How to create a high-quality suspicious activity report
With the upcoming introduction of the new anti‐money laundering directive, it's crucial accountants can effectively record suspicious activity.
The NCA’s 2019 report stated that a record 478,437 suspicious activity reports (SARs) were filed between April 2018 and March 2019.
Those working in the regulated sector, such as accountants, are required to file SARs whenever they suspect instances of money laundering or terrorist financing, and failure to comply can result in professional and criminal sanctions.
With the upcoming introduction of the fifth anti‐money laundering directive (5AMLD) in January 2020, which places even stricter regulations on AML practices, businesses are under more pressure than ever to comply.
The threat of individual criminal liability for a failure to report suspicions has led to “defensive filing,” as accountants file SARs to protect themselves against potentially devasting penalties for non-compliance.
However, this often leads to low-quality SARs that lack the necessary data to combat money laundering. The Law Commission’s 2018 report on the UK’s AML efforts concluded that “there is good reason to think that the current regime is not working as well as it should.”
With the government’s tough stance on compliance, it’s crucial now more than ever for accountants to have a clear understanding of how to effectively record and report suspicious financial activity, to protect themselves and comply with stricter regulations.
Do I need to submit a SAR?
There is considerable confusion surrounding SARs and the grounds for submitting them. The government’s Flag It Up campaign encourages professionals to be vigilant and aware of any potential warning signs that a client may be involved in money laundering. Here are a few things to look out for:
- Foreign bank accounts in high-risk countries
- Lots of cash transactions
- Unusual transactions that don’t seem to make sense
- Secretive clients and/or missing documents
- The client frequently changes accountants
This list is not exhaustive and there may be other circumstances that ring alarm bells. The key is to use your professional intuition to spot potential money launderers and to submit a SAR when you have valid grounds for suspicion.
Remember that if you suspect that money laundering may be taking place, you are legally obligated under the 2017 money laundering regulations to submit a suspicious activity report (SAR) to the National Crime Agency, and failure to comply could have serious consequences.
What does a high-quality SAR look like?
To ensure compliance and make sure your report includes all the necessary information, follow the guidelines below:
Aim to be clear and concise. Remember that the NCA official reading your report is not an accountant, and provide a brief explanation of your work if necessary. Don’t use any jargon or acronyms, as they may not be understood.
Be thorough and include all relevant information. This includes your client’s full name and date of birth, which is essential for correctly identifying individuals. Full address, nationality and occupation should also be included. For businesses, provide their full legal name, trading name and their VAT and/or tax reference number, as well as any other useful information.
Don’t leave it blank. If the form requires any information you do not have, write ‘unknown’ rather than leaving it blank. This will speed up the process for the NCA, and avoid them calling you to verify whether you have this information.
Include all relevant transactions. Clearly state the method of the transaction and where the funds are coming from and going to. This information will also help to protect you, especially if you file for a DAML (defence against money laundering). DAML protects you if you need to undertake activities that may be offences under the Proceeds of Crime Act to avoid tipping off your client.
Use SAR glossary codes. This is good practice and helps law enforcement to analyse data and identify money laundering trends.
Explicitly state the reason for your suspicion, as this is the focus of the report. Make sure you cover the who, what, when, where, why and how of the case.
Explain the case chronologically, so that it is logical and easy to understand.
Do not send attachments with your SAR. All relevant information should be included within the SAR itself.