If the SRA wants to improve the quality of solicitors' suspicious activity reports, it must convince them of the regime's effectiveness

Whatever doubts solicitors may entertain about the value of the UK anti-money laundering regime, City firms need to polish up their reporting systems. The message is clear. The Solicitors Regulation Authority (SRA) is on the warpath over the poor quality of suspicious activity reports (SARs) filed by solicitors and it has large corporate firms in its sights. However, unless solicitors are persuaded that filing SARs is likely to assist in the detection of serious crime, stricter enforcement will serve only to engender resentment in an already over-regulated profession.

In its recently published 'Risk Outlook' for 2014-15, the SRA identified international clients with significant political connections and clients associated with organised crime as particularly high risk in money laundering terms, especially where a business intermediary is involved. Typically, consent will be required from the National Crime Agency (NCA) to proceed with a transaction, and solicitors must provide sufficient information to enable the NCA to give an informed consent. 

At present, solicitors are responsible for only 3,935 SARs a year, which represents just 1.2% of the total SARs filed by the financial sector. In the current climate, more prosecutions and disciplinary enforcement action for falling foul of the reporting requirements are expected.

The low reporting rate is partly explained by solicitors' scepticism about the effectiveness of the regime in combating organised crime. Although the NCA stresses the importance of SARs in detecting organised crime, the statistics do not support this assertion. In 2012-13 in cases where consent to proceed was refused, a total of 38 people were arrested and restrained funds amounted to £19.8m. This sum pales into insignificance when set against the figure of £52bn – estimated by the recently abolished National Fraud Authority as the cost of fraud to the UK economy in 2012-13. 

The point is not a new one. Five years ago the House of Lords European Union Committee calculated that £646 had been recovered for each SAR filed in 2007-08. The committee called for a cost/benefit analysis to be carried out. If this analysis has been performed, its results have not been shared with the reporting public.

The real value of the reporting regime lies not in its role tackling organised crime, but rather as a tool in the collection of tax. HM Revenue & Customs (HMRC) is the biggest recipient of SARs data and SARs-generated intelligence packs have provided 'intervention opportunities' for HMRC's enforcement and compliance group, and more specifically for the criminal investigation, specialist investigations and local compliance directorates. 

HMRC conducts key word searches across all SARs filed annually, and since November 2013 SARs data has been transferred to HMRC's CONNECT database on a monthly basis. It is thought that at least one in four HMRC investigation cases are triggered by SARs, and in 2013-14 refusal of consent to proceed led to the repatriation of £1.6m and prevented HMRC from sustaining losses of around £16.2m.

Although the figures are paltry when compared with the most recent HM Treasury estimate, which puts the tax gap – ie tax avoided plus tax evaded – at around £35bn, it is clear that SARs are playing an increasingly important role in tax collection. However, this is not the primary objective that the anti-money laundering regime was designed to deliver. 

If the SRA is going to improve the quantity and quality of solicitors' reports, increased enforcement activity is not the sole answer. Solicitors need to be persuaded that they are collaborating with a regime that effectively combats the evils of organised crime, and that SARs are not filed into an electronic black hole. In this regard, the NCA has much work to do. 

Jonathan Fisher QC is a barrister at Devereux Chambers.