UK’s AML, anti-terrorist financing efforts are failing, report says

UK’s AML, anti-terrorist financing efforts are failing, report says
02/01/2004

A recent report from the European Policy Forum (EPF), an independent international research institute, says the United Kingdom’s anti-money laundering regime is failing, but a spokesman for the chief British AML agency insists it is taking concrete steps

A recent report from the European Policy Forum (EPF), an independent international research institute, says the United Kingdom’s anti-money laundering regime is failing, but a spokesman for the chief British AML agency insists it is taking concrete steps to improve its efforts.

The report, titled “Policing of Financial Transactions,” written by EPF President Graham Mather, relies heavily on an internal audit of the Economic Crime Branch of the UK’s National Criminal Intelligence Service (NCIS) conducted by the international auditing firm KPMG in 2003. “The evidence gives grounds for serious concern that current anti-money laundering initiatives are not working as well as could be hoped,” Mather wrote, adding that the AML system suffers from “serious design problems.”

In a recent telephone interview with Money Laundering Alert, Mather explained that while his 17-page critique of the UK AML effort largely recapitulates KPMG’s findings, many people were not aware of that audit.

“This audit is not something your typical banker or financial services representative is likely to be aware of,” he said.

SAR problems

Many of the criticisms leveled in Mather’s report and the audit are reminiscent of those directed at many other national Financial Intelligence Units: too many suspicious activity reports filed by financial institutions on matters of little consequence, too many SARs are of poor quality, too many are not processed and catalogued expeditiously by the FIUs, all of which severely limit their usefulness to law enforcement agencies.

Mather said his report was meant to bring attention to these shortcomings in the way government agencies handle these reports.

“There seems to be an imbalance — that financial institutions are studied closely but the activity of government agencies is not studied so closely,” he said. “Authorities seem to be good at policing banks and bad at using suspicious activity reports themselves. Policy makers need to keep an eye on these issues.”

Handling UK SARs

The Economic Crimes Branch of the NCIS is the heart of the UK’s AML enforcement effort and handles suspicious activity reports. The Financial Services Authority, known widely as the FSA, addresses the regulatory side of the nation’s AML effort.

The NCIS processes SARs and disseminates them to law enforcement, performing a function similar to that of the U.S. Financial Crimes Enforcement Network, Canada’s Financial Transactions and Reports Analysis Centre (FinTRAC), the Australian Financial Transactions and Reports Analysis Center (AUSTRAC) and many other FIUs.

Edward Venning, an NCIS spokesman, said that KPMG was hired to conduct the review in November 2002 because the NCIS was aware that there was room for improvement in its SAR regime. Included in the July 2003 KPMG findings were that: • There was a backlog of 58,000 unprocessed SARs, nearly as many as the 60,000 received in all of 2002. • The quality of many SARs was poor and contained little helpful information for enforcement agencies. • NCIS personnel were not adequately trained or deployed, and staff turnover was high. • There was inadequate liaison between the NCIS Economic Crime Branch and enforcement agencies, and insufficient feedback from the agencies

NCIS spokesman responds

While portions of the KPMG audit were highly critical, Venning said it is inaccurate to characterize the report as concluding that UK’s AML efforts were failing.

“I’d say [critics] missed entirely the point of the [KPMG] report,” Venning said in a telephone interview with Money Laundering Alert. “We were aware there were problems, that there was a need for change, and our commissioning of the report is part of that. We paid £500,000 (US$923,000) for that report.”

Tighter regs, more SARs

Venning said the increase in the SARs filed, from 18,000 in 2000 to 100,000 in 2003, due in large part to greater regulation, created the need for systemic changes, and that the NCIS is responding. After the KPMG report, a task force was created to make recommendations for change, but thus far it has not issued proposals.

Still, Venning said, the NCIS has made a number of changes since the report was issued. The key structural changes have been to strengthen the senior management in the Financial Intelligence Division, create a specific unit responsible for liaison with industry and change the way SARs are processed so that prioritized cases are disseminated to law enforcement agencies more quickly.

He said the NCIS has also begun to establish stronger links with various UK trade associations to establish proper training and feedback loops, and that the agency is also working with industry to develop a new SAR form to address the issues raised by the new sectors, namely lawyers and accountants, who will soon fall under new regulations.

Venning said the Economic Crime Branch has undergone organizational changes to increase efficiency, for example, by separating the financial intelligence and policy divisions in order to more clearly define responsibilities and create a more efficient management structure.