about actions to take. The challenging areas usually pertain to information being incomplete or absent, for example:
- The full name of the subject, including all identifying features (birth date, address, passports, driving licenses, etc.).
- The subject’s occupation and/or employment status and history.
- A detailed, concise explanation of the alleged behaviour, which clearly outlines how, when, and why suspicions were raised.
- Details of other individuals who may be involved in the transaction(s) under review.
How do the experts think SARs can be improved?
The UKFIU runs a monthly podcast on behalf of the AML sector, which focuses on how SARs help to combat crime, and on the strengths and weaknesses of UK’s current AML regime.
In the November 2020 episode, experts from law enforcement were asked their opinion on SAR reporting, and how it can be enhanced. While consensus was that SAR reporting is going in the right direction, the following suggestions were made:
- Detective-Inspector Lynden James of the North West Regional Organised Crime Unit (NWROCU), noted of the wide range of interventions enabled by SARs, from halting the defrauding of vulnerable persons, to breaking up Ponzi schemes which obliterate people’s life savings. He did, however, suggest that reports could exert the context in which the SAR occurred more succinctly, which might expedite the responses of law enforcement.
- Alex McWilliams, a Financial Investigator for the Police Service of Northern Ireland (PSNI), praised the content of most SARs he worked with but suggested that the current balance of accounts being assessed should be made more readily available in the reports for law enforcement officials.
- HMRC Senior Investigation Officer, Matthew Clark, felt that the UKFIU was on the right track with the introduction of webinars to improve exploitation of SARs, but cautioned that those filing the SAR should focus on the “who, what, why, when, where [and] how” of suspected money laundering and terrorist financing, not provide commentary on their own assessment of criminal activity.
You can also read parts of the interview in the SARs in action edition for June 2021.
We have seen in this blog what the state of play of SARs is, its importance in fighting financial crime, and what the future holds for the AML sector. In the coming weeks, we will discuss some of the criminal activities which SARs have helped to combat, including modern slavery and human trafficking.
How can Napier assist your business with improved SAR reporting?
Napier CEO, Julian Dixon, recently noted that enhanced AML regulation is to be lauded in general. However, he said the UK government’s proposal to overhaul the AML regime as laid out in the 2019 Economic Crime Plan is hampered by the sheer scale of the task, which is further complicated by the impact of the pandemic. The result is that the overhaul is not happening quickly enough. With 460,000 SARs being filed every year, he believes the solution lies in digital automation.
“Let’s leave the human regulators to focus on the high priority investigations, while all the dirty work of checking the myriad SARs can be carried out by automated software systems,” he said.
As a specialist AML compliance technology provider, Napier can help your organisation streamline its SAR reporting processes with cutting-edge technology and AI-powered digital automation. You can request a demonstration here.