How to Report Money Laundering
Money laundering undermines financial systems, fuels organised crime and corrodes the integrity of economies worldwide, so knowing how to report potential cases of money laundering, by completing a document known as a “Suspicious Activity Report” (SAR), is essential in the fight against this financial crime. A lack of knowledge on how to report potential money laundering or improper documentation could lead to the crime failing to be prevented and could give rise to regulatory challenges for you and your firm.
So, when should you report suspicious activity and who do you report this to?
How Much of an Issue Is Money Laundering?
Money laundering is a significant and pervasive issue, not just in the United Kingdom, but on a global scale too. The worldwide economy, and the financial systems within it, are at risk of this crime, and addressing the challenge of money laundering requires a concerted effort from governments, law firms, accountancy firms, financial institutions, regulatory bodies and the wider public.
The National Crime Agency (NCA) reported that the UK Financial Intelligence Unit (UKFIU) receives over 460,000 SARs a year, representing the extent to which money laundering is perceived to occur. However, the cases of money laundering which are unreported, or not documented correctly, pose equally as large a threat to financial systems, so it is critical to understand how you can report suspicion.
The Solicitors Regulatory Authority (SRA) is known to publicly reprimand firms (and even the individuals within those firms) for failing to have satisfactory controls in place for managing money laundering risks, even when money laundering hasn’t been suspected. Therefore, familiarising yourself with the steps of how to report money laundering is an essential element of maintaining your firm’s AML compliance.
What Steps Should You Follow for Reporting Money Laundering?
There is a typical process to adhere to when reporting money laundering, and this must be something which you and those around you are familiar with. Here are some suggested steps to follow:
Recognise Suspicious Activity
It’s very helpful to be able to recognise red flags which could indicate potential illicit financial activities. It is important to note that not all behaviour that seems slightly unusual indicates the presence of money laundering but, as stated in R v Da Silva [2006] EWCA Crim 1654, the threshold for suspicion is low. The Law Society states that you have a reportable suspicion if you think “there is a possibility, which is more than fanciful, that the relevant facts exist”. Amongst other red flags, potential situations to look out for include:
- Unusual transactions
- Unusual or secretive clients
- Unusual source of funds
- Lack of transparency
- Suspicious track records
- Complex financial structures
Understand Reporting Obligations
Make sure you’re familiar with the anti-money laundering (AML) procedures as well as your moral and legal obligations to report suspicious behaviour. All financial and legal institutions are required by law to implement robust AML procedures. These include reporting suspicions to the relevant authorities (these will be mentioned later). However, those who are not affiliated with law firms, accounting firms and financial institutions can also report suspicions of money laundering directly to the authorities or through online reporting platforms.
Gather Information
When reporting suspected money laundering, you should provide as much relevant information as possible to aid investigators with their inquiries. Useful details to make note of may include;
- Names and addresses of the individuals or entities involved
- Description of the suspicious transactions or activities
- Dates, times, and locations of the transactions
- Any supporting documentation, such as bank statements
- Additional context or background information that may help investigators understand the nature of the suspicious activity
The National Crime Agency (NCA) uses a series of “glossary codes” which help them process a suspicious activity report (SAR) accurately and efficiently. These glossary codes should be inserted at the start of a SAR in the “reason for suspicion” section. For more detailed information on these codes, consult the NCA’s SAR glossary codes booklet.
Report to Your MLRO
Any organisation that is at risk of being used for money laundering activities must have an appointed Money Laundering Reporting Officer (MLRO). This is particularly important for businesses within the financial, legal and accounting sectors, as they are considered at a higher risk of exposure to money laundering.
You should consult with your MLRO if you’re concerned about colleagues, clients or any other unusual activity within your organisation. Once you have made a disclosure to your appointed MLRO, they will review the facts and give advice on the next steps to take. Your MLRO may complete a SAR and submit it to the NCA if they believe there is a potential for money laundering. If you suspect that a transaction may involve criminal property, you need to request a defence against money laundering (DAML) from the NCA and this can also be done through your MLRO.
If you have suspicion and don’t make a report, you risk committing a principal money laundering offence or a failure to disclose offence, depending on whether you carry out regulated or non-regulated work.
Report to the Authorities
Your MLRO will deal with the reporting of the suspected money laundering through a SAR. When making a report, be prepared to provide detailed information and cooperate fully with investigators. Your report may contribute to ongoing investigations or help authorities uncover broader money laundering schemes.
Protect Yourself
Reporting suspicions of money laundering may involve risks, particularly if you expose illicit activities involving powerful individuals or criminal organisations. Take steps to protect your safety and confidentiality when reporting suspicious activities. Depending on the circumstances, you may choose to seek legal advice or report anonymously through whistleblower protection programs, where available.
Stay Vigilant
Combating money laundering is an ongoing battle that requires sustained vigilance from all members of society. Stay informed about the latest trends and techniques money launderers use, and remain vigilant for any signs of suspicious financial activities in your professional interactions. By staying alert and reporting suspicions promptly, either to your MLRO or the relevant authorities directly, you can play a vital role in safeguarding the integrity of the financial system and fighting financial crime.
Who Can File a SAR?
Although typically submitted by the MLRO, a SAR can be filed by any individual within a firm who is at greater risk of money laundering, such as those within the financial and legal institutions. SARs should be submitted as soon as possible after encountering suspicious financial behaviour, thereby helping to reduce the chances of the crime causing further damage.
Avoiding “Tipping Off”
Avoiding "tipping off" is a crucial aspect of AML controls. Tipping off occurs when an individual - knowingly or unknowingly - informs a suspect that they are under internal or external investigation for suspicious financial activities. This can compromise the investigation and allow the suspect to alter their behaviour or even conceal evidence. To prevent this, organisations and their employees must handle SARs with the utmost confidentiality, “locking files down” to protect sensitive information.
Even within your own organisation, knowledge of a suspicion should be handled on a need-to-know basis. Employees should refrain from discussing suspicions or the filing of a SAR with the person involved in the suspected activity or with any unauthorised third parties.
Training programs should be in place that emphasise the importance of discretion and the legal repercussions of tipping off, ensuring that all staff understand their role in maintaining the integrity of AML procedures.
Is Your Law Firm Compliant With the Latest Money Laundering Regulations?
This is a question firms should be regularly asking themselves; if the answer is “no” or you are unsure, PDA Legal are here to change that. Our AML services include consulting, auditing, gap analysis and training, to support you and your business to manage risk. Contact us today to discuss how we can help your business.
