There were an estimated 3.8 million frauds committed last year alone, costing the economy a huge £193bn.
This is just one of the reasons the Government is pushing through the Fifth Anti-Money Laundering Directive, which comes into force on January 10, 2020. It aims to strengthen the responsibilities placed on private companies, making them part of a more concerted effort that supports the authorities in fighting financial crime.
The directive and a new Government campaign, ‘Flag It Up’, are very much focused on utilising professionals who are at the coalface of potential financial crime. This isn’t to say that professionals such as lawyers, accountants, estate agents, bankers and financial advisers are complicit in crime.
Instead, the directive and Government campaign recognise these professionals are likely to witness any suspicious financial activity because of their day-to-day jobs, and places an obligation on them to take action, rather than to ignore their suspicions.
If they do not take action and fail to report their suspicions, they leave themselves liable to hefty fines and potential prosecution and the risk of imprisonment.
A robust reporting system known as Suspicious Activity Reports (SARs) has been put in place to enable professionals to act on their suspicions and ensure these are effectively referred to the relevant authorities. This appears to be working, with the National Crime Agency’s (NCA) recent annual report about SARs showing a record number of reports were completed during the past year, helping to stop criminals accessing £131.7m.
However, the Law Commission has also previously warned that low-quality SARs are flooding the system. These reports contain little or no useful intelligence and there’s a risk they’ll waste time that could otherwise be spent tackling money laundering.
It’s important that professionals take the time to consider how they can spot suspicious financial activity and what they need to do to properly complete a SAR.
The first step is for professionals to create a risk profile for clients and question how much they actually trust the people they are acting for. This shouldn’t be based on gut instinct. It needs to be rooted in research, analysis and tangible facts.
This then needs to be backed-up with an in-depth audit of their finances. Professionals need to be confident they trust the sources of revenue their client is declaring as well as exactly what costs are being incurred.
It’s natural for lawyers, accountants and other financial professionals to take a keen interest in a client’s accounts and finances. If the client objects to this or is reluctant to answer questions and provide information, the professionals need to consider why this is the case and if it’s a deliberate attempt to cover up something that’s not absolutely legitimate.
Once they’ve done this, the professionals should also consider the client’s lifestyle. This can be achieved through online and social media research, and in basic conversations with the client and observations during meetings with them.
It’s critical that professionals adopt risk assessments at every stage of their client relationships. If professionals have suspicions and decide to complete a SAR, a good rule of thumb for doing this is to assume no knowledge and to consider whether the information you are including in the report poses more questions than it answers.
If it does, you need to do more research before submitting your report. Explicitly state your reasons for suspicions, covering who, what, when, where, why and how. Doing this in a chronological order will make the report easier to read and understand.
If you do complete due diligence, building that risk profile about your client and there are still gaps and questions unanswered, don’t be afraid to answer ‘unknown’ in the SAR. It is better to do this, rather than leaving parts of the form blank – answering ‘unknown’ helps speed up the review process.
Mark Halstead, partner at business intelligence firm Red Flag Alert