Money Laundering: Review of the Reporting ... - Dematerialised ID

kpmg
Review of the regime for handling Suspicious Activity Reports
Report of recommendations
KPMG LLP
4.3.2 There are a number of reasons for this increase: the impact of the events of 11 September
2001; the publicity from the Abacha affair; the advent of N2 and the explicit FSA
regulatory focus on money laundering arising from its statutory objectives; and the impact
and implementation of the initial sections of PoCA.
4.3.3 These factors are likely to continue to apply, while any expansion of the FSA current
customer review to regulated entities other than the “Big Six” banks is also likely to give
rise to additional disclosures. The full introduction of Part 7 of PoCA 10 on 24 February
2003 will also add to the level of disclosures that are made. The financial sector industry
estimates in their response to our survey that on average PoCA will lead to a 14%
increase in the number of money laundering SARs submitted to ECB, although the
figures are considerably higher in the larger retail banks that provide the greatest number
of SARs. This alone is therefore likely to push the total number of SARs to at least
100,000 in 2003, regardless of the impact of any other factors, for example the impact of
the increase in fraud disclosures expected under the new legislation.
Over-reporting
“There is more defensive reporting now due to the FSA”
“The danger is that we are being pushed into frightened compliance. The FSA are more
worried about missing something ... than supporting NCIS”
“MLROs are getting scared as they are being faced with punishments of 12 to 14 years if
they do not do their job properly. To be brutally honest, the implications of overregulating
are that NCIS will have received reports which it should not have received”
“I didn’t like his attitude” (as a reason for disclosing)
Source: Interviewees and questionnaire respondents as part of KPMG’s review
4.3.4 MLROs are faced with a challenge in their decisions on whether or not to disclose a
suspicion to ECB. The MLRO is presented with potentially suspicious transactions or
activities by staff within a firm and/or by specialist computer systems. The MLRO must
decide which of these to report to ECB. There is, however, no definition of “suspicion”
despite the availability of the JMLSG Guidance Notes. This is not an exact science and is
not black and white. If the MLRO errs on the side of caution and reports more activities,
or has a lower threshold of suspicion, this is very difficult to identify, or indeed criticise.
4.3.5 A number of the disclosing entities we interviewed stated that there has been overreporting
of SARs since N2. This has in part accounted for the growth in numbers of
disclosures over the last two years. It appears that there are a number of disclosures
which have been made by regulated entities that are effectively “defensive reports”.
4.3.6 There is also an evident lack of knowledge of the law and the JMLSG Guidance Notes
among a number of those who are potentially required to report suspicious transactions;
this can, for example, lead to over-reporting based on a (mis)perception that all
transactions over a given size must be reported, rather than those which are assessed to be
suspicious. Bureaux de change, for example, tend to report all transactions over a
9 Source: ECB
10 i.e. the part that deals with money laundering
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