AML SARs thematic review initial findings
The Law Society of Scotland's anti-money laundering (AML) team has published the initial findings of its thematic review into suspicious activity reports (SARs), revealing positive procedures are in place across firms, but further support and guidance is needed on training and the threshold for suspicion.
The questionnaire-based thematic review of 50 selected practices examined the profession's knowledge and understanding of the SARs regime.
Following detailed analysis of the data, the AML team has released its key findings alongside guidance to help aid practices in this critical area of regulatory compliance. A spotlight on DAMLs (defence against money laundering reports) has also been published separately.
The next stage of the review will test the quality of SARs place and separate analysis of this will follow. A full report of all findings from the thematic review, along with further guidance and support, will then be published.
Key findings
For the purposes of the report, we use the following terminology:
- iSAR – an Information Suspicious Activity Report (iSAR) under the Proceeds of Crime Act 2002 (POCA) refers to a report submitted by individuals or organisations. An iSAR may also be referred to as a "Required SAR".
- DAML - a Defence Against Money Laundering (DAML) is a disclosure made to the NCA under Section 338 of POCA.
As per Legal Sector Affinity Group (LSAG) Guidance Section 16.2: “POCA applies to all persons (and therefore all legal professionals), although some offences apply only to persons within the regulated sector or to MLROs. The principal money laundering offences under POCA apply to money laundering activity which occurred on or after 24 February 2003. The failure to disclose provisions in s330, s331 and s332 apply where the information on which the knowledge or suspicion is based came to a person on or after that date.”
SARs policies, controls and procedures
20% of MLROs reviewed do not have an up-to-date National Crime Agency (NCA) SARs portal login.
To avoid any delays in reporting suspicion or obtaining a DAML, we expect that all MLROs hold an up-to-date NCA login to ensure that suspicious activity can be reported in a timely manner.
Following the introduction of the new SAR portal in September 2023, the NCA refreshed its guidance on how to complete a good quality SAR. A full, comprehensive update to its guidance is planned.
It is important to ensure that your SAR portal details remain up-to-date. Following a SAR submission, you may be contacted by law enforcement agencies. Further information on how to change your details can be found on the NCA website.
We were encouraged that 90% of MLROs advised that they do have a written internal SAR procedure and/or template.
Having a written internal SAR reporting procedure is a requirement under r.19.(4)(d) as well as LSAG Guidance section 4.8.2 .
All practices must have procedures setting out how and in what circumstances an internal disclosure should be submitted to the nominated officer (MLRO).
It was positive to learn that 84% of MLROs did record the decision-making process when choosing not to disclose a SAR to the NCA.
According to LSAG Guidance section 11.7, if an MLRO decides not to submit a SAR after an internal disclosure, they should document the reasons and keep records. This ensures compliance and can assist in future SAR submissions if suspicion arises.
As per LSAG Guidance section 16.5.2, under section 330 of PoCA, a person in the regulated sector commits an offence if they know or suspect, or have reasonable grounds to suspect, money laundering and fail to disclose this to a MLRO or the NCA as soon as practicable. Under section 331 of PoCA, the MLRO commits an offence if they fail to disclose to the NCA after knowing or suspecting, or having reasonable grounds to suspect, that someone is engaged in money laundering.
Training
55% of MLROs asked said they have never received training specifically relating to SAR reporting.
While specific training is not a requirement, specific training may be beneficial to help build knowledge and assist the MLRO to complete training to relevant staff. In addition, specific training relating to SARs may help the MLRO to identify suspicious activity leading to keeping their practice safe.
The Law Society offers an accredited AML course that covers red flags and discusses SARs throughout the entire course. There are also various external suitably qualified and experienced AML training consultants available who offer bespoke training packages to suit your practice's needs.
80% of practices told us that SARs training had been given to relevant staff within the last 12 months, an encouraging figure.
A further 18% of MLROs stated that staff SARs training had been provided, but more than 12 months ago.
r.24(1)(a) and LSAG Compliance Principle 32 states that practices must ensure AML training for partners, staff and agents, and maintain records of such training.
This training must include awareness of Money Laundering Regulations, POCA Part 7, Terrorism Act Part 3, legal professional privilege, data protection requirements, red flags and other relevant laws.
iSARs
50% of MLROs stated that they chose not to disclose an internal SAR to the NCA as their threshold for suspicion was not met.
While the threshold for suspicion is not defined within legislation, the SARs Regime Good Practice NCA Guidance states:
“some reporters reflect upon the Court of Appeal case R v Da Silva [2006] EWCA Crim 1654 in which the judge defined suspicion as:
'a possibility, which is more than fanciful, that the relevant facts exist' noting that a vague feeling of unease would not suffice”.
The majority of MLROs are aware of what should be included within an iSAR disclosure to the NCA.
LSAG Guidance Section 11.9 emphasises the importance of including accurate and complete information in a SAR to help prioritise cases and provide valuable intelligence.
Missing or inaccurate details can reduce the SAR's effectiveness and hinder subject identification. If your SAR lacks necessary information, the UKFIU may request further details or close the matter.
Include all known information in your SAR. If certain details are unknown, clearly state “unknown” in the relevant sections.
All MLROs asked were aware that a SAR should be submitted if there are reasonable grounds to know or suspect money laundering.
However, within the responses, 28% of MLROs said that they would submit a SAR to request permission to act, with 42% of MLROs stating that they would look to seek a defence.
These are not circumstances in which an iSAR would be submitted, rather a DAML should be submitted where a Defence against Money Laundering is required. We will cover this further in a Spotlight on DAMLs findings, which we will publish next week.
LSAG Guidance Section 11.5 provides further guidance on when a SAR should be submitted.
Conclusion
POCA is applicable throughout the UK and not just to regulated sector. It is therefore essential that all practices are aware of their obligations and work to ensure that relevant steps are taken internally to allow for internal SARs to be submitted.
The findings above show that practices have a good understanding of some of the key areas of compliance. However, there is further work to be done to ensure consistency and build upon existing knowledge.
Should you have any comments or observations, please reach out to aml@lawscot.org.uk.
- The Crown Prosecution - Money Laundering Offences
- LSAG Guidance
- The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
- Publications - National Crime Agency
- Guidance on submitting better quality Suspicious Activity Reports (SARs)
- National Crime Agency
Background
We announced our intention to complete a thematic review examining SARs in May 2024 in order to gain further visibility regarding the quantity and quality of SARs across the legal sector.
Fifty practices were selected to take part in the questionnaire-based thematic review. The questionnaire was completed by the MLRO, also known as the nominated officer, of all 50 selected practices.
The questionnaire was undertaken using Microsoft Forms, an encrypted form that complies with the Law Society’s data privacy standards.
AML SARs thematic review: DAML spotlight
Our AML team has highlighted defence against money laundering reports (DAMLs) as a key area of focus for firms, after finding a mixed understanding among MRLOs of the difference between an information SAR and a DAML. Check out all the findings and guidance here.
Anti-money laundering
The fight against money laundering and counter terrorist financing - the role of the legal profession.
Suspicious Activity Reports
SARs are a crucial part of UK law enforcement and are a legal obligation for those working in the regulated sector. In collaboration with the NCA, we have produced a free webinar on producing high-quality webinars.
Additional
