How to Enable Staff in Firms to Report Suspicious Activity

Written by Pekka Dare on Thursday June 27, 2013

Is your firm identifying and reporting the appropriate level of suspicious activity in respect of money laundering? For many of the firms and AML professionals that I speak to the answer is a clear no.

Many of the recent Money Laundering enforcement cases have highlighted large Banks failing to identify and report suspicious activity (Citibank, JP Morgan Chase and HSBC among them). Why is it so difficult to get employees of regulated firms to report suspicious activity and file a Suspicious Activity Report to the MLRO?

There are many barriers to people reporting suspicious activity.

• A lack of time, if people are under pressure at work, why should they take time out to fill in a SAR?
• A lack of awareness. Most people in Banks still have a sketchy knowledge of Money Laundering red flags. Also people in highly process driven roles often fail to step back and consider the facts critically. If you processing 50 new business applications per day, will you end up missing the objectively obvious?
• Cultural barriers. If you have an outsourced function in another jurisdiction, do they have the relevant insights into geography, culture and socio economic information that may help in identifying suspicious activity? There may also be other cultural factors, such as a reluctance to think ill of customers, or to question information provided face to face.
• Perceived conflict with commercial drivers. Despite the worldwide focus on remuneration structures and corporate ethics, if a staff member will hit their bonus from on boarding a customer or processing x number of cases, why would they endanger that to report a SAR?
• A perception that making a SAR is not their job. Many large and complex regulated firms divest front line staff of the direct responsibility of SAR reporting by a process of “escalation” to a central AML team to file a formal SAR with the MLRO. This is a potentially dangerous approach in many ways as the criminal law does not recognise this concept, typically the criminal offence of failing to report money laundering establishes that if an individual working in a regulated firm forms a suspicion or knowledge, then they are personally required to make an internal SAR.

What Does the Law Say? 

In most jurisdictions individuals employed in the regulated sector have to report suspicious activity if they know or suspect or have reasonable grounds to know or suspect money laundering. This means that those in the regulated sector are judged by the objective standard, in other words to the standard of a reasonably competent person in their position. We also know the words “know” and “suspect” are important, but what do these words mean in practice? Case law tells us that suspicion must be more than a vague feeling of unease and based on some foundation that is more than fanciful. Case law has also established that knowledge can be both actual knowledge and wilful blindness (ignoring the obvious or not asking the difficult questions)

 So how do we respond?

1. Make it easy for people. Given them simple clear guidance. If they see something unusual the must not turn away. They must make reasonable enquiries and decide whether they are suspicious and if so submit a SAR. Remember, customers do unusual thing often and this does not automatically mean that they are suspicious. However tell your people that they must make reasonable enquires. Give some guidance on what reasonable enquiries are. (For example enquiries may involve a quick review of past transactions and the CDD on file as well as some simple web searches). The depth required will depend on the nature of the staff member’s role and the systems to which they have access. Encourage people to stop, and think if they see something unusual, use their instinct and think critically. Staff will know when something unusual is happening. Remind them, it is their job not to ignore it.

2. Motivate them. Remind them that there are reasons we all want to identify money laundering and the linked harm caused by tax evasion, drugs and other predicate crime. Don’t be afraid to give them the bigger picture about the damage caused by money laundering.

3. Make it clear there are consequences. Yes remind them of the criminal offences, but also emphasise the fact that not identifying suspicious activity could be catastrophic for the firm and their career.

4. Educate them and give them the tools. Provide red flags/ typologies, but not too many. The danger is if you give people a list of 120 red flag scenarios they will switch off their own critical thinking facilities and take the view that if a type of activity is not on the list then it is not suspicious. Provide some examples of the type of conduct that could generate a SAR. Make these scenarios relevant to the products and services and customers that your people work with every day.