Comment: suspicious activity reports

Posted: 08/07/2019

David Cadin_BedellCristinThe Law Commission of England and Wales recently produced a report on suspicious activity reports (SARs) filed under the anti-money laundering regime. Bedell Cristin Managing Partner David Cadin (pictured) considers the implications for the Channel Islands
Although there are fundamental differences between the English regime and those applicable in the Channel Islands, the broad approach is similar. Financial services businesses must file SARs whenever they 'think there was a possibility, which was more than fanciful' that a person is engaged in money laundering or have objective grounds for so suspecting.
In the UK, some 463,938 SARs were submitted between April 2017 and March 2018. The Law Commission carried out an independent analysis of a sample of those reports. The main conclusions were that:
• There was a substantial variance in the quality of SARs filed
• There was clear evidence that some reporters misunderstood their legal obligations under the Proceeds of Crime regime
• Around 15% of SARs did not meet the threshold of suspicion (there was no 'possibility, which was more than fanciful'), which would equate to about 4,121 SARs having been submitted unnecessarily between October 2015 and March 2017 
• This corroborates the view that the threat of individual criminal liability for the relevant officials working in the reporting sector for a failure to make a disclosure encourages defensive reporting
• In addition, reporters only articulated reasonable objective grounds to suspect in 52.4% of the SARs analysed

Key recommendations

The Law Commission made a number of recommendations, including a fundamental one requiring additional guidance to be provided as to what exactly amounts to a suspicion. 
However, possibly the most interesting recommendation is the last, which deals with the suggestion of thematic reporting or 'geographical targeting orders'.

These remove the reporter’s discretion to assess suspicion and instead require them to make reports if certain specified criteria are met – for example, an obligation to report may be triggered if a transaction occurs in or across a prescribed geographical location, or certain financial or other thresholds are met.  

The Law Commission thought thematic reporting might have a role to play in addressing problems of under-reporting by certain sectors but recommended that a cost-benefit analysis should be done to ensure proportionality within the reporting regime, before any such changes were made.
Channel Islands impact

The report provides independent, publicly available analysis of the SAR regime in England and Wales and can be used by businesses to benchmark, and indeed to challenge, their own behaviour. It is a useful document and one the Channel Islands would do well to emulate.
Although Jersey usually prides itself on being the vanguard of regulatory developments, the latest 'quarterly report' published by the Joint Financial Crime Unit is for September 2016, which noted that there were 2,317 SARs in 2015 and disclosures were slightly higher in 2016.  

Similarly in Guernsey, the latest information available is for 2015. Current figures and typologies for the last quarter in both jurisdictions would be a real benefit to industry.
Suspicious activity reporting is also a crucial focus for the international community – the Cayman regime came in for significant scrutiny in the recent FATF report. With a further evaluation of Jersey's AML regime by MONEYVAL in a couple of years, we clearly need to do better.
That is even more important given that resources are tight in both islands. If the trends identified in England by the Law Commission were to be repeated in the Channel Islands, many of the SARs filed would not be properly justified, institutions would have been reporting customers and clients inappropriately, and the authorities would have had to deal with a significant number of unnecessary reports. 

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