Legal Sector Suspicious Activity Reporting National Crime Agency and Law Society of Scotland

1. Legal Sector Suspicious Activity Reporting National Crime Agency and Law Society of Scotland

2. Content – What we aim to cover Key focus on quality - why getting it right first time is important • Why are Suspicious Activity Reports (SARs) important and what are the red flags to look for? • What help is available to avoid the pitfalls? • How to construct a SAR • How to construct a Defence Against Money laundering (DAML) SAR • What guidance is on the horizon • What are the benefits of getting the quality of SARs right?

3. Context of SARS/DAMLs • Help combat money laundering and terrorist financing plus other serious crimes • A vital link between public/private sectors • The difference between a SAR and a DAML • The “Prohibited Act” i.e. what the solicitors wishes do. For example move money from client account back to client on onwards to third party • To provide protection to individuals re Proceeds Of Crime Act offences – s.327-s.329

4. The criminal law relating to SARs The offences of failing to report suspected money laundering: • Section 330 the regulated sector • Section 331 the nominated officer in the regulated sector • Section 332 the nominated officer in the non-regulated sector The offences of tipping off: • Section 333A(1) disclosing a SAR • Section 33A(3) disclosing an investigation • Section 342(1) prejudicing an investigation

5. The risks to solicitors and firms • Maximum of 14 years imprisonment and/or a fine for a primary offence • Maximum of five years imprisonment and/or a fine for a failure to report or tipping off offence • Maximum of two years imprisonment and/or a fine for breaching a ‘relevant requirement’ of the Money Laundering Regulations 2017 • Professional sanctions • Reputational damage

6. UK property market SARs reveal red flags • 50% of legal sector SARs in 2016 were linked to the property market • Back to back sales • Unusual use of cash • Early repayment of mortgages or loans • Purchases inconsistent with reporter knowledge of customer income and wealth • Unusual sale price (undervalue or overvalue) • Unexplained urgency • Money passing directly between the parties • Clients who have changed conveyancer several times • Unusual amount of third party funding without reasonable explanation • Potentially loss-making transactions

7. Summary of typologies seen in SARS Property market abuse - common indicators • Mortgage paid off significantly before maturity date • Excessive increase / decrease in property value • Unknown purchaser Complex company structures – key indicators • Offshore trusts • Various linked companies which seem to serve no purpose • Unwarranted or complex structures being used to obscure ownership • Use of shell companies when the purpose of creation is not clear • Misuse of client account - key indicators • Seeking to transfer funds with no underlying legal transaction • Overpayment of funds • Aborted transaction(s)

8. Taking a closer look at qualityLegal Sector DAML quality letters • Letter C = Closure for not meeting standards criteria • Letter D = Request for more information or to clarify required information • Letter E = Closure no response in specified time frame/ unsatisfactory answer in response to letter D

9. Why is quality important? All are screened and triaged to the appropriate place Quality SARs mean less time wasted for everyone

10. Please do not ask for status updates on your DAMLs… • unless there is a life threating situation or the potential for significant harm • the UKFIU have seven days to update you on your DAML • significant volumes are being managed • unnecessary requests for progress checks slows down the whole process for all SAR regime stakeholders • fast tracking high priority SARs that might save lives could be delayed

11. Why quality information matters Matching known persons Matching known profiles Matching external datasets Law Enforcement data-matching against SARS Depends upon basic quality standards Subject identifiers e.g. Full name Date of birth Address Account numbers Occupation Suspected criminal behaviour e.g. Glossary code(s) Clear description of reason for suspicion Required information for NCA to make DAML decision e.g. Clear description of reason for suspicion and Criminal property with value & Prohibited Act

12. SARS - may be the vital piece of the puzzle

13. SARs – the human benefits Increase in number of SARs relating to vulnerable persons that require fast tracking to LEAs Increase in SARs relating to human trafficking Increase in SARs relating to child sexual exploitation

14. The many benefits of a good quality SAR ...helps prevent and detect money laundering and other serious crimes ...helps UKFIU decision making, speeding up the whole process ...saves time and resource for all of us A good quality SAR... ...helps data matching and criminal network analysis ...helps prioritise exploitation of information ...helps analysis to feedback typologies, patterns and trends

15. Online support to help you get it right first time National Crime Agency • Guidance on submitting better quality Suspicious Activity Reports • Requesting a defence from the NCA under POCA and TACT • Defence Against Money Laundering (DAML) FAQ Law Society of Scotland • AML Toolkit • AML FAQs

16. Structuring a SAR There are two core aspects to getting it right: • Fully completing all the information and financial transaction fields • Providing a clear and concise reason for suspicion TIP: refer to SAR Glossary Code aide memoire last page of Submitting Better Quality SAR document when building the SAR. e.g. DAML SARs should have XXS99XX glossary code

17. SAR information fields • Full name/s and date of birth • Nationality • Address – including postcode (use the format SW1A 1NT) Use the word ‘Unknown’ to make it clear if you do not know the information for a particular SAR field Missing or inaccurate information: • limits analysis opportunities • has a negative impact on identifying the subjects correctly • reduces the overall effectiveness of the SAR.

18. Reason for Suspicion Step 1. Start with glossary codes or codes Step 2. Highlight key element of suspicion at start e.g. “XX S99XX, XXPROPXX . I am submitting this SAR as the client is purchasing a property and I have concerns relating to the origin of the funds coming from overseas relations. The circumstances of my money laundering suspicions are that…” Step 3. Consider adding other useful information e.g. previous SAR – provide SAR unique reference number Step 4. Conclude with your intended next steps e.g. Exiting relationship, monitoring events etc.

19. DAML key tips and check list • Identify clearly the ‘criminal property’   • Identify the reason(s) for suspecting that property is criminal property • Identify the proposed prohibited act/s you seek to undertake involving the criminal property • Identify the other party/parties involved in dealing with the criminal property, including their dates of birth and addresses where appropriate (such information should be held routinely by reporters in the regulated sector to comply with the requirements of the Money Laundering Regulations) • Describe fully the reasons for suspicion in relation to money laundering. Try to answer six basic questions to make the SAR as useful as possible: Who? What? Where? When? Why? How?)

20. DAML relating to a property sale If your SAR relates to the purchase/sale of a property, include: • the full address and postcode of the property • the value of the property • the date of activity • how the activity will take place or has taken place • the full identity, where known, of the other party/parties involved in dealing with the property, including, in particular, if they are providing professional services e.g. solicitor, estate agent, accountant or company formation agent etc. Consider XXPRFXX professional enabler code.

21. Letters from the NCA you may receive • Refusal letter • Grant letter • Letters requesting further information NCA cannot assume, infer or imply from submissions. The information has to be in the DAML.

22. What does a grant letter mean? It does not: • give a reporter permission to carry out the prohibited act • oblige the reporter to carry out the prohibited act • legitimise the funds • override private rights of an individual • override regulatory requirements including ‘Know Your Customer’ • allow the reporter to commit a criminal act • prevent an LEA investigating the subject

23. Case closed letter – why ? • The NCA will write to confirm they have closed a case for lack of information being provided. • If significant information is missing a case may be closed without consultation. • Having made requests for further information if nothing is received in writing within two days considerations are made to close the case. • When a case is closed the reporter may resubmit a new request should they choose to do so.

24. Moving forward with the three ‘Ss’ Signpost S Share Socialise

25. Helping to make a good quality SAR It makes sense to work together! Send your queries to aml@lawscot.org.uk