UK. Anti-money laundering regulator inundated with reports


With too many 'low-quality' submissions undermining enforcement work

The UK's independent law review body has warned financial institutions that the number of suspicious activity reports (SARs) they submit has skyrocketed, and that the standard of many is poor.

The Law Commission has published a report calling for changes to the way the UK Financial Intelligence Unit (UKFIU) runs, as enforcement agencies are struggling to keep up with the amount of reports, possibly "undermining the entire process".

"Money laundering is a blight on the UK's economy and damages our international reputation," said David Ormerod, criminal law commissioner at the Law Commission. "We must have a regime in place that allows law enforcement agencies to investigate and disrupt money laundering at an early stage."

"But the reporting scheme isn't working as well as it should. Enforcement agencies are struggling with a significant number of low-quality reports and criminals could be slipping through the net.

"We think our recommendations would help tackle money laundering more effectively, in a more proportionate manner, by reducing the burdens on the UKFIU and reporters."

The changes

In its Anti-Money Laundering: the SARs regime, the commission made recommendations on how the UKFIU should be improved:

  • The creation of an advisory board - which will oversee the drafting of guidance and its effectiveness;
  • A standardised form for the submission of SARs through technology to help reporters make more effective disclosures; and,
  • Guidance on key concepts underpinning the regime.

In 2018-19, more than 470,000 SARs were submitted, which was a record, but a significant number were of low quality and contained limited or no useful intelligence, the commission said.

This means that "time and money is wasted by reporters generating these reports and they hinder law enforcement's ability to investigate and prosecute crime".

The Law Commission has now decided that clearer definitions and more streamlined processes are needed to make the law enforcement more effective.

Too vague and easy to misunderstand

"The commission's independent analysis of the SARs sample found 'a substantial variance' in the quality of SARs, with clear evidence that some reporters misunderstood their legal obligations," said Zia Ullah, head of corporate crime and investigation practice, and Ruth Paley, counsel at law firm Eversheds Sutherland.

"Around 15% of authorised disclosure SARs did not meet the threshold of suspicion. If these findings were extrapolated, approximately 4,121 SARs would have been submitted unnecessarily. This issue is no doubt intended to be addressed by the new 'guidance' recommendations.

"However, the commission made no recommendation to raise the threshold to require 'reasonable grounds' to suspect for reporting. This is surprising given the commission's analysis of the SAR sample which found that reporters only articulated reasonable grounds to suspect, by demonstrating one or more objective grounds, in 52.4% of the sample it analysed.

"This represents a substantial proportion of authorised disclosures which are lodged without objective grounds in support.

"The commission's decision not to recommend the introduction of a 'reasonable grounds' test is, therefore, being viewed by some as a missed opportunity to implement a more ordered and logical approach to reporting - where the case law suggests that suspicion need be neither reasonable, well-founded nor rational, many have questioned the value of reports which, on that basis, could in theory be unreasonable, ill-founded and irrational."