AML inaction: Are accountants' suspicions going unreported?by
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.”