The right number of SARS, how do you strike the right balance?
AML Services Manager
On the 25th of January, 2023, the National Crime Agency published the latest statistics relating to suspicious activity reports (SAR). It makes an insightful read.
SAR - Suspicious Activity Report alerts law enforcement that certain client or customer activity is suspicious and might indicate money laundering or terrorist financing.
The data shows an apparent disparity across industry sectors. While the legal sector increased the overall amount of SARs submitted in the previous year by 644 additional reports, it only accounts for 0.32% of the total SAR submissions. The granular data confirms that the banks submitted over half a million SARs, accounting for 70.77%.
The UK Financial Intelligence Unit (UKFIU) does not comment on the relative volume of reports from different sectors. It is for the sectors and their supervisors to assess if the volume of SARs submitted is proportionate to their sectors' risks.
The National Risk Assessment confirms that the legal sector is at high risk for money laundering and that it must remain a focus for firms in regard to risk exposure. For a long time, we have read and heard many reports in the media and different sources about the regulated sector's role in facilitating money laundering and not doing enough to prevent it.
If we were to focus on the numbers, there are 9,550 firms regulated by the SRA as of February 2023. The legal profession, in total, submitted 2,859 from April 2021 to March 2022, which equates to roughly three SARS per firm. Interestingly the number of law firms for March 2022 was, in fact, higher, 9,813, which further negatively impacts the figures. The SRA recorded the total number of solicitors on the roll as 220,069, of which 156,405 were practising in December 2022. This does not even equate to one SAR each.
When we put these figures down in black and white, it is clear that on the surface, there does not appear to be a lot of SARs submitted by the legal sector.
What is the right number of SARs a firm should be submitting at any given time?
It is fair to say that there isn't a right number of SARs. Still, given the comparison drawn in the data, there is an ongoing concern about underreporting from law enforcement and, indirectly, the government.
There has been much talk about reasons solicitors may be underreporting. The view is often led by where the opinion is sought from.
One view is that solicitors only report when they have to, and financial institutions report defensively. In this theory, banks would be seen to be over-reporting.
Another view is that the legal sector provides good quality SARS when they have enough information to meet strict thresholds; some further suggest that there is a disparity in how the sectors interpret the thresholds of 'know' or 'suspects'.
The previous Chair of the Law Society's Money Laundering Taskforce, Amasis Saba provided some interesting comments to the NCA on this exact topic;
“Some of the frustrations of the legal sector when the regime is viewed solely as a numbers game. There is little recognition of the fact that a lot of the work of the sector goes unsung because work and potential clients are turned away but, very correctly and subject to careful review, are not reported due to privilege. At the same time, valuable resources are wasted with reports which provide next to no value to law enforcement to ensure technical compliance”.
Questions have been raised previously over the quality of the SARS from the legal sector. However, this was firmly disputed by the SRA and it is encouraging to see such positive feedback.
Quality of suspicious activity reports at firms
The SRA stated in their latest AML report (Oct 2022) that they reviewed a sample of SARs submitted by firms to the NCA, and they found that, on average, firms submitted two defence against money laundering (DAML) SARs and one information SAR. This coincides with the statistic above of how many SARS were submitted vs the number of regulated firms.
The SRA also cast light on the fact that they did not find significant quality issues as suggested by others. Most of the SARs that were reviewed (from 36 firms) were written in a comprehensible manner. They identified what the reporter thought to be the proceeds of crime and described the legal work involved, the parties involved and the transaction.
Key areas where firms can still improve their SARS:
Use of the glossary codes.
Describe the criminal act that they were seeking a defence against.
Include as much accessible information as possible such as phone numbers and email addresses.
Watch this webinar where the SRA and the NCA help firms work through when to report concerns to NCA and how to submit a good quality SAR.
Read the NCA guidance on submitting better-quality SARs.
Firms must recognise that the regulators do have a sharp focus on SARs. The regulators themselves are being asked about SARs by their supervisory body (OPBAS). As such, they are asking those they regulate. One of the potential risks here is that the number of SARs submitted by a firm demonstrates that a firm's staff are good at spotting red flags, criminal behaviour and suspicious activity, as without spotting certain things, a SAR would not be needed. In my experience, it is fair to say that SAR submission only shows a small snapshot of a very diligent process. On this basis, it is wise for firms to maintain records of queries and conversations directly with the Money Laundering Reporting Officer or Compliance Team. Many queries, support and enquiries happen daily in a law firm that does not ultimately result in a SAR to the NCA.
Encouraging our staff to engage with compliance and feel confident to raise queries actively enables a firm to retain the details. Supporting the firm in providing evidence to the regulator that the firm is taking its obligations seriously and is alive to various risks and issues impacting the firm far beyond SAR submissions alone.
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