A lot has happened since the NCA Financial Intelligence Unit (FIU) published its last annual report in November 2020 on suspicious activity reports on money laundering. Though Russia’s 2022 invasion of Ukraine heralded a new economic era characterised by high energy prices and runaway inflation, it also cast a harsh spotlight on the UK’s role in laundering the funds of Russia’s elite.
Russia’s invasion has also led to seismic changes in the UK’s fight against money laundering, with the government legislating not just once but twice to tackle the UK’s vulnerabilities to dirty money.
The suspicious activity reporting regime is central to understanding and tackling the UK’s dirty money problem. So what does the new 2022 FIU report tell us about whether recent reform efforts have been successful?
First mooted by the government in 2016 and firmed up in the 2019 Economic Crime Plan, the SARs Reform Programme aims “to transform the UK’s SARs regime and the UKFIU.” This was following serious criticism from the Financial Action Task Force (FATF) in its 2018 assessment of the UK’s AML framework that the UK was only partially compliant with FATF recommendations in this area. Progress in addressing UKFIU’s shortcomings has clearly been slow and there is (disappointingly) limited detailed discussion of this in the new FIU report. Last year, and in its 2022 follow-up assessment FATF retained its 2018 conclusion that the UK only is “partially compliant” in this area.
Broadly, the £100 million+ SARs Reform Programme is designed to;
- bring in significant IT upgrades to overhaul the FIU’s analytical capabilities;
- expand current staffing levels so the unit has more staff to act on intelligence;
- improve the overall reporting quality of SARs so the FIU receives more high-quality data it can use.
In terms of the long overdue IT upgrade, last year, the government’s response to a Treasury Select Committee report in April 2022 stated that only parts of the new SARs Digital Service (designed to propel FIU’s data analytic capabilities) were up and running and committed to have a new SARs Online Portal in place from Summer 2022. This doesn’t appear to have happened with the Portal still under the “What’s Next?” section of the FIU’s report with no stated delivery date.
Resourcing – identified by FATF as a key issue – also seems to be unresolved. According to FATF’s 2022 follow-up report, current staffing levels continue to be “insufficient given the size of the UK financial sector” suggesting progress on recruitment is slow. While it is welcome to see UKFIU’s total workforce expand to 150 with a commitment to 201 due in the coming year, this expected increase was first recommended back in 2007 in an earlier FATF assessment. Getting the right talent in FIU is vital, but it would be helpful to understand why this process has taken 16 years and what are the blockers to getting the unit up to capacity.
Lastly, judging whether UKFIU is helping to drive up the overall quality of SARs reporting is harder to ascertain from the latest report. Professionals in the legal sector, estate agents and high value dealers are still submitting proportionally few SARs despite facing high money laundering risks. There is some evidence that FIU is publishing more extensive guidance and giving better feedback to the private sector who report SARs, but the report does not include much evidence on whether FIU engagement goes beyond communication ‘products’ and is moving toward an increased appetite for publishing sector-specific guidance in consultation with the private sector covering specific reporting and disclosure requirements.
Even if the wait has been a long one, the new FIU report shows it is making some progress across key indicators, but given its length there remain more questions than answers on major areas of the FIU’s operational performance and on the wider implementation of the SARs Reform Programme. Maybe it’s time for some genuinely ambitious thinking about how the SARs regime and the FIU could genuinely act as the intelligence motor of law enforcement efforts against dirty money in the UK