Why don’t we report our suspicions?

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75% of professionals in a recent poll said complying with Anti-Money Laundering regulations was a top priority. However subconscious biases could be preventing them from acting on suspicions.

A recent poll for the Flag It Up campaign indicates that accountants are motivated to prevent money laundering. But what could prevent them from turning their suspicions into action?

Competing motivations on professionals’ time and the potential cognitive and cultural barriers are all at play. To overcome these barriers, we must become aware of our own biases and how they are influenced by our environment.

Criminals laundering money earn hundreds of millions of pounds each year from illegal activities ranging from selling firearms and drugs to organised immigration crime, human trafficking, and child sexual exploitation. They know the triggers of suspicion and can structure transactions and deals to lessen the appearance of any red flags.

But in the game of cat and mouse between crime agencies and criminals, crucial information comes from well-trained human intelligence: the subconscious, gut feeling of unease in the accountants at the border between legal and illegal.

What happens when we encounter suspicious activity?

Our minds work less like computers and more like simulators. When we encounter a door, our brains don’t calculate “rectangular object, hinge and handle…door”, we expect a door and assume we can open it.

We feel suspicion as a gut feeling, of slight distress or unease. To ease this feeling, we seek out information that will once again leave us able to predict the world.

What the mind sees is largely based on past experience, but it also knows when something in its simulation feels wrong. When our expectations are violated, part of our brain at the base of the prefrontal cortex, the dorsal anterior cingulate cortex (dACC), fires.

That firing tells us that something in our model of the world needs to be fixed. We feel suspicion as a gut feeling, of slight distress or unease. To ease this feeling, we seek out information that will once again leave us able to predict the world.

In this crucial moment, various cognitive biases can lead us from suspicion to carrying on with our day rather than further investigating and if appropriate, filing a Suspicious Activity Report (SAR) with the National Crime Agency.

What might prevent us from reporting suspicious activity?

Two related and important biases are important to recognise. The first is confirmation bias – we seek out information that supports what we already think or want to think, rather than information that properly tests our beliefs.

Accounting professionals are aware of their obligation to report suspicious activity, and the reputational and legal costs to themselves, their firm, and their industry of not doing so.

But they are also aware of the low likelihood of encountering a crime, the fact that relationships with their clients are important and the long list of other priorities. In other words, they have competing motivations, which leads to the second important bias: motivated reasoning.

We all come up with reasons to support what we want to believe, due to underlying incentives.

As professionals, it is the client relationship and other business activities that we’re incentivised to care about for our career and organisation.

However, at a subconscious level, this raises the bar for how suspicious something must be for it to be reported. These personal incentives combined with a criminal’s willingness to provide plausible explanations can cause inaction.

These competing motivations lead to seeking plausible deniability – a justification that the activity was ambiguous or probably isn’t suspicious or that reporting won’t make a difference anyway and might even increase the number of false positives.

Motivated reasoning leads us to believe these things so we don’t have to report.

How do we overcome these biases?

Confirmation bias and motivated reasoning are easier to identify in others. It is difficult to detect our own biases.

Being aware of these biases can help, but a more successful strategy is creating a culture of discussing suspicions with colleagues or seeking advice from a professional body.

Being aware of these biases can help, but a more successful strategy is creating a culture of discussing suspicions with colleagues or seeking advice from a professional body. Encouraging each other to report and recognising what’s preventing us from doing so.

The norms in a culture matter. A culture where the prescriptive norm (you should report your suspicions) and descriptive norm (most people report their suspicions) are aligned will increase reporting. Combined with observability – knowing that this activity could be viewed by others who are likely to file a SAR on the basis of the same data (leading to questions about why you didn’t) can greatly increase the likelihood of reporting.

Crucially, all of this assumes that your brain and your intuitions are well-trained to identify suspicious activity.

Experts who have seen thousands of examples of both regular and suspicious activity have more accurate gut feelings.

It’s like experienced firefighters, who can tell when a house is likely to collapse and therefore unsafe to enter, even if they can’t articulate why.

Training our gut can lead to more accurate recognition of suspicious activity. Good training, tailored toward the activities relevant to our job can help us see the red flags we might otherwise miss.

These two factors combined can help us to overcome the cognitive barriers that prevent us from identifying suspicious activity and flagging it up with a Suspicious Activity Report. 

