Analysis
5.75 Our independent examination of the material that was typically submitted in an authorised disclosure confirmed our initial view that a significant proportion of reporters were struggling to apply the test of suspicion. This has an impact on those who are the subject of a disclosure.
5.76 There was overwhelming cross-sector support for guidance on suspicion from those with reporting obligations.
5.77 Authorised disclosures which seek consent to proceed with a transaction require employees of the UKFIU to process them and reach a decision on consent. Furthermore, any transaction must be paused until consent is granted which has an impact on individuals and businesses if they are the subject of a disclosure leading to a wider economic impact. There is an enduring tension between the public interest in suspicions of money laundering being reported to the UKFIU and the need to ensure commercial transactions are conducted efficiently as well as the individual's right to enjoy banking facilities and preservation of their reputation.
5.78 Providing guidance on the suspicion threshold will have a number of benefits:
(1) it would raise awareness amongst the reporting sector and educate reporters about how to apply the suspicion test;
(2) by creating greater awareness of legal obligations and continuing education, statutory guidance would help to reduce the current proportion (which our analysis suggests is about 15%) of authorised disclosures which do not meet the suspicion test;
(3) it would at least retain, and might increase, the amount of raw data contained in authorised disclosures;
(4) it should promote greater consistency within organisations and across sectors and encourage the provision of more detailed intelligence;
(5) by promoting greater consistency in the information that is provided in the SAR, and the manner in which it is presented, the guidance would enable both UKFIU staff and law enforcement to ascertain more quickly the nature of the suspicion and key details underpinning it;
(6) guidance would reduce the prospect of unnecessary delay in the process of seeking consent and reduce the amount of resources used by the UKFIU to process such disclosures;
(7) it would reduce the risk of poor decision-making, in particular reporters relying on discriminatory factors in risk assessments and decisions on suspicion; and
(8) it would increase fairness and consistency in decision-making by reporters and lessen the impact on those who are the subject of a disclosure by safeguarding against unnecessary reports.
5.79 The idea of a prescribed form was considered by most consultees to be a positive step. Of those who disagreed, there were some misunderstandings evident in the consultation responses. For example, some appeared to be unaware that POCA already contains a power to issue a prescribed form. Any form introduced through SARs reform more generally could make use of this existing provision.
5.80 Understandably, some reporters and supervisors believed that the SARs that they lodged were of good quality and therefore no change was necessary. Unfortunately, that assertion is difficult to sustain across all sectors given that our independent data analysis of SARs demonstrated that there are serious issues with the quality of a significant proportion of those submitted.
5.81 A prescribed form simply means giving greater direction to the reporter as to the information required. It would not have to follow a tick-box format or be designed in such a way that there was no opportunity for free-form text to be included. These technical objections must fall away given they are based on assumptions about presentation which are, as yet, undecided. Beyond that debate about the practical detail, there is broad agreement in principle that reporters should be specific about the nature of their suspicion and assist law enforcement agencies as far as possible.
5.82 As the specific format has generated much debate, we recommend the introduction of a prescribed form in principle. However, in conjunction with our other recommendations, we believe that the creation of a form capable of being tailored to individual reporting sectors should be developed collaboratively between the UKFIU, law enforcement agencies, the regulated sector and their regulators and supervisors. We also acknowledge the ongoing work of the SARs reform project in this area which is providing valuable information and feedback on the best format. The idea of an interactive form which can be tailored to meet the needs of law enforcement agencies and reporters is a compelling one. We are persuaded that this is the best approach, the detail of which is best left to an Advisory Board in accordance with recommendation 3, to decide. Before making any such decision the views of those who will be required to use the form either as a reporter, an employee of the UKFIU or as an individual working in law enforcement should be taken into account.
Recommendations
5.83 In light of the above arguments, we recommend that POCA is amended to require the Secretary of State to issue guidance on suspicion. Further, we recommend that a prescribed form is introduced under the existing statutory power, the format of which is to be left to an Advisory Board.
Recommendation 7.
5.84 In accordance with recommendation 3, we recommend that POCA is amended to require the Secretary of State to issue guidance on suspicion.
Recommendation 8.
5.85 We recommend that the Secretary of State should introduce a prescribed form pursuant to section 339 of the Proceeds of Crime Act 2002 for Suspicious Activity Reports.