Efficacy Of The Suspicious Activity Report Regime

The Suspicious Activity Report (SAR) simply refers to a piece of information which alerts the relevant authorities of any suspicious customer activity [1] . This suspicious activity may be identical to money laundering or terrorist funding behaviour which may indicate an ongoing or just completed criminal or terrorist activity. Examples of such suspicious activity may include unusually large or frequent deposits/withdrawal from an account or the cash purchase of high value assets. [2] These reports are generated by individuals or corporate persons operating in the UK regulated sector e.g. banking institutions, building societies, insurance companies and are sent to the country’s Fraud Intelligence Unit (FIU) which is the Serious Organised Crime Office (SOCA). The reports themselves contain information regarding the subject of the disclosure (the customer/client), details of the transaction under suspicion and the reporters reason(s) for suspicion. This information is then processed by SOCA and where necessary, subsequently passed on to law enforcement agents for action. The main purpose served by this reporting system is three fold: (1) to act as a deterrent to money laundering and its predicate offences; (2) to facilitate the detection and subsequent sanctioning of money laundering and predicate offences after they have been committed; and (3) to disrupt the actual commission of these crimes while in progress [3] .

The SARs regime in the UK can be traced to its early beginnings in 1986 [4] . At that time it was primarily concerned with the offence of drug trafficking and offered immunity from prosecution over a charge for money laundering to reporters who made disclosures of their suspicions to a relevant authority. [5] From then on the regime has been shaped by subsequent domestic, regional and international regulations and statues. More significant to the sustained development of this reporting system would be the establishment of the Financial Action Task Force (FATF) by the Organisation for Economic Cooperation and Development (OECD) in 1989 [6] which is widely recognised as the foremost international body responsible for the formulation, review and recommendation of anti-money laundering policy worldwide. [7] 

This purpose of this paper is to offer a critical examination on the efficacy of the current reporting regime and consider the extent to which it complies with established international standards. A brief overview of the development of the domestic legislative framework for reporting requirements will be provided after which the evaluation of the regime’s efficacy will be considered along with some of the difficulties facing the current system. and in conclusion, consider some ideas or recommendations on how the system can be improved.

Development of Legal/Regulatory framework of the SARs Regime

The reporting requirement is an integral component of the various anti money laundering initiatives both domestic and international because of its very important role of providing information on suspicious activity from which money laundering activities can be detected, prevented and/or sanctioned. This means the development of the SAR regime in the UK will be more satisfactorily discussed in the context of the development of the domestic anti money laundering regulatory framework. Leong, in her article [8] identified the apparatus of civil, criminal and regulatory law as being involved in the legislative and regulatory anti money laundering framework with the main actors being;

the Government, which defines criminal offences, sponsors the primary legislation and makes the money laundering regulations;

the Financial Services Authority (FSA) which formulates regulatory rules to combat money laundering; and

the Joint Money Laundering Steering Committee (JMLSC) who’s aim is to issue guidance on the interpretation and application of the money laundering regulations and on best practice. [9] 

As previously mentioned, the SARs regime has been present in the UK since the enactment of the Drug Trafficking Offences Act of 1986 which established the laundering of proceeds of drug trafficking as a criminal offence. [10] Under this Act, the involvement of professionals in preventing the exploitation of the financial sector by drug traffickers was achieved through the offer of immunity from prosecution over a charge for money laundering to those who made disclosures of their suspicions to a relevant authority. This reporting system was promptly regarded as defensive or subsequent disclosure [11] . A situation where disclosure was required only after the completion of the act as long as it was made of the disclosers own free will and as soon as it was reasonably practical to do so. Not a few commentators saw this sort of reporting requirement as illogical as it was difficult to rationalise the idea of allowing such a defense after the completion of all elements of the crime. The difficulty faced by the reporting requirements under this Act was in striking the balance between the risks of precluding critical information that could lead to subsequent arrests/convictions based on the absence of any incentive of immunity offered to the discloser, and the fact that the immunity offered did not in itself ensure the cessation of money laundering offences.

The Criminal Justice Act (CJA) 1993 as introduced gave rise to the implementation of the 1991 EC Directive on the Prevention of the use of the Financial System for Purpose of Money Laundering [12] also known as the First Money Laundering Directive (1991) and although it was still narrowly focused on combating the laundering of drugs proceeds through the traditional financial sector, the scope of the directive was extended to impose certain obligations on financial sector firms. More significantly, Section 18 of the 1993 Act introduced a mandatory reporting requirement for professionals where in the course of their business, they become aware of or suspect that another person is engaged in drug money laundering. This was giving effect to provisions under the 1991 EC Directive [13] which placed a duty to report suspicious transactions to the relevant national authorities either on request or on the institution’s own initiative without alerting the customer [14] . The wording of Section 18 specifies a ‘person’ and indicates that contravention is not limited to institutions. This is confirmed by the criminal sanctions prescribed for non-compliance. This clearly showed an improvement from previous legislation which only provided for defensive disclosure as a preventive measure.

The Money Laundering Regulations (MLR) 1993 supplemented the CJA 1993 in further fulfilment of the UK’s obligations under the 1991 EC Directive and the main obligation to financial institutions with regards to the reporting requirement was under Regulation 14 which provided for the establishment and maintenance of internal reporting procedures. It particularly required the appointment of an internal Money Laundering Officer (MLO) who would be responsible for receiving and processing reports of suspicious activity and thereafter making a judgement on whether the information received gives rise to sufficient suspicion or knowledge to warrant a further external report to the national authority. This requirement has been described as a form of quality control and relied heavily on the qualitative judgement of the MLO. [15] 

Recommendations

Efficacy of SARs Regime in the UK

Also see

Fleming Report

What is the goal of SARs? Defining the objective in relation to ML

How do we measure efficacy? Reduced arrests? Reduced reporting?

Difficulty in isolating the crime reducing efficiency.

Lander Report

Strengths/weaknesses/recommendations?



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