In a recent piece for the Financial Times, Tom Keatinge of the Royal United Services Institute’s Center for Financial Crime & Security Studies said that as regulatory expectations have shifted towards financial institutions in combating financial crime, UK banks are now expected to file Suspicious Activity Reports (SARs).
There is a misconception that the primary users of SARs are fraud and financial investigation units, given that the information is almost entirely of a fiscal nature. Nothing could be further from the truth.
The National Crime Agency oversees the SAR reporting regime in the UK and the Financial Crimes Enforcement Network (FinCEN) similarly in the United States. However, these are often only conduits between the regulated sector and the front-facing officers who have to act on the information received.
Most SARs intelligence in the UK falls within the remit of those squads charged with investigating organized crime. These units, known initially as Major Crime Units (MCUs), take the brunt of the deluge of information coming their way. However, these specialist units have seen their numbers dwindle due to austerity imposed after the financial crash. My UK-based investigator was a member of two such units, one in Liverpool and one in Lancashire. Both saw significant cuts to their numbers.
In his FT piece, Tom Keatinge mentioned rumors that the police will soon be asking banks to commit further financial support and personnel resources into identifying cross-county crimes committed by organized crime groups.
But I have to ask the question, and so should the banks: what is the point? The police cannot deal with the SARs they already receive, so what is the chance of them dealing adequately with a likely increase in SARs numbers?
To illustrate this point further, the Financial Times published an excellent article in 2019 highlighting that police forces were already facing a record number of SARs (463,938 in 2018-19). Yet these reports generated a mere 28 criminal cases and 40 arrests.
Asking banks to spot even more potential SARs puts them between a rock and a hard place – having to generate SARs due to the regulations, knowing that the vast majority will disappear into a black hole, never to be seen again.
SARs are an integral part of the anti-money laundering systems across the globe. I am a supporter of these processes. However, their deterrent effect is compromised when wrongdoers know there is little chance of being investigated. Such is the appalling UK inaction where SARs intelligence is concerned.
Fraud and financial crimes are some of the UK’s biggest social problems, yet they have never been ranked as a Home Office policing priority. This means that chief constables of police forces are free to ignore these issues, as they are not measured against them, unlike crimes such as burglary and those involving violence.
SARs hold significant amounts of intelligence linked to the crimes of fraud and money laundering. Add the information they hold on drug trafficking, people smuggling and modern slavery, and they are a veritable policing goldmine.
The police in Britain need to get a grip over how they use this valuable and costly intelligence acquired from the regulated sector. If they do not act now, the whole UK SARs regime will fall into the abyss.
With thanks to Tony McClements, Senior Investigator at Martin Kenney & Co, for his assistance with this post. He served for 33 years with UK police forces and has specialized in Fraud & Financial Investigation since 1998. He is also a lecturer in these subjects at the University of Central Lancashire (UCLAN).