What insolvency practitioners need to know about suspicious activity reports (SARs)

Caroline Clark, insolvency practitioner, director of RMCSC and a fellow of the Insolvency Practitioners Association and R3, explains how suspicious activity reports are the useful aspect of anti-money laundering compliance for insolvency practitioners.

What are suspicious activity reports?

Introduced in 2002 by the Proceeds of Crime Act 2002 (POCA 2002), suspicious activity reports, and their close relations, the defence against money laundering suspicious activity reports, are always known by their acronyms: SARs and DAML SARs.

Part 7 of POCA 2002 was at the start of UK legislation to counter the growing impact of global money laundering and fraud and similar legislation has been introduced in other countries. People such as insolvency practitioners, who are in the regulated sector regarding anti-money laundering compliance, are responsible for submitting SARs and DAML SARs, although the justification for this additional work is not always easy to fathom.

What are suspicious activities?

According to S330 POCA 2002, a person in the regulated sector, such as an insolvency practitioner, commits an offence if they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering and this suspicion is not reported to the NCA. Although POCA 2002 does not define a suspicious activity, it is clear from S330 POCA 2002 that the suspicious activity is that someone else is engaged in money laundering.

In order to identify a suspicious activity, it is therefore necessary to be familiar with the many definitions of money laundering given in Part 7 of POCA 2002. These include:

concealing, disguising, converting or transferring criminal property
entering into an arrangement that facilitates the use of criminal property by another person
acquiring, using or having possession of criminal property

The SAR is made to the NCA using the online portal on the NCA website. The information to be included in a SAR is given in S339ZB POCA 2002 and the NCA has established a system for processing SARs by reviewing necessary information that is provided in a standard format.

Being suspicious that another person is engaged in money laundering because of their involvement with criminal property is not the same as knowing that money laundering is happening. Being suspicious is not the same as being confident of success if a claim is taken to court; a suspicion is not a risk assessment. POCA 2002 just requires there to be reasonable grounds for knowing or suspecting that another person is engaged in money laundering.

It is the NCA that assesses all information received about the suspicion of money laundering, which might well include SARs from more than one source, and it is the NCA that assesses whether and how any action should be taken as a result.

How do insolvency practitioners benefit from submitting SARs?

It is easy to see that insolvency practitioners may well be seen as a rich source of useful information about suspicions of money laundering that could be used very successfully by the NCA. Insolvency is seen as high risk of inadvertent involvement in money laundering and insolvency practitioners already have a statutory duty to carry out investigations into companies that are in administration or liquidation.

Since the introduction of the Insolvency Act 1986 (IA 1986) post appointment investigations have been carried out by insolvency practitioners to identify potential antecedent transactions, to bring action to maximise realisations for the benefit of creditors and to submit reports under the Company Directors Disqualification Act 1986 (CDDA 1986). These investigations frequently reveal suspicions of criminal or fraudulent activity by directors – fraudulent applications for bounce back loans, for example – but this is all too often not recognised as money laundering.

The Insolvency Service and the NCA do not work together, so it cannot be assumed that if a money laundering offence has been included on the CDDA report then it will come to the attention of the NCA.

The importance of a SAR or DAML SAR for an office holding insolvency practitioner

The impact of S330 POCA 2002 is sufficiently material that it justifies repeating that under S330 POCA 2002 a person in the regulated sector, such as an insolvency practitioner, commits an offence if they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering and this suspicion is not reported to the NCA.

By submitting a SAR to the NCA and reporting the knowledge or suspicion of a money laundering offence an office holding insolvency practitioner is putting in place a defence for him or herself against future accusations of money laundering regarding that transaction or series of events.

DAML SARs are even more important. If an insolvency appointment means that an insolvency practitioner cannot avoid some form of involvement in a money laundering activity, then the insolvency practitioner can submit a DAML SAR to the NCA to obtain a defence against involvement in that money laundering offence.

About the author

Caroline Clark is an insolvency practitioner, director of RMCSC, and a fellow of the Insolvency Practitioners Association and R3. She established RMCSC in 2013, providing consultancy advice for insolvency practitioners about compliance with insolvency and anti-money laundering legislation, including insolvency compliance reviews and Reg 21 audits.