Suspicious Activity Reports and Why They Are Important

By Malcolm Driscoll, Lead AML Consultant, FCS Compliance

Suspicious Activity Reports and Why They Are Important

People are still getting it wrong. I was recently contacted by an estate agent wanting advice on how to deal with a client who was reluctant to supply proof of funds. The underlying question was whether this merited filing a suspicious activity report (SARs) or not.  They added, we thought we could crack on with the transaction and retrospectively report it to the National Crime Agency (NCA). Of course, the answer to this is… you can’t.

Firstly, you have to suspect money laundering (which may not be the position in every case). Just because someone may not want to supply source of funds information doesn’t necessarily mean they’re laundering money but it would require justification as to why not and consideration to be given to whether to continue with the transaction. Secondly, if you do suspect money laundering, you cannot submit a report ‘after the event’. If you do, you in effect have assisted in the money laundering process and face a potential criminal charge. But this is a good example of the misunderstanding that still surrounds not just anti-money laundering (AML) obligations, but specifically the filing of SARs.

Filing a SAR is a legal obligation whether a transaction under suspicion continues or not.  And the number of reports hitting the NCA desks is on the up. Between 2019-20, in the region of 570,000 SARs were filed, while the latest figures due for release for last year are likely to show that they’ve now topped 850,000.

Those that launder criminal funds aren’t going anywhere. They’re continually on the hunt for the next opportunity, and laundering their ill-gotten gains lies at the heart of their money-making process. Be under no illusion, the world of real estate and the art world too , is massively open to abuse from money laundering.

Pushing money through into a respectable, recognised and regulated sector makes the cover so much better, and more plausible. And in the case of real estate and art, an additional money earner too. This is why agents and art market participants (AMPs) must be on their mettle.

It’s all too easy to cut corners in pursuit of closing the deal. Turning a blind eye and not asking difficult questions can mean breaching AML regulations, getting fined, suffering reputational damage, and in some cases imprisonment. In short, those businesses subject to AML obligations must take them seriously.

So, what are the red flags that people need to be looking out for when they’re carrying out their due diligence? What are the alerts that make them believe that a SAR should be filed? There are lots of things including reluctance by a client to confirm where funds are coming from; failure to have face-to-face meetings, hiding behind complex structures like companies or trusts or working through a third party rather than directly with the client. But there are other things too.

It all starts with CDD – identifying the person and source of funds.  During the Customer Due Diligence process, if you suspect money laundering then a SAR is needed.

You file a SAR through the NCA. On average it takes four days for a response which can either be a ‘carry on with the transaction’, ‘can’t carry on’ or ‘no decision can be reached’. In the latter response of ‘no decision’, the agent has to decide for themselves.

If ‘no decision’ is provided by the NCA this doesn’t necessarily mean you’re in the clear. If money laundering is later found to be an issue with the transaction you may be contacted again by law enforcement. The best course of action, as soon as money laundering is suspected, or consideration is being given to the submission of a SAR, is to seek professional advice from people such as ourselves.

Essentially, and this is the case even if you’re told you can proceed with a transaction as well, you must still demonstrate that you’ve done all that’s reasonably possible to ensure that money laundering is not a part of this transaction. At some time in the future, you may be asked to justify why you went ahead with the transaction and it’s essential to document every stage of the decision-making process to justify your actions.

It’s worth remembering that AML is about protecting the wider society, is a legal obligation and if complied with, will protect your business from being used and abused by money launderers as best as is possible and prevent the bad publicity and reputational damage that would follow as a result of regulatory and/or legislative punishments.

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