Make no mistake, money laundering is a major global epidemic, involving sums of money potentially in the trillions of US dollars. According to the United Nations Office on Drugs and Crime (UNODC), money laundering is estimated to range in value from 2 – 5% of global GDP, which at the higher end, equates to US$2 trillion. In the words of UNODC, “the deeper “dirty money” gets into the international banking system, the more difficult it is to identify its origin”.
Up to now, the UK has attempted (many would say in vain) to fight money laundering through the National Crime Agency (NCA), using Suspicious Activity Reports (SARs) which are completed and filed by professionals who find evidence of possible financial crimes, including solicitors, accountants, and estate agents. In 2018, according to the Financial Times, nearly half a million SARs were filed, almost 10 per cent up on the previous year. On face value, the increase in reported incidents of money laundering might lead one to believe the system is working, but according to experts in the field, this is not the case.
Why SARs are failing
According to a consultation paper issued by the Law Commission, entitled, “Anti-Money Laundering: the SARs Regime”, financial institutions deal with approximately 20 million automated alerts triggered by unusual activity detected by IT systems. Of the SARs filed with the NCA’s UK Financial Intelligence Unit, 27,471 were seeking consent where there was a suspicion of money laundering, referred to as a “Defence Against Money Laundering” (“DAML”), and over 400 related to suspicions of funding terrorism (“Defence Against Terrorism Financing” (“DATF”)).
Of the 27,471 DAML’s filed, only a small number of cases lead to prosecution – there were 40 arrests across 28 cases last year, resulting in only £52m being “denied to criminals” according to NCA statistics; hardly even a scratch on the surface of the multi-billion-pound problem.
One of the issues identified is the overzealous filing of SARs, due in large part to the threat of “draconian” consequences of failing to make a report. Beyond this, once SARs are received by the NCA, it is understood their processing software is inadequate, given the volume of information and data it must handle.
Redesigning the SAR regime
In December 2018, the Financial Action Task Force (FATF), the global anti-money laundering watchdog, stated: “while suspicious activity reports (SARs) are high quality, the SAR regime itself requires a significant overhaul to improve the quality of financial intelligence available to the competent authorities”. FATF also confirmed that the UKFIU lacks the necessary technical and human resources to process the SARs received.
In response to the recommendations made, the Home Office announced that £3.5m would be invested into reforming the SAR regime, in conjunction with UK Finance, which will entail redesigning the system to make it more effective and efficient. In addition, it was announced the UKFIU will receive a 30% increase in headcount to cope with increasing SARs. The changes come at the same time as the announcement of a new government task force called the Economic Crime Strategic Board, which will meet twice annually to “set priorities, direct resources and scrutinise performance against the economic crime threat”.
It would appear the Home Office, and the financial system more broadly, are genuinely keen to see reform in the domain of economic crime. Law professionals are currently vulnerable to a system which is unable to cope effectively with activity where it is suspected money laundering may be occurring. Any system which can quickly and effectively deal with suspicious activity discovered during a legal transaction will protect both clients and the reputation of the UK legal sector as a whole.
We have been helping legal professionals with professional disciplinary and regulatory matters for over 20 years. If you have any questions please call us on 0151 909 2380 or complete our Free Online Enquiry and I will soon be in touch