National Crime Agency SARs report: Implications for the legal sector
The 2018 National Crime Agency report on SARs shows that, between April 2017 and March 2018, the NCA received 463,938 SARs; of these 22,619 were DAML SARs. This is an increase of 9.6% on the previous year.
The legal sector was responsible for producing 2,660 SARs, down 12% on last year; of these 1,850 were DAML SARs.
Update on DAML requests
A Defence Against Money Laundering (DAML) request is made by an individual when they believe that in processing the transaction they will be at risk of committing one of the principal money laundering offences.
A way to remove the risk of being liable for a principal offence is to request appropriate consent from the NCA under s.335 of the Proceeds of Crime Act 2002. Appropriate consent is the same as a DAML.
Receiving a DAML does not imply that the NCA agrees to or endorses the transaction. It merely grants you a technical defence, should you wish to proceed with the transaction. It is up to you to decide if you should proceed.
DAML requests led to £57,907,067 being denied to criminals in 2017-2018, an increase as with the number of SARs received last year. Of the 2,660 SARs submitted by the legal sector, 1,850 (70%) were DAML SARs.
Implications for the legal sector
One of the key implications of the report is that the legal sector still isn’t submitting enough SARs. We do not believe that there is a right number of SARs and instead urge solicitors to make a quality SAR when they spot suspicious activity.
There are several possible reasons for the lower numbers of legal sector than banking sector SARs, but a key one is the differing structure and scale of operations in the two sectors.
The banks are responsible for submitting around 80% of all SARs, a huge 371,522.
They use algorithms and IT systems designed to raise red flags when a transaction that’s been made is unusual but not necessarily at the level of suspicion required to make a report.
Manpower then follows to make a decision on whether or not the threshold for suspicion has been reached and an official report to the NCA can be made.
The volume of transactions and the time taken to process them are very different in the legal sector, as is the in-depth approach to client relationships.
When a legal professional is suspicious of activity by their client, they must do a manual, in-depth, investigation into the money flows; an investigation which may only result in one SAR being raised - or none at all if suspicions are alleviated.
Red flags - know what to look for
When it comes to SARs, we know that here needs to be a ‘possibility, which is more than fanciful’ that the relevant facts exist before you make one.
It’s useful to know what red flags to look out for; for example, why has your client chosen you as a firm? Are they asking you to complete tasks that are outside of your normal remit? Or are they asking you to take care of some particularly complex transactions?
It could be that they decide to pay you in cash or ask you to pay out any funds you need to in intervals when it’s not strictly necessary.
If any of these sound familiar, then you should be raising an eyebrow and consulting your MLRO, and/or conducting enhanced due diligence.
How to submit a SAR successfully
Once you’ve decided that you are suspicious of a current or prospective client, you or your MLRO need to submit a SAR to the NCA.
While the NCA is encouraging the legal sector to make more SARs, reports may be unhelpful if they are not done correctly.
A key example of this is remembering to tick the ‘consent’ box if you are requesting a DAML SAR and using the correct glossary codes.
Flag it Up campaign
The Flag it Up campaign has been spearheaded annually by the Home Office since 2014.
It aims to increase AML compliance among all at-risk professions by providing resources that professionals could identify with and follow.
The key focus of the latest round of campaigning has been on submitting better quality SARs and showing the impact that money laundering can have on its victims.
Results have shown that those who were aware of the campaign and engaged in it were twice as likely to submit a SAR than those who were not aware of the campaign.
Plans for the future
The SARs programme is currently undergoing much needed and major reform.
The reform will focus on updating the processes as well as the IT systems so that better use can be made by law enforcement of the vast quantities of SARs made.
In their annual report, the NCA outlined how they hoped to redefine the process to make their UK Financial Intelligence Unit more capable of analysing the SARs they received.
They will seek to focus on law enforcement engagement and developing their partnerships with key stakeholders and existing partners.
We’ll be bringing you an update on the SARs reform programme later in the year.