LC: New guidance needed to improve anti-money laundering regime

18 Jun 2019 11:49 AM

A new advisory board and statutory guidance would reduce wasted time and improve the UK’s ability to tackle money laundering and terrorist financing, the Law Commission has announced.

Money laundering, in particular, is estimated to cost every household in the UK £255 a year and allows criminals to profit from their crimes. Banks and other businesses use suspicious activity reports (SARs) to report cases of suspected money laundering and terrorism financing, to the United Kingdom Financial Intelligence Unit.

However, too many low-quality SARs are submitted to the UKFIU undermining the entire process.

The recommendations are laid out in the Law Commission’s report, Anti-Money Laundering: the SARs regime, which is published today (and can be found here). These include:

• the creation of an advisory board
• a standardised form for the submission of SARs
• guidance on key concepts underpinning the regime

Collectively the recommendations are designed to improve the quality of reporting as a whole and reduce the number of reports with limited intel.

Professor David Ormerod QC, Criminal Law Commissioner at the Law Commission said:

“Money laundering is a blight on the UK’s economy and damages our international reputation. We must have a regime in place that allows law enforcement agencies to investigate and disrupt money laundering at an early stage.

“But the reporting scheme isn’t working as well as it should. Enforcement agencies are struggling with a significant number of low-quality reports and criminals could be slipping through the net.

“We think our recommendations would help tackle money laundering more effectively in a more proportionate manner, by reducing the burdens on the UKFIU and reporters.”

Ian Mynot, Head of the UK Financial Intelligence Unit said:

“The National Crime Agency welcomes the Law Commission report on the Suspicious Activity Reports process, and is grateful for the work of the Commission in producing it.  This is a comprehensive report and we will now work with the Home Office, the regulated sectors and law enforcement agencies to consider its recommendations”

Problems with the current system

The number of SARs submitted has doubled over the last ten years and continues to rise. This has culminated in over 470,000 reports in 2018-19; a record number of reports received in a single year.

However, our research has found a significant number of these SARs are of low quality and can contain limited, or even no, useful intelligence. Time and money is wasted by reporters generating these reports and they hinder law enforcement’s ability to investigate and prosecute crime.

The submission of these low-quality reports is caused by:

• The broad definition of “criminal property” in section 340 of POCA requires that suspected laundering of the proceeds of any criminal conduct must be reported.
• A lack of clarity in the definitions of key terms increases the risk that the law is misunderstood or inconsistently applied by those with reporting obligations.
• The threat of individual criminal liability for officials for a failure to make a disclosure encourages defensive reporting.

Recommendations to improve the system

The Commission is recommending that the core of the current regime is retained but made more efficient and effective. To do so, we recommend:

• The creation of an Advisory Board – made of experts from the public and private sector – to ensure the continued effectiveness of the regime. A Board will oversee drafting of guidance and advise the Secretary of State on appropriate improvements and how best to respond to emerging threats.
• A new online SAR form designed through public and private sector collaboration which would make the reporting process easier to navigate and promote greater consistency in the information that is provided to UKFIU in an easy to read, accessible format.
• For statutory guidance to be issued by the Secretary of State, this will reduce confusion and uncertainty around a number of key legal concepts and ensure reporters understand their legal obligations to report suspicious activity.

These reforms will clear up confusion, improve reporting and the information provided and ultimately ensure the money laundering and counter-terrorist financing regime’s effectiveness.

Find out more about the project, and read the full paper and summary here.