Anti-money laundering – handling suspicious activity

Accountancy service providers are key gatekeepers for the UK’s financial system. As such, they are subject to anti money laundering (AML) regulations and have a significant role to play in ensuring that their expertise and services are not used to further criminal activities.

One of the AML obligations includes identifying suspicious activity and submitting suspicious activity reports (SAR).

Chapter 6 of AML guidance issued by CCAB requires businesses to have internal reporting procedures to enable relevant employees to disclose their knowledge of suspicion of money laundering or terrorist financing (MLTF) to their money laundering reporting officer (MLRO).

The MLRO has a duty to consider all such internal reports and if the MLRO also suspects MLTF, an external SAR must be made to the National Crime Agency (NCA). Only sole practitioners, who employ no relevant employees, have a duty to submit SARs straight to the NCA.

The key elements that require a SAR is: suspicion, crime, proceeds.

Suspicion is a state of mind that falls short of actual evidence-based knowledge but is more than a mere idle wondering.

A SAR is required when there is knowledge or suspicion of money laundering or there are ‘reasonable grounds’ to know or suspect that money laundering activities are taking place. 

What is reasonable is an objective test, but it is understood as being the standard behaviour expected of someone with their qualifications, experience and expertise. In other words, relevant employees should exercise professional scepticism and judgement and, if unsure about what to do, they should consult their MLRO or if in doubt, err on the side of caution and report it to the MLRO.

Crime
Criminal conduct is behaviour which constitutes a criminal offence in the UK or, if it happened overseas, would have been an offence had it taken place in any part of the UK. Relevant employees are required to identify activities that would result in criminal proceeds. However, an innocent error or mistake would not normally give rise to criminal proceeds.

Proceeds 
Criminal proceeds can take many forms: proceeds/goods from shoplifting, overpaid invoices, illegal dividends, bribes, proceeds from breaches of overseas laws, concerted price rises, but the most common that the accountant encounters is  underpaid tax (corporation tax, income tax, VAT) as a result of over claimed expenses or undeclared sales.

In order for there to be a reportable offence, the person perpetrating the wrongdoing must have knowingly engaged in criminal activity from which he or she is expected to benefit.

View a proforma of internal SAR alongside other proforma documentation.

Below are extracts taken from the SAR annual report 2018 produced by the NCA which give examples of suspicious activities and the use of SARs:

1. A subject that has opened multiple current accounts in quick succession and used them to launder funds on behalf of others.
2. A subject deposited a high amount into their account which they alleged had come from a compensation claim, and proceeded to use the money to purchase a property. SARs reporting this activity gave rise to an investigation, which revealed that the subject had lied about the money’s true origin.
3. A SAR supplied detailed information on properties owned by the subject and a relative. The SAR highlighted concerns that the subjects were not declaring all their rental income and some of it was being diverted to third parties.
4. SARs informed that the subject had fraudulently taken out a credit card in another’s name in order to secure funds.
5. A SAR indicated that an account had received a large international payment which did not match the profile of the customer who was unemployed and in receipt of benefits.
6. A SAR raised concerns that benefit payments were being paid into an account which held a significant savings balance. An investigation concluded in the defendant receiving a suspended prison sentence for benefit fraud.
7. A SAR raised concerns that the subject’s personal account was being used for business purposes in order to evade tax.
8. An investigation into offences of fraud by abuse of position, false accounting and money laundering stemmed from concerns raised by SAR intelligence. The suspicion surrounded large amounts of credits received by accounts belonging to their customer. The combined turnover was well in excess of a normal customer profile. Documents had been falsified and, in an effort to avoid detection and raise less suspicion, the subject had opened numerous accounts with different banks and used each one for a different customer.

Submitting a SAR
The simplest way of submitting a SAR is via the NCA's SAR online system. Before submitting a report you are required to register and activate your account. The NCA has issued user guidance to help you navigate its system.

The report can also be submitted on paper but you will not receive any acknowledgment of SAR sent.

The following information should be included (if available):

• Full name and other names the subject is known by
• If the subject is a legal entity, details such as company registration number, VAT number, business type
• Addresses including post codes
• Date of birth
• The subject's occupation
• Additional information, such as phone numbers and passport or driving licence numbers
• A brief summary to explain the suspicion and then a chronological sequence of events. It is helpful to keep the content clear, concise and simple: describe the events, activities, and transactions that led to the suspicion and how/ why you became suspicious.

As a basic guide, please address the following six basic questions to make the SAR as useful as possible:

• Who?
• What?
• Where?
• When?
• Why?
• How?

Remember to include:

• the date of activity
• the type of product or service
• how the activity will take place or has taken place when documenting the reason for suspicion.