About Michael Muthukrishna

Dr. Michael Muthukrishna

Dr. Michael Muthukrishna is Assistant Professor of Economic Psychology at the London School of Economics and Research Associate of the Department of Human Evolutionary Biology at Harvard University. To read more about some of Dr Muthukrishna's research on corruption, see his article: Bribery, Cooperation, and the Evolution of Prosocial Institutions. For further details visit his website:michael.muthukrishna.com or follow him on twitter: @mmuthukrishna.

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22nd Feb 2019 10:53

Interesting.

I suspect that some dont report because of the ambigious definition of what should and should not be reported.

Making a report takes time and is not as easy as it should be.

Most accountants are aware of money laundering activities and if they see a potential client that might just be in this area of m/l refuses to take them on as clients.

Often we re-educate a client so that it no longer a money laundering. For instance putting private expenditure thru a company sundries account. Advising them that all income must be declared otherwise we will report them etc.

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to pauljohnston
22nd Feb 2019 12:28

Is threatening to report them 'tipping off'?

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22nd Feb 2019 11:09

Our clients are our friends and source of income. The government are enemies of the British people and just want to rob us. No prizes for guessing whose side I'm on.

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22nd Feb 2019 13:07

It's an interesting article with some good points about how the mind works but I can think of at least 3 counter-arguments / points to make:

1. As already mentioned, completing a SAR isn't straight forward and is relatively time-consuming. That's an overhead and, as all accountants know, overheads are there to be driven down. That's presumably a known psychological impulse.

2. There's the "disincentive effect": no feedback whatsoever from the NCA does make one wonder whether there's a point in completing a SAR.

3. As also mentioned by a previous poster, if we as accountants can persuade our clients to put right, then no crime has been committed and there is nothing to report. That is (and always was) what we aim to do therefore.

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22nd Feb 2019 15:19

Pfft, its far simpler than you suggest:

1. Its time consuming, and we don't get paid for it, so effectively we get to do unpaid overtime to send it in.

2. Never seen any of them acted on, even with clients (or probably ex clients by this point) are defrauding HMRC to the tune of thousands of pounds.

So do I
(a) Waste time filling in something that no-one is going to act on?
(b) do some billable work
(c) go home?

I think you will find (b) or (c) win unless its pretty obvious I know about something, and you dash one off to avoid any risk of getting into trouble with the ICAEW or other regulators.

I have filed about 2 or 3 in the past 6-7 years. I did at least 4 or 5 a year in the first couple of years.

If I got £200 a pop, I would still be putting in 4 or 5 a year I imagine, and in fact if I saw some clients get rolled over by HMRC who ought to, that would be plenty of incentive quite frankly.

Whilst I act for my clients, I dont help clients pay less tax than they should do, and more than happy to protect the government purse.

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22nd Feb 2019 18:44

Marlinman is correct - I'm not going to lose my livelihood because some incompetent government agency 'obliges' me to report (and lose) every client that may be less than truthful.
My mantra to clients is: if you are up to no good, I don't want to know.
Strangely enough, none of them are....well not much!

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By Matrix
22nd Feb 2019 21:36

I have done some reports, others I just do file notes since it would take ages to report everything. But mainly I am scared of any repercussions.

I did not report an accountant who was not filing RTI reports where their client was pocketing the PAYE deducted. I also am suspicious of a client who lives down the road, but the arrogance of choosing an accountant so near and not disclosing all income makes it just a suspicion with no proof.

In both cases it would have been obvious it was me and I was too scared that my livelihood could be taken away.

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25th Feb 2019 10:11

This is a really interesting article and I would love to see more by this author - dealing with facts and figures we can sometimes forget the human element so I'm sure an "economic psychologist" could inform us!

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25th Feb 2019 17:21

Readers might be interested to read my article on the subject loaded on Accweb last month:
"Should you bother to submit a SARS"
https://www.accountingweb.co.uk/practice/general-practice/should-you-bot...
the article starts:
"Accountants have many demands on their time, whatever time of year. Completing and submitting a SARS (suspicious activity reports) takes a long time: unpaid time spent on someone who to all intent and purposes will cease being or not become a client."
Have a look at the statistics and you will see that 6,693 SARS were submitted by accountants during the period Oct 2014 to March 2017: 1.06% of the total number of 634,113.
But it is a legal requirement should you ever come across Money Laundering by your clients.

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