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Suspicious Activity Reports (SARS) during the coronavirus pandemic

Financial, Executive and Professional Risks (FINEX)
COVID 19 Coronavirus

By Joanne Cracknell | November 24, 2020

In this article we provide insights into best practices for submitting your SARS report during the pandemic.

The coronavirus (COVID-19) pandemic has impacted every walk of life causing unprecedented global challenges including economic disruption and human suffering. It is not only individuals and businesses who have adapted to the challenges the pandemic brings, criminals too have adjusted their modus operandi to take advantage of these challenges, resulting in an increase in COVID-19-related crimes1 over recent months. This article looks at the current situation and details how to correctly report any knowledge or suspicion of a person engaged in money laundering or dealing in criminal property to the National Crime Agency (NCA).

As a result of the restrictions imposed following the UK lockdown in March, there have been changes in financial behaviours and patterns, with many businesses and individuals turning to online banking and remote transactions.

As an inevitable consequence of the pandemic, uncertainty has caused financial markets to become volatile and we are witnessing the first recession in the UK since the 2008 Financial Crisis. With an economic downtown comes an increased exposure to money laundering risks, as criminals seek to invest their proceeds of crime in property or businesses to conceal their true origins.

It is crucial that the legal profession remains vigilant during these challenging times. Firms must be alive to the red flag warning signs and comply with their regulatory and legislative obligations including reporting suspicious activity to the NCA.

The NCA recognises the risks presented by COVID-19 and has been active in sharing observations by the United Kingdom Financial Intelligence Unit (UKFIU) around COVID-19 and suspicious activity reports (SARs)2. The UKFIU is responsible for receiving, analysing and disseminating financial intelligence received via the submission of SARs, which provide law enforcement with valuable information about potential criminal activity and are a vital weapon in fighting financial crime.

The UKFIU received 478,437 SARs from April 2018 to March 2019 (an increase of 3% from the previous year) of which 2,774 were submitted by the legal sector (i.e. 0.58% of the total)3.

There has been a rift between law enforcement and the legal profession over the issue of SARs ever since the profession came within scope of the money laundering regulations. Law enforcement agencies have been critical of the legal sector for its alleged failure to submit SARs and for the poor quality of submitted reports4. However, efforts are being made to build bridges and the UKFIU has been working with the Law Society (and other regulated sectors) to both increase awareness of what the UKFIU does and learn more about the challenges the legal sector face in submitting defence against money laundering (DAML) reports.

The UKFIU is launching a programme of educational webinars5 and podcasts offering guidance on the SARs regime, which will be very much welcomed by members of the legal profession. The first of these webinars went live in September6.

The UKFIU received 478,437 SARs from April 2018 to March 2019 (an increase of 3% from the previous year) of which 2,774 were submitted by the legal sector (i.e. 0.58% of the total)3.

The current threats and vulnerabilities which criminals are seeking to exploit in order to move or conceal their proceeds of crime7 could arise from:

  • Inadequate customer due diligence procedures
  • Increased misuse of online financial services and virtual assets
  • Exploiting economic stimulus measures and insolvency schemes
  • Increased use of the unregulated financial sector
  • Misuse and misappropriation of domestic and international financial aid and emergency funding
  • Criminals expanding into new cash-intensive and high-liquidity lines of business in developing countries

FinCen Files

The FinCen files made the headlines in September 2020. Documents were leaked from the US Financial Crime Enforcement Network (FinCen) which were investigated by the International Consortium of Investigative Journalists (ICIJ), (which brought us the Panama Papers and the Paradise Papers) and Buzzfeed News. The leaked documents suggested that in excess of 2,100 SARs identified suspicious transactions totalling US$2 trillion moving through multiple global financial institutions during the period 1999 to 20178. The story highlighted the importance of being aware of the threats from money laundering and, in particular, being able to identify your client and the source of their funds.

A number of large international banks have been criticised for enabling high values of criminal money to be moved around globally. The data leak from the FinCen Files raises the question about the adequacy of anti-money laundering processes, especially about how stringently client due diligence procedures are being followed. This is particularly the case when verifying the identity of clients, especially in relation to beneficial owners and understanding the true origins of the funds being used on transactions by clients. These concerns are not surprising having been originally raised following the Panama and Paradise Paper data leaks and resulted in changes to money laundering regulations. The new measures sought to tighten the weaknesses identified in existing anti-money laundering procedures by depriving criminals of their illicit proceeds.

How to submit better quality SARs

Reporting suspicious activity to the NCA provides law enforcement agencies with valuable information about potential criminal activity, which helps in the fight against financial crime, as well as protecting you from the risk of laundering criminal money. Furthermore, it is a legal requirement that that any suspicions are reported to the NCA.

