Filing Suspicious Activity Reports (SARs) should be a priority for all law firms when presented with circumstances that alert them to the potential for money laundering.
But the very word “suspicious” is in itself, problematic, as it lacks clear definition.
It’s essential that the basis for suspicion is expressed as clearly as possible – not just because of the potential for legal action, but also because of the potential that it may be read by a client.
So, what does “suspicion” actually mean?
Unhelpfully, “suspicion” isn’t formally defined in legislation – but it has been the subject of question by the courts on several occasions.
The judge in the case of Lonsdale v National Westminster Bank plc  EWHC 1843 (QB) stated that
“The [person that suspects] must think that there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice. But the statute does not require the suspicion to be “clear” or “firmly grounded and targeted on specific facts”, or based upon “reasonable grounds.”
This suggests that the term “suspicion” is subjective, with a relatively low threshold. Suspicion must be genuine, but there’s no robust necessity for it to be based on specific facts.
With this in mind – and in line with advice published by the NCA – here are our ten tips for avoiding the potential pitfalls when reporting suspicious activity:
- Use clear and concise language, keeping the content clear, concise and simple. Avoid using acronyms and legal jargon.
The “reasons for suspicion” section of the SAR limits your input to 8000 characters, equating to around 1500 words.
- Give full and precise reasons for your suspicion of money laundering.
It’s important for the NCA to see:
- Who is doing what
- Who they are/were doing it with
- When they are/were doing it
- Why they are/were doing it
- Where they did it
- How they are doing it
- Specify all individuals and businesses, including suspected criminal property in as much detail as possible (having regard to privilege). You may not be in possession of all of the details, so you should make this clear in your report if that’s the case. Think about:
- Associated subjects
- Dates of Birth, Post Codes, Occupations
- Financial transactions.
- Specify all information giving rise to suspicion and explain how you discovered it.
- Clearly distinguish between information that you know from that which you suspect.
- Present a chronological sequence of events which support your suspicion. Be as specific with regards to dates as possible.
- Justify the basis of your suspicion – don’t simply state that it’s a cause for concern.
For example, a client’s bank account has large third-party transfers:
- explain if the client has been contacted (and if not, why not) and any explanation offered
- describe why the explanation given has not allayed your concerns
- demonstrate how the pattern of transfers/withdrawals presents suspicious circumstances.
- Explain how the activity in question differs from normal, expected operations for that customer/business sector. If the SAR implicates a professional enabler (i.e., an accountant, insolvency practitioner, conveyancer, etc.) state whether it appears that the facilitation is witting or otherwise.
- Set out the case if your suspicion relates to the transactions only, or whether it extends to the professional involved. If the SAR doesn’t relate to financial transactions, explain the activity you consider to be suspicious.
- If you are requesting a Defence Against Money Laundering (DAML) be specific about the work you are undertaking for your customer/client which you believe you will require a defence to money laundering for e.g.:
- “to buy/sell the property at (address) for (value amount)”
- “to disburse the funds between the following people …”
- “to buy/sell the (named company)”
- “to draw up contracts between party X and party Y, transfer the ownership of the (named company) to party Y, and transfer the (value of funds) to party X which is all part of the arrangement”
- “to release the funds in account A to person B”.
The regulated sector has been criticised by NCA regarding the quality of SARs. The amount of information provided is of vital importance for a number of reasons:
- Improves efficiency in processing SARs
- Poor quality SARs divert resources away from detection and investigation of crime
- Vital source of intelligence
- Contents can be a basis for legal action against the maker – Lonsdale v National Westminster Bank.
If Teal Compliance can be of any assistance in helping with your reporting obligations and procedures, please contact us at firstname.lastname@example.org