This article was first published by Money Laundering Bulletin on August 10, 2020.
On 21 July 2020 the National Crime Agency (“NCA”) released its Annual Report and Accounts 2019-20 (“the Report”). The Report outlines financial information and other data, and provides a snapshot of the NCA’s performance and wider enforcement patterns.
Increased forfeiture and confiscation
The NCA enjoyed a record year for forfeiture and confiscation receipts. It recovered £10,097,000, 41% more than in 2018-19 and 37% more than in its second-highest year, 2016. The 2019-20 period also saw the NCA demonstrate the effectiveness of Account Freezing and Forfeiture Orders (“AFFOs”). Whereas in 2018-19 the NCA froze £64.2m in assets, in 2019-20 it froze over £145m, with more than £100m of the total frozen through AFFOs.
AFFOs were introduced as part of the Criminal Finances Act 2017 and received less fanfare than their sibling Unexplained Wealth Orders (“UWOs”), which acquired the glamorous nickname “McMafia Orders”. The NCA has recently encountered difficulties in navigating the more convoluted legal tests for obtaining UWOs (NCA v Baker)1 and the figures in the Report indicate that AFFOs, which benefit from a simpler legal test and lower-profile proceedings, are probably the more significant tool. The expansion in NCA recovery receipts is unlikely to be an anomaly, and that the value of property recovered by the NCA will continue to grow over the coming years.
End of “high end of high risk”?
Forfeiture and confiscation figures are up for the NCA, however the trend for average sentence lengths is less clear. In its 2018-19 report, the NCA touted the rise in its average custodial sentence lengths as evidence that it was increasingly targeting sophisticated criminals “who operate at the high end of high risk”.2 That year it had increased its average from 5.5 to 6.5 years.
This year the Report merely states that 376 individuals were convicted (not necessarily imprisoned) and received a total of over 2,000 years in custodial sentences. Therefore, we can be sure the average custodial sentence length is at least 5.3 years, but it is not possible to assess whether the steep, upward trajectory has been sustained. The jump in 2018-19 may just have been part of the ongoing broader, shallower inflation of custodial sentences for all crimes across the UK, the average of which went up by seven months from 2018-19.3
Shooting SARs
The number of Suspicious Activity Reports (“SARs”) received by the NCA has gone up year on year since the NCA’s inception, and this trend continued in 2019-20 with an increase of 16%. A particularly striking feature of this increase is the rise in Defence Against Money Laundering applications (“DAMLs”), from 34,525 to 62,000.4
This increase may be due to heightened public awareness and use of reporting mechanisms, for instance as a result of the ‘Flag It Up’ campaign, albeit launched in October 2017, which was intended to highlight the importance of submitting SARs in an AML compliance context. It may also be the result of an increase in requests to the NCA for consent to invest overseas, where the investment may generate income from companies involved in cannabis production. Cannabis production is legal in a growing number of overseas jurisdictions but not in the UK, and therefore presents a money laundering risk for UK investors.
Two key questions will be whether the NCA has sufficient resources to effectively process the intelligence, and whether the SARs are of sufficiently high quality. The NCA’s UK Financial Intelligence Unit maintains online guidance, gives presentations, and this year launched an app, all focusing on increasing the quality of SARs, which suggests that it considers that quality is at least as important as quantity.5 The quality of the SARs remains unknown, but the scale of the increase in reports suggests that we can expect to see an uptick in enforcement activity by the NCA in relation to money laundering activity over the coming year.
Fraud outstrips capacity
As in previous years, the NCA used its annual report as an opportunity to argue for additional funding and to warn of the growing threat of fraud. However, whereas previous years’ reports have framed additional funding as being necessary to meet an anticipated increase in demand, this year’s Report is starker and uses the present tense to suggest that the challenge is not currently being met. It states, “Responding to this growing threat [of fraud] is made challenging by historic underinvestment in relevant capabilities.”
The implication is that the NCA believes that, despite increases in funding, headcount, SARs and arrests, it has been unable to keep pace with fraud offending. It notes that in 2019 fraud overtook theft to become the most prevalent type of crime in the UK, with approximately 3.86m incidents of fraud in England and Wales.6 The NCA further warns that its initial assessment of the impact of coronavirus suggests that fraud is likely to increase in the pandemic.
Looking Forward
Despite its ongoing difficulties in combating fraud, the NCA’s extraordinarily powerful and still relatively new asset-recovery tools, coupled with an ever-expanding bank of money laundering intel, mean that the agency’s overall performance this year is likely to be fair.
Brexit and coronavirus do not feature substantively in the report, although these are doubtless the agency’s most significant challenges. Next year’s report is unlikely to tell a straightforward story of statistical improvement or regression, but will instead measure the NCA’s success in navigating those unprecedentedly choppy waters.
1 [2020] EWHC 822.
2 National Crime Agency Annual Report and Accounts 2018-19, at 27.
3 Average custodial sentence length (ACSL) at all courts to immediate custody for all offences in England and Wales from 2000 to 2019, Statista.
4 A notable feature of the Report is the use of round numbers.
5 ‘SARs In Action’ Issue 4 – March 2020, p6.
6 In 2016-17 there were 3.4m fraud offences, constituting a third of all crime (NCA Annual report and Accounts 2017-2018).