June 2006 Top Story:
***MLI ARCHIVE***
File and forget: a practice entities may regret.
The A-G’s Department says that when an SAR is filed it should be forgotten. Yet this runs counter to good practice and common sense, says Joy Geary.
Did you know that when your organisation submits a suspicious activity report under the new AML and CTF laws, the Attorney-General’s Department believes that is the end of the matter?
It may come as a surprise to those within the financial services industry who have been involved in the consultation process that the department’s view is precisely that.
In evidence given to the Senate Legal & Constitutional Legislation Committee in March of this year a representative of that department said:
“ ... what we then expect of the entity is that essentially they forget that they have put in a suspect transaction report, because it becomes the responsibility of Austrac and the law enforcement agencies to decide whether to take action.
“We do not want reporting entities to be keeping records and blacklists of people who have put in suspicious transaction reports.”
It is difficult to reconcile this evidence with both the obligations of the law as it currently stands and the basic principles of a risk-based AML and CTF program required under the proposed new laws.
The evidence was given in response to privacy concerns raised in submissions to the Senate committee about a range of matters in the exposure draft as it stood in March 2006.
Current legal obligations would dictate that a cash dealer should place accounts subject to suspicious activity under additional surveillance. Reporting entities under the proposed new laws will be expected to have mechanisms in place to identify and manage changes in the money laundering and terrorist financing risk posed by its customers and their counterparties, albeit using a risk-based approach.
One obvious and compelling change in risk is when a suspicious activity report has been filed with Austrac about a customer.
Common sense dictates that the risk-rating of any customer who is the subject of a suspicious activity report should be reviewed as part of the internal management process following the filing of a suspicious activity report.
Any reporting entity that followed the evidence referred to above to “forget that they have put in a suspect transaction report” would be in all likelihood:
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Failing their own risk assessment methodology by not reassessing the risk rating on the occurrence of such an event;
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Failing to mitigate the risk of money laundering or terrorist financing in their organisation by allowing a customer to continue without enhanced monitoring and other appropriate controls;
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Be in breach of the AML program rules (the latest version of these were not released at the time of writing this column); and
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Be in breach of laws requiring monitoring for further and other breaches of money laundering laws.
The latest guidance issued by the UK Joint Money Laundering Steering Group says unequivocally that “firms must remain vigilant for any additional transactions by, or instructions from, any customer or account in respect of which a disclosure has been made, and should submit further disclosures, and consent applications, to NCIS, as appropriate”.
Remaining vigilant is what one would expect to follow on from the filing of a suspicious activity report. and entities should be considering going as far as terminating a relationship with a customer once a suspicious activity report has been filed, all other matters being equal. If it did not, it could itself be involved in the crime of furthering money laundering.
Austrac and law enforcement may wish for accounts to remain open despite the filing of the suspicious activity report, in which case reporting entities need to be protected from any consequences flowing from ongoing acts of money laundering or terrorist financing.
Since those consequences can include serious reputational damage, Austrac and the law makers need to be providing both protection and clarity in this area in return for what is being asked of reporting entities.
In summary – the “forget on filing” approach suggested by the evidence given to the Senate committee runs opposite to best practice overseas and the basic principles of risk-based management of AML.
A reporting entity would follow this approach at its peril.
Joy Geary is an independent consultant on anti-money laundering. Contact: jmgeary.abbey@bigpond.com
DelMonte Publications July 2006
