Emerging threats from economic crime are usually reflected fairly quickly in the types and volumes of suspicious activity reports (SARs) received by the National Crime Agency (NCA). And, as we’ve all learned in the past year and a half, there can always be surprises.
“When it comes to emerging threats, it’s been quite an interesting year,” acknowledges Martin Cox, Head of Engagement, Communications and Risk Management, UKFIU. “Eighteen months ago, if you’d said we’d have over 100,000 SARs regarding COVID-19 and Bounce Back Loans, I wouldn’t have known what you were talking about: I’d never even heard of these terms.”
“We’ve seen a large rise in SARs related to fraud and money laundering,” he says. And a lot of these relate to the pandemic, particularly the government loan schemes.
To address this, in 2020 the NCA formed the Otello COVID-19 Fusion Cell to help stop fraudsters and other criminals exploiting the virus for financial gain. UKFIU also introduced new SAR glossary codes to help with reporting the increased threat of pandemic-related fraud.
Changing financial landscape
Alongside this, the fundamental and ongoing change in the financial landscape is also being reflected in SARs reporting. The shake-up in the traditional banking sector, which previously consisted of a small number of high volume High Street banks, is particularly stark.
The proportion of SARs coming from these High Street banks reduced dramatically over the past five years. In 2016, 83% of all SARs came from High Street banks. “Now that figure is more like 70% and decreasing,” says Cox.
At the same time, there has been a massive increase in the overall number of SARs, and this increase has mainly come from Fintech companies, challenger banks, other electronic money institutions, and prepayment providers. “In 2016, this sector accounted for just 3% of SARs, and now it is nearly 20%,” he says.
When you look at the figures for defence against money laundering (DAML) SARs, which are used to seek a defence from the NCA against money laundering offences, the shift is startling. “There are no High Street banks in the top five DAML reporters now,” says Cox. “And none of the top five DAML reporters, we’d even heard of five years ago. They are all new companies.”
Overall, DAML SARs “have increased enormously”, says Cox. “And a lot are related to government loan schemes, such as the Bounce Back Loans.” But the main rise in DAMLs has come from Fintech reporters.
“The online banking and payment systems used by Fintech companies are very attractive,” he explains. “And we’re seeing the massive increase in the number of accounts with these companies reflected in the amount of SARs we receive.”
Another notable trend is the sharp rise in SARs relating to financial crimes that target vulnerable persons, which went up by nearly 40% in the last year.
“We’ve done a lot of work with the regulators, including ICAEW, and reporters on highlighting red flags around modern slavery and human trafficking (MSHT) and child sexual exploitation (CSE) related SARs,” he says. SARs for MSHT went up by 25% and for CSE 43% in the last year.
“These SARs are really valuable for police forces in dealing with these issues,” says Cox. “There have been large rises, and we put these out to law enforcement to act on. So they do really help in protecting vulnerable people and getting the police to act on this.”
The other big issue is new technologies such as funds transfer systems, crowd funding platforms, and cryptoassets (an umbrella term for cryptocurrencies or other digital value tokens).
Criminals are increasingly used cryptocurrencies to facilitate money laundering, at least in part because the pandemic has made moving cash more difficult.
“This I think is something we’re going to see much more of,” says Cox, “particularly over-the-counter cryptoassets.”
“These are becoming more mainstream now,” he explains. A few years ago, many of the cryptocurrency firms just didn’t exist. “So we went from having no SARs from them to now having lots of them,” he says, “and we’re going to be seeing a lot more.”
“It’s a challenge for us at UKFIU, because we have to spend a lot of time engaging with these newer types of firms because they are not necessarily used to putting in SARs: they’re not coming from the traditional regulated sectors, such as the banks, lawyers and accountants.”
For ICAEW, its two-way engagement with UKFIU continues to be vital in informing its supervised firms about the latest threats and supporting high standards of reporting. “We have welcomed the opportunity to work with the NCA and our firms to improve the quality of the information submitted to the NCA and law enforcement,” says Sandy Price, AML Manager, Professional Standards, ICAEW. “Input from the NCA in terms of identifying themes and red flags is also invaluable.”
As a result, ICAEW-supervised firms are already well-aware of the risks associated with pandemic-related fraud. “Certainly, we anticipate an increase in SARs relating to Bounce Back Loans and furlough fraud as our firms start preparing year-end accounts for our clients,” says Michelle Giddings, Head of AML , Professional Standards, ICAEW.
Disseminating information to as many different types of firm is crucial to raising the sector’s awareness. AML - the essentials and Risk Bulletin emails are one route ICAEW uses to ensure its firms have current intelligence on the threat landscape. “We also hope to encourage regional engagement between the NCA and our district societies and regional firms to ensure that region-specific threats are communicated to and understood by our firms,” says Price.
COVID-19 and the subsequent lockdowns fundamentally changed how people lived and worked. “What we saw last year, as you would probably expect, is that the amount of SARs we received in quarters one and two actually dipped,” says Cox. “Then as people got used to working from home, it went back up to normal reporting levels.”
But the one area that didn’t dip was the Fintech reporting, which carried on. Already the way they work was different, he suggests, particularly challenger banks, so perhaps people carried on using those types of payments in the same way from home, so that didn’t really change.
The likely effect on reporting of more people returning to post-Covid working patterns remains uncertain. “We really don’t know yet whether it will go up or not,” says Cox.
But one thing that is certain is that criminals and fraudsters will continue to adapt to new circumstances and are always ready to exploit whatever economic, technological and societal developments come their way.
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