NCA publish 2022 Annual Report on Suspicious Activity Reports

What you need to know

On 24 January 2023 the National Crime Agency (NCA) published its United Kingdom Financial Intelligence Unit (UKFIU) Annual Report on Suspicious Activity Reports (SARs) for the 2021 -2022 period (full report available here and press release here).

Key findings: 

• The number of SARs filed increased a massive 21% compared to the previous year. SARs in the period now exceed 900,000. The NCA points to new SAR reporters in the fintech and cryptocurrency sectors to partly explain the increase. To illustrate that sector's impact, there are around 350 cryptocurrency SARs daily, compared to around 80 daily in September 2021.
• Defence Against Money Laundering (DAML) requests were refused for transactions totalling more that £305 million – this represents a 120% increase compared to the previous year. The increase is attributed to reflects (a) a rise in high value DAMLs submitted applications and (b) improvements in DAML quality resulting in enhanced engagement between the UKFIU and reporters.
• Interestingly, only 83,300 of the 900,000 SARs were DAMLs. This represents a 21% decrease compared to the previous year. The NCA says this shows that reporters are better aware that they do not require consent when returning funds to victims. There could, however, be other reasons for this: for example, regulated firms may be more risk averse to pursuing transactions without the comfort of a DAML (and more likely to make defensive filings) in light of the increase in regulatory fines against firms for AML failings.
• 358 Defence Against Terrorist Finance were received, a decrease of 16% compared to the previous year. Whilst no specific reason is given for the decrease, this could be a combination of more effective counter terrorist work by the financial crime prevention community or purely a decrease in instances of terrorist financing.
• The report notes the activities of the NCA's International Team supporting intelligence efforts globally and liaising with international bodies on compliance standards (e.g. FATF). This is consistent with the trend we are seeing of ever-increasing cooperation between enforcement authorities globally.

Why this matters to regulated firms and businesses operating in the UK

The SARs regime is a key detection channel through which UK law enforcement and regulators (including the FCA) are made aware of suspected money laundering and predicate criminal conduct (including bribery and corruption, tax evasion, fraud, sanctions violations and other economic crime). 

The sharp increase in SARs indicates that regulated firms and businesses operating in the UK are better able to identify, and act on, money laundering risk.

It also means that the NCA now has a greater flow of intelligence, which – if matched with appropriate resources and properly deployed – should lead to an increase in financial crime investigations and enforcement.  

Our three key takeaways

1. The NCA report notes the progress that the UKFIU has made since the SARs Reform Programme began in earnest in mid-2021, noting improved methods of working and an increased staff headcount (with the aim of reaching 201 by the end of the next financial year) which will enhance the NCA's capacity to tackle financial crime. But, will this be enough? Continued investment in the NCA will be needed to meet the increasing workload created by the increase in SARs, and to combat the increase in fraud and economic crime driven by the economic downturn.
2. Topical to the impact of the Russian invasion of Ukraine, the NCA calls out the Combatting Kleptocracy Cell (CKC), set up to investigate 'high end' money laundering and criminal sanctions evasion. This chimes with messaging we have heard from sanctions authorities around the world – including UK OFSI and US OFAC – that 2023 will see enforcement action for breaches of the sanctions introduced in 2022. UK businesses should ensure that sanctions compliance programmes are effective and fit-for-purpose, as we move into 2023.
3. This year will see the NCA's launch of a new SARs portal and technology which is anticipated to improve the quality and utility of SARs. The question is whether the ongoing operational and technological improvement will continue to deliver increased engagement with the SARs regime, and greater efficiency in the NCA's handling of reports. Firms and businesses operating in the fintech and crypto sector will be expected by regulators and enforcement authorities to develop frameworks to identify financial crime risk from payment flows.

Authors: Ruby Hamid, Neil Donovan and Laura Bell