Businesses are sending thousands of low quality suspicious activity reports (SARs) that contain little or no useful intelligence, the Law Commission will tell the government today. 'Enforcement agencies are struggling with a significant number of low-quality reports and criminals could be slipping through the net,' law commissioner Professor David Ormerod QC said: ‘The reporting scheme isn’t working as well as it should.'
In a report ‘Anti-money Laundering: the SARs regime’, the commission reveals that a record 470,000 SARs were sent in 2018-2019, 10% more than in 2016-2017.
These consisted of required disclosures – where the reporter knows or suspects that someone is engaged in money laundering – and authorised disclosures, where the reporter owns or is about to deal with property which they suspect is of criminal origin.
The report reveals that, between October 2015 and March 2017, 15% of authorised disclosure SARs did not meet the threshold of suspicion, meaning 4,121 SARs should never have been submitted.
It also found that 47.6% of authorised disclosure SARs demonstrated no objective grounds for suspicion.
According to the commission, time and money is being wasted and the unnecessary reports are hindering law enforcement’s ability to investigate and prosecute crime.
The wave of low-quality reports is partly blamed on the broad definition of ‘criminal property’ in section 340 of the Proceeds of Crime Act 2002. The current definition requires that anyone suspected of laundering the proceeds of any criminal conduct must be reported.
The report adds: ‘To balance this, the opportunity to obtain consent by making an authorised disclosure offers comfort and necessary legal protection, particularly to those who may, in the course of their profession, encounter property which they are suspicious may have criminal origins.’
Unclear definitions of key terms and the threat of individual criminal liability has exacerbated the problem, the commission claims.
The report makes a series of recommendations to the Home Office. These involve the creation of an advisory board and the creation of a standardised form for SAR submissions. It also says that statutory guidance should be issued by the secretary of state in order to reduce confusion.
The commission said it expects an interim reply from the government within six months.
Ian Mynot, head of the UK Financial Intelligence Unit, said: ‘This is a comprehensive report and we will now work with the Home Office, the regulated sectors and law enforcement agencies to consider its recommendations.’
Lawyers cautiously welcomed the proposals - but said the commission should have gone further. Christopher David, counsel at international firm WilmerHale said: ‘While new, improved guidance is welcome, the commission has decided not to propose changes to the scope of reporting or the consent regime. It remains to be seen whether the changes will positively assist those that are required to file such reports and consequently improve their quality.’