All businesses have a role to play in detecting and reporting suspicious activity. The goal of these actions is to prevent criminal behaviour such as money laundering and terrorist financing.
Most countries facilitate these vital functions by allowing businesses to submit a Suspicious Activity Report (SAR). In this article, we explain more about SARs and how businesses can use them to meet their AML compliance obligations and set up a defence against money laundering.
To combat the effects of money laundering on the UK economy the government has created strict anti-money laundering regulations. One of the cornerstones of these regulations is that the UK’s anti-money laundering efforts must be a joint enterprise between the public and private sector. Suspicious Activity Reports (SARs) are a key part of this.
In this article we will look at what SARs are, when they should be submitted and how this is done.
What is a Suspicious Activity Report?
A Suspicious Activity Report is a disclosure of suspicious activity made to the National Crime Agency (NCA). SARs are official document filings that are used to inform financial authorities of potential criminal activity. They can be used to flag transactions that seem unusual, particularly where it suspected that a business or individual is involved in fraud, money laundering, or terrorist financing.
Suspicious Activity Reports are not crime or fraud reports and are not prosecutable pieces of evidence. What this means is that a SAR being submitted against an individual can’t be used as evidence in court and as such the identity of the submitter will remain completely anonymous.
Their purpose is to alert authorities to potential crimes that can then be investigated. This may be acted upon immediately, aid an ongoing investigation or contribute to a future investigation. Each SAR can be used by multiple different agencies; from HMRC investigating tax evasion to police investigating crimes associated with generating the funds. All SARs add to the NCA’s web of knowledge of money laundering and terrorism financing activities. The NCA state they currently have a database of over 2 million SARs, which are analysed to spot criminal patterns.
Data such as aliases, bank accounts, financial activity, contact details and individuals involved provide invaluable insights to UK authorities.
As methods of money laundering and terrorism financing are constantly evolving, as criminals seek to use the private sector to wash illicit funds, SARs allow authorities to detect these new methods and schemes as they arise. They can then alert the wider business community to be wary of them.
Many financial institutions must submit suspicious activity reports as part of their compliance obligations. The reporting of suspicious activity is mandatory under the Financial Action Task Force's International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation.
The data provided in a SAR is used by the UK Financial Intelligence Unit (UKFIU), an arm of the National Crime Agency (NCA).
Which Institutions Need to Be Aware of Suspicious Activity?
All businesses are responsible for the detection and prevention of financial crime under the Money Laundering Regulations 2017.
Some firms have a more explicit duty to monitor transactions and customer behaviours for suspicious activity. These include:
● Credit unions
● Stock brokers
● Money service businesses
● Dealers of precious metals, gems, and other valuable commodities.
● Insurance companies
● Mortgage companies
When is a Suspicious Activity Report Required?
Financial institutions are required to file a suspicious activity report whenever it detects an unusual or suspicious transaction involving one of its clients. Businesses generally have 30 days from the date of detecting suspicious activity to submit a SAR, however that period can be extended to 60 days if further supporting evidence is required.
As suspicious activity reports are not crime or fraud reports the threshold of acceptable suspicion is low. If you have a reasonable suspicion that a party or transaction may be involved in money laundering or terrorism financing then a SAR can be submitted.
UK businesses in the regulated sector are required to adopt a risk based approach to money laundering. If an individual or transaction fails to pass as not a risk then it may be appropriate to submit a SAR. Some of the factors to consider are:
- The amount of money involved
- Transactions over a set value
- High value international money transfers
- Unusual transactions and account activity that is out of character for a specific client.
- Is this a normal transaction for your business or this client
- Who is the ultimate beneficiary
- Is the client seeking undue secrecy
- Does the transaction involve a known high risk country
- Does the client seem to possess undue wealth in relation to their business activities
- Is the client transparent as to the source of the funds
Under The Proceeds of Crime Act 2002 and The Terrorism Act 2000 companies in the regulated sector are legally bound to submit a suspicious activity report if they have any suspicions. Should they fail in doing this and are then implicated in an investigation then there may be legal ramifications.
In most cases SARs will involve disclosing personal data about the suspect party. This does not breach confidentiality or data protection laws, so long as the NCA is the only third party this information is disclosed to.
Private individuals may also submit a SAR against an individual or business if they have reason to believe they are involved in money laundering or terrorism financing.
Who Can Submit a Suspicious Activity Report (SAR)?
Suspicious activity can be monitored and detected in a number of ways, but it is often picked up by automatic systems that banks and other financial institutions use to keep tabs on transactions. Once suspicious activity has been flagged, it is up to analysts and administrative staff to verify the risk of financial crime and to file a report with law enforcement.
Every financial institution must train their staff to recognise suspicious activity, and anyone can complete and file a SAR. In most financial organisations they will be supported by a nominated AML officer who is ultimately responsible for submitting a suspicious activity report to the authorities.
It could be, for instance, that a customer adviser at a large financial institution recognises unusual activity on a client's account. This might take the form of an unusually large transaction that does not match a pattern of behaviour or doesn't seem to make any commercial sense. The employee could then prepare a SAR online with the support of the company's appointed AML officer.
Are SARs Confidential?
The nature of SARs means that they typically involve reviewing and logging a clients' confidential personal information. It is essential for the reporting process to be confidential to ensure that the subject of a SAR is not 'tipped off'. This also means that no third-parties or media organisations should be informed of the circumstances, regardless of how prominent the parties involved may be.
Once reported, SAR documents are held in the strictest confidence and stored on a secure system. Employees that report suspicious activity are also granted special privileges that are designed to keep them anonymous.
How Do You Submit a SAR?
Suspicious Activity Reports can be submitted directly to the NCA as either a physical file or digitally. The NCA have the SAR Online System on their website where reports can be submitted. The NCA prefer that submissions be through this tool.
Where Can I Find SARs Forms?
The majority of countries facilitate SAR filing via an online system. This makes it easy to submit reports about potential money laundering or terrorist financing within the legally mandated timeframe.
Documents related to SAR filing can be found on the NCA website. The UK's electronic SAR filing system can be accessed via the UKCIU website.
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