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When Red Flags Are White Flags: Abuse of Suspicious Activity Reports

There has been talk for a long time about the potential for abuse of a system that allows firms to easily secure a defence against money laundering charges.

Julian Dixon
December 11, 2017
There has been talk for a long time about the potential for abuse of a system that allows firms to easily secure a defence against money laundering charges.
I’m referring of course to the Suspicious Activity reports (SARs) that can be submitted to the National Crime Agency (NCA).

Defence Against Money Laundering (DAML) SARs - until recently known as Consent SARs - are reports of suspicious pending transactions that the applicant can continue to process without fear of prosecution as long as the NCA does not object.

A most disturbing proof, if any were needed, that all is not well in the SARs world came recently in the form of an NCA report that revealed the numbers of these DAML SARs had exploded, at a rate far exceeding the numbers of simple red flags reported.

In fact they shot up by 24% while the numbers of standard SARs rose just 10% in the same period.

That’s a massive departure and the danger is that, if it is not brought under control, the ability of law enforcement agencies to assess this intelligence and act on it effectively will be shot to pieces.

The number of DAML requests reached 18,198 in the year to September 2016, demonstrating the scale of the challenge facing the NCA and regional police forces.

This was up from 14,672 in the previous 12 months. Firms have clearly woken up to the fact that putting in these requests might take a little time, but it’s a lot cheaper than defending a prosecution and paying huge fines if convicted.

The ability of the NCA to effectively use all this information and object to a transaction in time is already extremely stretched. So what if this growth in DAML SARs was were to continue, or worse increase?

At the current rate the number of DAML requests received by the NCA would rise to an annual 156, 401 in a decade. That’s a colossal figure and, in the event the total ever reaches even half that, the UK’s ability to effectively combat money laundering will be brought to its knees.

DAML SARs are a great way of encouraging institutions to share intelligence but the increase in their use tells me that it isn’t just the thin blue line struggling under the weight of their responsibilities, it’s the companies facing a record number of money laundering regulations too.

If the information contained in SARs is not worthy of attention, it’s not a red flag they’re waving, it’s a white one.

Julian has more than 20 years of financial services experience gained at major investment banks including Deutsche Bank, JP Morgan and Commerzbank. His roles have ranged from front-office sales leadership to private equity. Julian has extensive knowledge of financial services processes and technology.
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