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AML inaction: Are accountants' suspicions going unreported?

29th Apr 2019
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The National Crime Agency has reported a record number of suspicious activity reports (SARs) in 2017-18, yet accountants still lag behind in their AML requirements.

According to the National Crime Agency’s ‘Suspicious Activity Report annual report 2018’, the UK Financial Intelligence Unit received 463,938 SARs between April 2017 and March 2018: a 9.60% increase on 2016-17, with 22,619 of those being defence against money laundering (DAML).

Accountants contributed 5,140 SARs (1.11% of the total) during that same period, a total which is up 13.9% from 2016-17. While accountants are an important force against money laundering, banks’ SARs contribution dwarfs all other sectors. With the volume of SARs submitted between April 2017 and March 2018 coming in at 371,522, banks account for just over 80% of the total number.

Are suspicions going unreported?

While SARs submissions are on the up, the results of a survey of 250 accountants polled by online identity verification company Credas has found that a third of accountants did not submit a SAR in 2018.

The CEO of Credas Rhys David was surprised to learn that so many accountants haven’t filed a report.

“Interestingly, 39% of respondents felt that suspicious activity reports were an effective measure to be taken and so there is definitely a missing link between what’s considered ‘best practice’ and what is actually being reported.”

Another statistic from the research found that 6% didn’t understand the SAR procedures, which could answer why some accountants don’t submit.

Accountants put at risk without MLRO

Elsewhere, Credas’ David was concerned to find more than a quarter (26%) of accountants surveyed were “putting themselves at risk of investigation” by not having an assigned money laundering reporting officer (MLRO) in their firm.

“Without an MLRO in place, there is no formal process for any member of staff to report suspected suspicious activity. MRLOs are an accountancy firm’s liaison point to the Serious Organised Crime Agency (SOCA) in respect of SARs and also Proceeds of Crime Act. UK law stipulates that organisations in the financial services industry must appoint an MLRO.

“As a result of not having these crucial posts in place, accountants are making themselves vulnerable firstly to financial crime, and secondly to the threat of a serious fine from their regulator.”

SARs: Quality over quantity

The NCA has focused on improving the quality of SARs submissions from the accountancy and legal sectors as part of its ‘Flag it up’ campaign.

The change in the campaign’s focus from quality over quantity was foreshadowed by AccountingWEB’s resident anti-money laundering expert David Winch's recent findings. On an AML podcast last year, Winch said NCA officers mark an accountant’s SAR report as unhelpful when it is not clear what the suspicion is.

“When an accountant files a suspicious activity report very often they know what they mean and understand it, but the NCA officer, who is not an accountant, doesn’t know where the accountant is coming from,” said Winch.

Accountants being singled out for SARs inaction chimes with past AccountingWEB reader gripes. For example, Ken Howard attributed his SAR indifference to a lack of response from HMRC.

Similarly drained by AML’s administrative burden, on Linkedin, the director at Ascot Advisory services John Schroder likened the AML requirements to having to hire a private detective.

“This entire issue basically insists that accountants spy on their own clients," Schroder wrote on LinkedIn. "[Accountants] honestly do not have the time nor the resources to investigate anything a client provides them on paper as part of whatever accountancy process."

Do the stats tell the whole story?

Despite this compliance weariness, accounting commentators have raised an eyebrow to some of the survey's findings.

According to former practice owner Della Hudson, also commenting on Linkedin, there is more behind accountants not submitting SARs that can be communicated in these stats.

“I’ve only ever submitted two SARs, however many years it has been a requirement, so I’m surprised that the 30% isn’t more like 80%," wrote Hudson. "Where we spotted discrepancies we helped clients to correct them so no SAR required.”

But it was the MLRO definition that induced the biggest debate. Responding to the report on Linkedin, Mark Lee said: “I would expect that the absence of designated MLRO is largely because this is often the owner of the practice and he/she hasn't formalised this anywhere.”

David Winch clarified that there is no need for an individual to employ anyone to nominate themselves as a MLRO but they’re still obliged to report their suspicions to the NCA. “If we want to be really pedantic, the regs do not refer to a MLRO they refer to a "nominated officer".

“I suspect the truth is for many firms that some poor unfortunate was named as the nominated officer years ago & most employees have forgotten who it was or were never told.”

Replies (13)

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the sea otter
By memyself-eye
30th Apr 2019 09:31

How may of the nearly half a million SAR's have been investigated?
Let me guess - very few
Before big brother chastises accountants for a perceived 'lag' in reporting maybe it ought to get its' own house in order.
Stalin in his most paranoid period, could not have made up such 'group think' cobblers as MLR.

Thanks (3)
David Winch
By David Winch
30th Apr 2019 10:13

At Accountex AWEB will be hosting a panel session with Q&As. Since I have been invited to be on the panel - 3.00pm Wednesday 1 May - I expect there will be some awkward questions around this topic!

Thanks (0)
By johnjenkins
30th Apr 2019 10:29

This article is absolute rubbish. How many Accountants were asked? Oh yes 250. Richard I'm surprised at this drivel. Let me give you some key facts. Most practice have clients that are honest. The criteria for a report is "suspicious behaviour". In our area there is an Accountant that has been in prison, but is still in business, so guess what, Richard, most of the dodgy tax payers go to him. I'm pretty sure that in most areas similar circumstances will apply. One more important factor, Richard. The EU brought in AML to combat drug and crime proceeds not to catch a decorator doing a "private" on a weekend, which unfortunately is where our HMRC have taken it. That is probably why most reports are binned by NCA.

