I am a fan of the philosophy of SARs: I think it is correct that businesses handling client money should be obliged to report to the authorities if they suspect that that money is the proceeds of crime or connected to terrorism. I’m not naïve – I know that any system could bear improvement, and the SARs regime is no exception – but on the whole, I’m pro-SARs. Their main function, of course, is to facilitate the prevention and investigation of money laundering and terrorist financing, but in recent years they have been showing their softer, caring side, as in this case study from the NCA’s “SARs Annual Report 2018”: “The UKFIU fast-tracked a SAR to a local law enforcement agency after the reporter raised concerns that its octogenarian customer was a potential victim of fraud/theft. Just short of £100,000 in total had left the account raising concerns that the customer was being exploited. Officers visited the subject, a referral was made to the adult safeguarding unit, and the subject agreed to not send any further money.”
One of the most pleasing features of SARs is their egalitarian nature. Back in the mists of time, when reports were made in the UK to NCIS, there used to be something called (and I’m struggling here to remember the exact name – MLROs may have clearer memories) the limited value intelligence report. But the distinction between those and “normal” SARs has disappeared, there is no de minimis for reporting, and the AML family of businesses required to make SARs has grown. All of this means that the system is reassuringly fair and apolitical in intent: whether you are moving your dodgy money through a sophisticated network of trusts and multinational companies or simply paying it in through your local casino, you’re running the risk of being reported FOR SUSPECTED MONEY LAUNDERING OR TERRORIST FINANCING.
Forgive my Trumpian excursion into ALL CAPS, but I think this is a point worth reiterating. The SARs regime has a specific legal purpose, and as most people think that money laundering and terrorist financing are to be discouraged, that purpose has general support. However, at the end of September the Hong Kong Association of Banks updated its AML/CFT FAQs – which are developed “with input from the Hong Kong Monetary Authority” (that’s HK’s central bank) – to advise banks (in FAQs 64 and 65) that they are now also required to submit SARs for offences relating to the territory’s National Security Law: “The obligation for reporting under the NSL will be triggered when an Authorised Institution ‘knows’ or ‘suspects’ that any property is offence related property. The threshold for reporting is the same as under existing arrangements under the Organised and Serious Crimes Ordinance, the Drug Trafficking (Recovery of Proceeds) Ordinance and the United Nations (Anti-Terrorism Measures) Ordinance (UNATMO).” The NSL came into force on 30 June 2020 and outlaws acts of secession, subversion, terrorism and collusion with foreign forces; critics say that the NSL infringes on freedoms guaranteed under the Basic Law (Hong Kong’s mini constitution).
Regardless of your position on the rights of Hong Kong and its citizens, it is surely wrong – badly, badly wrong – that any SARs regime should be hijacked in this way. It works because it has public (and regulated sector) support. If it is used for anything other than its original stated purpose (the prevention and investigation of money laundering and terrorist financing), that support will quickly evaporate: mistrust will spread, reports will not be made, and the system will become unreliable and eventually useless (having transited through “dangerous” and “scary” along the way). I hope that democratic governments around the world are making these points vigorously to the authorities in Hong Kong. In our international, inter-connected world, the expropriation of the SARs regime for political ends (particularly in a jurisdiction of such importance to the financial community) will have disastrous consequences for us all.
I hate money laundering 
This is indeed of concern Susan and thank you for highlighting it – but I don’t think the consequences of China’s action in regard to SARs is just for those living and working in Hong Kong. Those living elsewhere but banking and investing there may start having concerns about the way in which institutions in Hong King interpret these new rules as well as how institutions elsewhere share information with their offices in Honk Kong. On a basic level, simply ensuring that compliance personnel do more digging when they receive such group SARs will be a must. That said, the use of sanctions has also lost its main purpose over the recent past and I believe we need to reinvent international action against these criminals to counteract such unintended consequences.
Some excellent comments, Dawn – thank you for your compliance perspective. I’m surprised this development hasn’t had more publicity, which is why I was keen to write this post. It’s certainly something I’ll be talking about to all MLROs whenever possible.