To assist organisations with submitting better quality SARs, in May9 the NCA updated its Guidance. The Guidance recommends that you provide as much information as possible when making a report. If you do not have information for a particular field then say so. The NCA asks that you type the word ‘UNKNOWN’. Do not leave any field blank, insert N/A or * (asterisk), ? (question mark), or insert any other symbol in the field.

The Guidance advises you to clearly, concisely and accurately summarise your suspicion in chronological order and avoid using jargon. If you are referring to bank details do not include any hyphens or backslashes in the sort code and account number. If you have previously submitted a SAR, include the reference number previously provided to you by the UKFIU. Before submitting the SAR check the spellings of names, make sure you have the correct postcodes, dates of births and bank account details etc.

In summary the Guidance issued by the NCA aims to assist money laundering reporting officers when they submit SARs by recommending the following steps be taken:-

  • Clearly identify the criminal property
  • Identify the reason for suspecting the property is criminal property
  • Identify the proposed prohibited act(s) you are seeking to undertake involving the criminal property
  • Identify the other party/parties involved in dealing with the criminal property. This should include dates of birth, addresses (including post code) and nationality where appropriate, as this is vital for correctly identifying individuals
  • Explain in as much detail as possible the reasons for the suspicion in relation to money laundering by using the following diagram:
This graphic illustrates the detail you should include by answering questions such as; who, what, where, when, why, how.
Illustration to portray the detail you should include if suspicious of money laundering activity.
  • If you are reporting a suspicion involving corporate entities the Guidance advises you to include:-
    • full name and designation e.g. Limited, SA, GmbH
    • trading name
    • registered number
    • VAT and/or tax reference number
    • country of incorporation
  • If you are submitting a report about a trust the Guidance asks you to include the full name of the trust, its address and the nature and type of the trust.

The UKFIU can also refer any poor quality SARs to the Solicitors Regulation Authority for their consideration and, if necessary, action. The UKFIU can close your case if you fail to include information which:-

  • sets out the basis for your knowledge or suspicion
  • describes the property that you know, suspect or believe to be criminal property in addition to its whereabouts
  • describes the prohibited act
  • identifies the person(s) you suspect or know is involved in money laundering

It is clear that the threat of money laundering is still very much prevalent and it is important the legal profession continue to submit SARS, reporting any knowledge or suspicion of money laundering. By ensuring the information is clear, concise and accurate, this will enable law enforcement to action SARs more efficiently and avoid any unnecessary delays.

Footnotes

1 Financial Action Task Force. (May 2020). COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses. Retrieved from: https://www.fatf-gafi.org/media/fatf/documents/COVID-19-AML-CFT.pdf

2 National Crime Agency (2020). COVID-19 Suspicious Activity Reporting. Retrieved from: https://www.nationalcrimeagency.gov.uk/who-we-are/publications/453-covid-19-suspicious-activity-reporting/file

3 National Crime Agency. (2019). UK Financial Intelligence Unit Suspicious Activity Reports Annual Report 2019. Retrieved from: https://www.nationalcrimeagency.gov.uk/who-we-are/publications/390-sars-annual-report-2019/file

4 Slingo, J. (2019). 'Low quality' suspicious activity reports swamping system - Law Commission. Retrieved from: https://www.lawgazette.co.uk/news/low-quality-suspicious-activity-reports-swamping-system-law-commission/5070644.article

5 National Crime Agency. (2020). SARs IN ACTION Issue 6 - July 2020. Retrieved from: https://nationalcrimeagency.gov.uk/who-we-are/publications/469-sars-in-action-july-2020/file

6 National Crime Agency. (2020). SARs IN ACTION Issue 7 -September 2020. Retrieved from: https://nationalcrimeagency.gov.uk/who-we-are/publications/474-sars-in-action-september-2020-1/file

7 Financial Action Task Force. (May 2020). COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses. Retrieved from https://www.fatf-gafi.org/media/fatf/documents/COVID-19-AML-CFT.pdf

8 Shiel, F. and Hallman, B. (2020). Suspicious activity reports, explained. Retrieved from the International Consortium of Investigative Journalists website: https://www.icij.org/investigations/fincen-files/suspicious-activity-reports-explained/

9 National Crime Agency. (2020). Guidance on submitting better quality Suspicious Activity Reports (SARs). Retrieved from: https://www.nationalcrimeagency.gov.uk/who-we-are/publications/446-guidance-on-submitting-better-quality-sars-1/file

Author

Associate Director - Finex PI UK Legal Services

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