Suspicious Activity Reports: signs of quality over quantity?

03 April 2024

On 28 March 2024, the UK Financial Intelligence Unit (UKFIU) of the National Crime Agency published its annual statistical report covering April 2022 – March 2023 (the Report). This sets out a number of interesting statistics relating to the UK’s Suspicious Activity Reports (SARs) regime. 

The Report highlights a 5% fall in the total number of SARs received by the UKFIU, down from 901,255 last year to 859,000. This bucks the recent trend of significant year-on-year growth in the number of SARs submitted, which some commentators had suggested was reaching unmanageable levels. Notably, the number of SARs submitted by banks, in particular high street banks, fell by 11.94%, significantly ahead of the 5% general decrease. The Report credits this as the main reason for the overall reduction – banks are still responsible for 65.31% of the total number of SARs submitted. 

The number of Defence Against Money Laundering (DAML) SARs – which are submitted to seek a defence to one of the principal money laundering offences in the Proceeds of Crime Act 2002 (POCA) – also fell by 11.2%, down from 83,300 last year to 74,431. The proportion of DAML SARs that are either granted or refused remains broadly consistent: 16% were granted (as against 13% in 2021-2022) and 3% were refused (the same level as last year). However, the Report also emphasises that, despite the decrease, the number of cases where consent has been refused and assets have been restrained has increased by 37%, with £272.7m being denied to suspected criminals (down from £305.7m last year, but still the second highest annual amount on record).

The Report suggests the decrease in DAML SARs is the result of recent changes to legislation. Section 339A POCA was amended in January 2023 to increase a de minimis threshold below which firms do not need to submit a DAML SAR when operating an account from £250 to £1,000. The UKFIU has also clarified in guidance that it is not necessary to request a DAML when returning money to a victim of crime. 

Improvements in technology, the digital SARs portal, the SARs Reform Programme, and the publishing of additional guidance are also all likely to have also contributed to fewer, better quality SARs being submitted. These changes will have been welcomed by many and may have resulted in the reduction of the number of SARs reflected in the Report. Significantly, the number of DAML SARs that were refused in instances where there was no previous or existing law enforcement investigation increased 80% on last year. 

Notwithstanding these various developments and changes, the UK Government continues to look at ways to improve the SARs regime. Since the reporting period covered by the Report, the Economic Crime and Corporate Transparency Act 2023 has amended the substantive offences in POCA (sections 327, 328 and 329 POCA) to allow firms, without the need to submit a DAML SAR, to terminate a relationship with a customer and pay away property up to £1,000; and to operate bank accounts where only part of the assets are suspected to be criminal proceedings – the “handling of mixed assets”. On 15 February 2024, the UK Government also published its responses to a number of recommendations made by the Law Commission in light of a review of the SARs regime. 

The SARs regime remains unwieldy in various ways and reporters will still have difficulties navigating it from time to time. However, the Report seems to suggest it may be maturing and developing to be more manageable and effective. Further changes are in the pipeline and those in the regulated sector should remain constantly vigilant for developments. In the meantime, the Report paints a positive picture of this “vital source of intelligence” and its evolution.

In the last two years, more funds have been denied through DAMLs than in the previous 6 years combined. This represents a step change in the effectiveness of asset denial linked to SARs.