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FATF 2018 Report – UK has robust AML regime but must do more with SARs

  • United Kingdom
  • Fraud and financial crime
  • Litigation and dispute management

10-12-2018

The Financial Action Task Force (FATF) has published its 2018 mutual evaluation report of the UK’s anti-money laundering and counter terrorist financing (AML/CTF) regime, following its assessment of March 2018. This report is a comprehensive assessment of the effectiveness of the UK’s AML/CTF regime and its compliance with FATF recommendations. An executive summary of the report published by FATF can be found here.

Noting that the UK faces a significant risk of money laundering and terrorist financing (ML/TF), due to large volumes of funds which flow through the UK financial system, the key points from the report are as follows:

  • FATF concluded that the UK has a well-developed and robust regime to combat ML and TF with prosecutions and investigations aggressively pursued, including 7,900 investigations, 2,000 prosecutions and 1,400 convictions annually for standalone money laundering, or where money laundering is the principal offence.
  • Criminal offences are clearly established and risks within the UK regulated sectors have been identified and are well understood, including the key areas of ML/TF risk identified in the UK’s national risk assessment 2017.  
  • A robust and well established confiscation regime is in place and is pursued as a matter of policy, with £1bn recovered since 2014.
  • The UK is a leader at designating terrorists at a UN and EU level and has taken steps to improve the overall effectiveness of sanctions programs within the UK.
  • The UK is a global frontrunner in corporate transparency and beneficial ownership requirements, although some action is needed in order to ensure that the information on the Persons with Significant Control register remains up to date and accurate.
  • Whilst authorities have significant and powerful tools available to investigate and prosecute ML/TF offences, the UK’s Financial Intelligence Unit (FIU) needs a substantial increase in both human and information technology resources. This is identified as a priority action point with more sophisticated IT being needed to fully realise the intelligence which could be gained from suspicious activity reports (SARs). 
  • Whilst there is a SAR regime in place a policy decision has meant that the UK FIU’s role in strategically analysing such reports has been limited which calls into question whether the value of such reports is being fully realised in ML\TF investigations. This gap is not adequately filled by law enforcement agencies and supervisory bodies which have access to the FIU database. The report notes that the UK SAR regime needs to be reformed and modernised in order to improve the quality of intelligence being provided to authorities. We note that the Law Commission has undertaken a wide-ranging consultation on the UK’s SARs regime and is due to report in 2019.  
  • In the context of SARs it was noted that there is significant under reporting by some regulated sectors including lawyers, accountants and company service providers. 
  • Supervision is inconsistent across regulated entities within the UK and the intensity of such supervision needs to be in line with the risks identified in the UK’s AML/CTF national risk assessment. In was noted that the Financial Conduct Agency (FCA) should consider how it can ensure an appropriate level of intensity of supervision across all of the entities which it supervises (a pool of over 19,000 entities) rather than just focusing on a core number of large, high risk entities.
  • The report also notes that whilst the FCA has a good understanding of ML/TF risk at a national and sector level it did not demonstrate the ability to develop an accurate picture of risk at a firm-specific level. The same was noted for Her Majesty’s Revenue and Customs (HMRC), with the Gambling Commission singled out as a supervisor which demonstrated a very strong understanding of risk at both a sector and firm level. 

In view of the UK’s deliberate policy decision to limit the role of the FIU in undertaking operational and strategic analysis, it is not surprising that FATF has called into question whether suspicious activity report (SAR) data is being fully exploited in a systematic and holistic way and providing adequate support to investigators. FATF has recognised that, whilst high-quality SARs data is being produced by some sectors, not enough is being done to ensure the proper interrogation of that raw material. We also see repeated the common complaint that the regulated professional services sector (including lawyers and accountants) must do more to report suspicions. These are key areas of improvement for the UK Government and we await the Law Commission’s findings next year for meaningful suggestions as to what systemic improvements could be made to mitigate these limitations, aside from the obvious benefit that increased resourcing would bring.

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