Jennifer Adams considers the role of accountants in anti-money laundering and asks whether the time spent on preparing and submitting SARS is time well spent.
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.
When questions about the anti-money laundering (AML) SARS procedure have been asked on accountancy forums or media, a typical response has been the one from AccountingWEB reader Ken Howard:
“I've made a number of SARs re tax evasion, but they've been completely ignored by HMRC, even when I've handed them the information on a plate, with full details of identity, tax references, dates of transactions, etc. One case alone was tax evasion of around £10k in just a single year. If HMRC can't be bothered to act on that kind of information, I can't be bothered to tell them anymore."
We need to dig a little further. Is Howard right? Are they a waste of time? Let’s first look at some facts:
The National Crime Agencies Report of 2017 states 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. Unsurprisingly the majority of SARS were submitted by banks (525,361 - 82.85%). Page 46 of the report details SARS per month and for accountants, the average is 350/400 with the largest number unsurprisingly submitted in February.
SARS data has been used by HMRC’s Connect database on a monthly basis for more than five years now. 'Connect' looks at data using a mathematical technique known as 'social network analysis', which ploughs through disparate, previously unrelated information to detect otherwise invisible networks of relationships
SARS is an ideal addition to this analysis, and the ICPA quoted tax barrister Jonathan Fisher as saying that it has been estimated that one in four HMRC investigation cases have been triggered by a SARS submission.
What is a SARS and when should one be completed?
It is worth remembering what a SAR is. SAR stands for 'suspicious activity report', via which law enforcement departments are made aware that certain client or customer activity is in some way suspicious with possible money laundering or terrorist financing.
The relevant acts are the Proceeds of Crime Act 2002 Part VII (POCA) or the Terrorism Act 2000 Part III. Failure to make a disclosure when the law requires may amount to a criminal offence.
There is very little guidance in any publication as to what actually constitutes ‘suspicion’ so the concept remains subjective.
The CCAB's guidance states that we are looking at situations (including those where there may be no specific evidence but based on what knowledge and experience) where there is 'a positive feeling of actual apprehension or mistrust'.
There have been questions posted on AccountingWEB’s Any Answers forum as to whether a SARS should be submitted in a particular circumstance. For example, 'anonymous' detailed a case of a number of omissions, non-payment of tax etc. that lead them to believe that the client had deliberately run down the company before applying for 'strike off'.
In response, anonymous was advised to submit, as by not setting aside monies to pay creditors the director had obtained a benefit which was a crime under s 993 Companies Act 2006.
Privilege reporting exemption
The ICEAW’s guidance confirms that accountants are not entitled to privilege (unlike lawyers), but what they do have is 'limited exemption'. The guide gives clear examples. If the client in the question asked by 'Anonymous' had asked their advice on correcting past returns, paying back tax etc, then that would be covered by the exemption. This was not the case and as such a SARS would be required.
Under another Any Answers post AML expert David Winch suggests three questions to consider:
- Did they admit that they knew they should not have done this? If 'Yes' go on to 2. If 'No' consider whether you suspect they knew this. If 'Yes' go on to 2. If 'No' then END.
- Were they asking for your assistance in regularising their tax affairs with HMRC? If 'No' then submit SAR (Suspicious Activity Report). If 'Yes' go on to 3.
- Are you a member of an accountancy body meeting the criteria of s330(14) PoCA 2002? If 'No' then submit SAR. If 'Yes' END.
Again under the same response and again quoting Winch, Wanderer states:
- If you discover something during compliance work and the client then admits that they were aware of the past omission then you would report.
- If they weren't aware of the past omission and they now agree to put it right then no report is needed.
- If they weren't aware of they past omission and they refuse to put it right then report.
What about non-clients?
The answer to this question is to be found in a report issued by the National Crime Agency - Introduction to Suspicious Activity Reports.
Under the section headed 'When do I submit a SAR', it states that a SAR is required “As soon as you 'know' or 'suspect' that a person is engaged in money laundering or dealing in criminal property”.
The relevant word is 'a', so reporting is not limited to reporting suspicions only of a client. The question to consider here is the reaction of the client when you tell them that you will be submitting a SARS report on a past business partner or director, for example.
Going back to Howard's comment: should you spend the time?
The first point is that it is a legal requirement and secondly if you make a SAR to the NCA you will not receive any information or feedback either from them or HMRC if relevant unless they require further information. However, no SAR is 'wasted' as they add to the information available to the authorities. It's not always about tax lost to the government that is relevant. Note the second sentence in the NCA's 2017 report where it quotes the following case: “An elderly individual had over £50,000 stolen from their bank account. A suspect had been named who was connected to the subject of a SAR. The SAR highlighted that the subject had deposited a large amount of cash over a number of months. An individual was convicted of theft/fraud and received a prison sentence. A confiscation order was made for over £25,000”.
Other information including assistance in completing a SARS
- A read of section 6 of the CCAB's updated March 2018 guidance is highly recommended if you are either considering submitting a report or are unsure of what to report. See also AccountingWEB’s piece on the guidance.
- A few months ago, the Law Society produced an hour-long webinar to assist in SARS submission.
- The ICAEW has produced a three-page template for use when completing a SAR.
- In a blog, David Winch details the implications of section 330 if no notification is made.
- And AccountingWEB has produced a podcast reviewing the recent AML changes and explaining how you can strengthen your firm’s compliance regime. Listen to the podcast below: