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Suspicious mindfulness: How to approach reporting financial crime

Not only do advisers and corporates need to up their game on understanding financial and economic crime risks, but they have to be prepared to report on them – as the authorities tighten their grip, reports Christian Doherty.

  • Contributed by Christian Doherty
  • July 04, 2019
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The growing threat of economic crime was driven home recently by the publication of the UK’s first Economic Crime Plan. Sponsored by the Home Office, the plan outlines the growing list of threats to UK businesses of all types and sizes, and aims to bring together the various disparate bodies responsible for the detection, prevention and enforcement of economic crime.

Under the plan, a number of mechanisms were introduced to try to join up the work of the various agencies and organisations tasked with anti-money laundering (AML) and other financial crime, which is estimated to cost UK business at least £14.4 billion per year.

The Home Office announced that an Economic Crime Strategic Board would set the direction of law enforcement efforts, working closely with the National Economic Crime Centre (NECC).

The board, made up of various representatives of the law enforcement agencies, will also invite CEOs and chief executives from the banking institutions Barclays, Lloyds and Santander as well as senior representatives from UK Finance, the National Crime Agency (NCA) and the Solicitors Regulation Authority, Accountants Affinity Group and National Association of Estate Agents on board.

According to the Home Office, the board will aim to bring together not only the different agencies but aim to define and align its goals to tackle the proliferation of economic crime, which in recent years has grown into a multi-headed threat. Money laundering is top of the list, along with bribery and generalised corruption, tax evasion, as well as cyber scams like phishing and invoice fraud.

Joining the dots

The new joined-up approach to financial crime marks a sea change in law enforcement, explains Jonathan Brogden, a partner at DAC Beachcroft. “It is all aligned with the move towards the increased criminalisation of corporate wrongdoing,” he says.

So what will all this mean in practice for small businesses and their advisers?

“Fundamentally, what’s happening now requires a culture change across the board,” Mr Brodgen explains. “Every business needs to understand the risks it faces; on top of that, they need to commit to best practice and vigilance. And that requires policies and procedures. That does not mean a piece of paper stuffed in a drawer that only every gets looked at when someone asks for it.”

Mr Brogden argues that although new regimes and structures are welcome, tackling all these aspects of financial crime - failure to prevent tax evasion, for instance - require buy-in from management.

“It means you have to constantly assess the risk,” Mr Brodgen says. “Has it changed along with your business? You may have gone from dealing with one type of work to a broader, different type of work, or into different markets. Has that changed the risk you face? You must re-assess that risk each time.”

See it, Say it, Sorted

One of the biggest issues that the new board says it wants to tackle is the issue of reporting financial crime, an issue of great importance to the practice community as much as their clients.

The UK Financial Intelligence Unit (UKFIU) said it received and processed a record number of Suspicious Activity Reports (SARs) at 463,938, with 22,619 of those requests for a defence against money laundering (DAML). That’s an increase of nearly 10 per cent.

While it may look impressive, many argue that defensive banks are churning out SARs at the slightest provocation, creating a blizzard of reports and making law enforcement’s job all the harder. The new board says as a result it will prioritise better, rather than more, reporting.

And there are other damaging effects from too many poor quality reports, says Jonathan Grimes, a partner at Kingsley Napley. “It’s also the people who are affected - customers who find their accounts frozen when the SARs are made by the bank, leading to a lot of disruption for them,” he says.

“So it’s not just the degradation of the reporting or the poor intelligence the system creates, it’s also a problem for bank customers finding themselves locked out after a red flag is triggered. That can really create practical difficulties for businesses, especially smaller ones.”

The front line

And to those who may think that financial crime is only of concern to banks and larger companies, Mr Grimes is clear SMEs are in the front line of financial crime.

“With money laundering, as soon as there’s any crime committed with a financial angle - whether that’s fraud or corruption or whatever, then the chances are that there is a money laundering aspect to that,” Mr Grimes says.

“It’s a very broad definition and it captures virtually anything. If you had an employee stealing money and creating property from that, you’ve got a money laundering offence.”

The advice is clear: businesses have to carry out a genuine risk assessment and develop a plan on the back of that. This performs two functions: it increases the chances of businesses detecting and preventing money laundering (and makes it more likely it will prevent individuals or the business itself committing an offence); and, in the event that something does go wrong, evidence of planning is at least a plank of defence or mitigation in the event of any enforcement action.

Mr Brogden also sees a growing trend for self-reporting of financial crime.

“It sounds a little counter-intuitive but it’s important,” he explains. “If you uncover an incidence of wrongdoing within your business, whether it’s related to bribery or corruption or fraud, if it’s an internal thing, the kneejerk reaction tends to be, ‘Well, it’s in-house and we’re the only ones who know about it so there’s nothing to worry about’.”

But, he says, you cannot be guaranteed that that is the case. “And if you’re pursued, investigated and charged and it’s found that you knew and did nothing, then you are in serious trouble. So businesses need to work with their advisers - accountants and lawyers especially - to make sure they’re not caught out by financial crime.”

Christian Doherty is a freelance journalist

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