Thanks (1)
Replying to johnjenkins:
David Winch
By David Winch
30th Apr 2019 10:50

I understand your anger. Unfortunately fraud (& similar crimes) are not straightforward to investigate & prosecute properly. And fraud etc does not shout, bleed or involve threat to life. So police do not prioritise these investigations when resources are stretched.
We heard recently that a large proportion of crime reports are 'screened out' by AI systems without any human involvement.
On the other hand, bizarrely, some individuals are prosecuted when the alleged offending is minor & the evidence weak.
So there is considerable room for improvement!
But it ought to be the case that an individual with a relatively recent (i.e. unspent) conviction for financial crime should not be authorised to practice as an accountant or tax adviser.

Thanks (1)
Replying to davidwinch:
By johnjenkins
30th Apr 2019 11:36

It's not anger, David, it's despair of what is happening in our country at the moment. Knife crimes and drug abuse abundant, old and innocent people getting scammed by technology they don't understand etc. etc. Hold on, yes of course HMRC can spend millions on something called MTD because Accountants and tax payers are perceived to be making errors (which actually even themselves out).
While we are at it, our MP's are going against the will of the people. Why? big business.
So yes David you are correct, as my form teacher used to put on my report - room for improvement.

Thanks (1)
By pauljohnston
30th Apr 2019 10:54

One problem I percive is that many accountants like us weed out the dodgy pertential clients at the inital meeting stage and these are not SARs because I have not thing more than that. My gut feeling means that I dont take them on.

Whilst I have no problem with the data in this article I do wonder if we are becomming the whipping boys because we take this approach.

Thanks (1)
30th Apr 2019 15:58

Perhaps Accountingweb would like to do a freedom of info request answering the obvious question on behalf of the AW collective - What % of reports from accountants (not buried in with other sources) have NCA acted on and led to conviction.

When that is 100%, then you and they may find any perceived lack of engagement with the system would perhaps improve.

Thanks (0)
Replying to JD:
David Winch
By David Winch
01st May 2019 07:00

A few points if I may.
1. I would expect years to elapse between a Suspicious Activity Report being filed and a criminal conviction. In part this is because investigators / prosecutors (such as HMRC, the police, the Crown Prosecution Service) and courts are under resourced.
2. Not all prosecutions result in convictions (statistics suggest that in the region of 80% do).
3. Even where a SAR is acted on that action may be in the form of, for example, a tax enquiry resulting in a civil penalty (and so no conviction).
4. In most cases any action will not be taken by the NCA, it will be taken by a local police force or HMRC or the DWP or whoever.
So I do not think there could be any meaningful answer to your question, sorry!

Thanks (0)
By JimLittle
30th Apr 2019 22:50

I reported a couple SAR over the past year but I know nothing was done. Like the police the NCA overstretched and I assume only investigate the serious crime. For someone not VAT Registered when they should be I doubt will be high on their list. Its begs the question what is the point of reporting SAR and perhaps HMRC should have their own department for reporting minor tax evasion cases.

I am sure in every practice there are clients who dodge tax but they are clever hiding it from their accountants. Anyway, some accountants hardly know their client and just file their accounts based in information provided once a year without perhaps querying some blatant signals of tax evasion.

Thanks (0)
Replying to JimLittle:
David Winch
By David Winch
01st May 2019 07:11

Just to be clear, all SARs are filed with the NCA - but information from those SARs is made available to police forces, HMRC, DWP, etc.
The NCA would not (under normal circumstances) investigate suspected tax evasion, for example. It would be for HMRC to pick up that information and decide what to do with it.
As it happens I am currently dealing with a case where the defendants are being prosecuted for running a business which was not VAT registered but had a turnover marginally over the registration threshold (by which I mean the alleged turnover is less than £100,000). So these prosecutions do happen!

Thanks (0)
By Matrix
01st May 2019 20:49

I haven’t submitted an SAR for a while, I mostly make file notes since often I don’t have any proof.

I filed a late tax return on Monday for a friend’s husband and they put cash through my door to pay my invoice! A builder so I assume he does some cash jobs like everyone but I have no proof and turnover was in line with similar traders. Maybe I will just ask for the petty cash book next year.

Thanks (0)
Replying to Matrix:
By johnjenkins
02nd May 2019 09:22

There are many reasons why cash jobs are done. Some builders merchants will only take cash if your card is maxed out. I get paid in cash from a few clients that pay all their bills in cash to save bank charges. This thing that some, including HMRC, believe that cash means fiddling is a fallacy. Yes, I'm not naïve enough to think that it doesn't happen but that is not what AML is all about.

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Chris M
By mr. mischief
02nd May 2019 07:39

I've done 2 SARs. One was because my client refused 4 times my request for business bank statements. Due to other information I have about the people concerned - because I know my local area - my first thought is that although the coffee shop takings in the tills were £200,000 I might well see substantially more than that being banked.

This coffee shop closed down within 6 months. I don't know the reason. It was not lack of profits.

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