Suspicious activity? Overhaul of the SAR process promised in the UK government’s new Economic Crime Plan
The UK government’s Economic Crime Plan 2019-2022 (the “Plan”) published in July 2019 includes as a “key deliverable” a commitment to reform the SARs regime. Suspicious activity reports alert law enforcement authorities to potential instances of money laundering or terrorist financing and should be a vital source of intelligence not only on economic crime, but on a wide range of criminal activity. However, for a number of years there has been a call for the process to be overhauled, as “defensive” reporting and a correspondingly large number of low quality reports has made detecting serious crimes more difficult. The Plan puts forward proposals for reform of the regime to ensure it delivers more effective intelligence, using better technology and enhanced engagement with the private sector. For compliance, efficiency and possibly costs-saving purposes, it will be important for organisations to monitor this transformation carefully until full delivery in 2023/2024.
The current SARs regime and its shortcomings
For those working in the regulated sector, a SAR must be submitted to the UK Financial Intelligence Unit (“UKFIU”) housed within the National Crime Agency (“NCA”) if, in the course of business, a person discovers information which causes them to know, suspect or have reasonable grounds for knowing or suspecting that a person is engaged in money laundering or terrorist financing. Whilst these reporting obligations do not exist outside the regulated sector, there are also circumstances in which a SAR must be filed (whether in the regulated sector or not) in order to obtain a defence to a potential money laundering offence under the Proceeds of Crime Act 2002. SARs provide information and intelligence from the private sector that would otherwise not be visible to enforcement authorities and may help establish a geographical picture or pattern that can be used to inform strategies to reduce the impact of crime.
The NCA has disclosed that, in the 2017-18 financial year, the UKFIU received over 460,000 SARs. This is 9.6 % more than in the previous financial year and was described by NCA in its 2018 annual report as a “record number”. One key reason for this is an increase in so-called ‘defensive filing’ whereby persons make a SAR even if the suspicious nature of the conduct is questionable, to shield them and their organisation from the risk of committing a criminal offence. The resulting high number of low intelligence value and poor-quality submissions puts unnecessary strain on the UKFIU while making it more difficult to detect actual crimes. This has also imposed a substantial burden on the regulated sector – according to the British Bankers’ Association (now UK Finance), its members are spending at least £5 billion annually on financial crime compliance. From the other point of view, the current system carries a risk of severe financial loss to businesses and individuals finding themselves the subject of a low-quality SAR, since their ability to carry out transactions may be frustrated as a consequence of a SAR having been filed.
The SARs Transformation Programme under the Plan
The Plan includes, as two of its seven strategic priorities, enhancing capabilities in the public and private sectors to detect, deter and disrupt economic crime; and better information sharing within and between these sectors. The SARs regime is described as a critical centre-point in the UK’s system for combatting economic crime. Accordingly, the SARs Transformation Programme aims fundamentally to reform the current operating model and deliver a regime which enables better identification of potentially criminal conduct, more efficient reporting and the ability to act on the information more quickly and effectively. To support these aims, the government proposes investment in improved technology, enhanced feedback to and engagement with the private sector and a reformed UKFIU.
The Plan envisages that the SARs submission process will be tailored to all different reporting sectors’ needs through the development of a more efficient and flexible IT process. Included will be the launch of a secure portal on which SARs can be made and which will allow the UKFIU to communicate with the reporters directly, share feedback and information on trends, economic crime alerts and outcomes on successful cases and so on. It may also be used to provide specific analysis on whether a particular filed SAR was useful. Other agreed actions in the Plan are also intended to enhance engagement and information sharing between the public and private sectors, partly through the work of the Joint Money Laundering Intelligence Taskforce.
Development of the IT capabilities required for the new regime will begin in 2020, with the future target operating model finalised by December 2020. Full delivery of the new operating model is anticipated in 2023/24.
As always, organisations and individuals operating in the regulated sector must be aware of their own reporting obligations. In doing so, it will be important to monitor the progress of the plans to transform the SARs regime and take on board any accompanying guidance issued, in order to remain compliant and take advantage of the benefits the Plan envisages will result from the changes. A more effective strategy for identifying, reporting and acting on suspicions of criminal conduct, leading to increased security in the UK’s financial sector, is to be welcomed. It is even possible that the development of a streamlined, better-tailored procedure may ultimately lead to a reduction of private sector costs connected with SARs reporting under the current regime.