The latest Annual Report of the NCA’s UK Financial Intelligence Unit (UKFIU), published this week, makes interesting reading. The UKFIU is responsible for receiving, analysing and disseminating intelligence submitted through the Suspicious Activity Reports (SARs) regime and its role is to alert law enforcement agencies, both at home and abroad, to potential instances of money laundering and terrorist financing. The reporting period in question, ie the years 2020-21 and 2021-22, covers the pandemic and the recent introduction of sanctions against Russian-related entities and individuals, both factors perhaps which help explain the notable increase in SARs recorded.
The headline data shows that the demands on the unit have increased significantly in terms of volumes. There was a 21% increase in SARs received in the year ending 31 March 2022, with 901,255 SARs received and processed. That represents a record high.
The unit also reports that £305.7M in funds was denied to suspected criminals as a result of Defence Against Money Laundering (DAML) requests – a 120.6% increase on the £138.6M denied in 2020-21, although it is noteworthy that the number of DAMLs received decreased by one-fifth in this period, despite the increase in funds. This perhaps suggests that those in the regulated sector (including lawyers, financial services firms and estate agents) are submitting better quality, and possibly better focused, DAMLs. Updated NCA guidance has undoubtedly played a big part in this.
The report further shows that the trend of reliance on tools such as account freezing orders (AFOs) is continuing. The value of assets the NCA restrained, forfeited or froze by way of AFOs as a result of refused DAML requests rose sharply last year, from £60M to £114M. While the use of these tools can play an important role in fighting crime, there are risks, too: for example, there is a low threshold to overcome in order to obtain AFOs from magistrates, and they are usually granted without notice to the affected parties, despite their potentially devastating effects. In addition, challenging an AFO can be difficult, with the burden of proof on the applicant to demonstrate with compelling evidence the clean origins of the funds in question.
The NCA has made heavier use of the moratorium extensions introduced in the Criminal Finances Act 2017, which increases to six months the overall period during which the NCA can withhold consent for a transaction to proceed following receipt of a SAR. This clearly allows it to conduct a greater number of complex, multi-agency investigations and ultimately deny more assets. We can expect this trend to continue, the downside for those submitting SARs being the need to fend off enquiries from increasingly agitated individuals whose accounts may remain in limbo for extended periods of time.
Given the significant increase in the total number of SARs submitted for the reporting period, it is interesting to examine where exactly this increase has come from. It seems the relative volume of reports from the various sectors covered has remained almost static, with two notable exceptions. There has been a decrease in the proportion of reports coming from banks, and an increase in the contributions from those who are not subject to the Money Laundering Regulations, the latter perhaps illustrating better awareness of the need to be vigilant about the risk of money laundering across the general population.
The UKFIU has undertaken a significant transformation since its last annual review with new methods of working and new teams. This has included an uplift in staff to more than 150, and the unit has further hiring plans in the next financial year to drive increased analysis of SARs reports. The UKFIU also now has a dedicated team working with the NCA’s new Combatting Kleptocracy Cell (CKC) aimed at tackling high end money laundering and sanctions evasion.
Overall, this year’s UKFIU report indicates that the SARs regime has consolidated its role as a vital component of the UK’s fight against financial crime. AML compliance is gradually becoming embedded as a part of business as usual for regulated firms; however, the need for them to understand how to submit effective SARs – including DAMLs – is more important than ever.
This article was first published in the Maritime and Commercial Money Laundering Bulletin on 25 January 2023 and is available here.