Reporting Suspected Money Laundering

When an employee suspects money laundering, a practical question often arises: who should the suspicion be reported to – internally, externally, or both? For businesses subject to anti-money laundering legislation, the answer is fundamentally governed by law, but it also requires clear internal procedures. Where there is uncertainty, it may be prudent to seek early support from an experienced AML lawyer.

This article is based on Swedish law, primarily the Anti-Money Laundering Act (2017:630), and also addresses the forthcoming EU Anti-Money Laundering Regulation, AMLR, which is intended to harmonise the regulatory framework across the EU.

What does suspicious activity reporting require under AML law?

Businesses subject to anti-money laundering legislation, such as audit and accounting firms, banks, payment service providers, estate agents, certain financial institutions and advisers, are required to report suspected money laundering and terrorist financing.

The obligation arises when there are reasonable grounds to suspect that:

• a customer’s transaction or activity may constitute money laundering or terrorist financing; or
• funds being handled derive from crime or criminal activity.

Once a suspicion has arisen, suspicious activity reporting must take place without delay. At the same time, as a general rule, the customer must not be informed that an investigation has taken place or that reporting is being considered or has been made, commonly referred to as the tipping-off prohibition.

Who should the employee report to internally?

An individual employee does not normally report directly to the Financial Intelligence Unit. Instead, there must be an internal reporting route. Anti-money laundering legislation requires the business to appoint one or more individuals with specific responsibility for money laundering matters, for example:

• a central function holder responsible for performing certain AML tasks;
• a reporting officer or AML officer; or
• another appointed office holder under internal guidelines.

Under the internal procedures, the employee must report their observations to that function. The responsible function then makes the legal assessment of whether an external report must be submitted to the Financial Intelligence Unit.

It is therefore important that internal procedures clearly state:

• who receives internal reports of suspicion;
• how reporting is to be carried out in practice;
• what information must, as a minimum, be included; and
• that employees should not themselves decide whether the suspicion is “sufficiently strong” – that is a task for the responsible AML function.

Who does the business report to externally?

Where the internal function assesses that there is a reportable suspicion, the business must report externally to the Financial Intelligence Unit, which forms part of the Swedish Police Authority (Polismyndigheten). Reporting is normally made electronically through the Financial Intelligence Unit’s system, currently goAML.

Key points include:

• Reporting must take place promptly once a suspicion has arisen.
• The report should be as informative as possible, with relevant facts and observations.
• Where a planned transaction is suspected of involving money laundering, it should generally not be carried out, provided this can be done without breaching the tipping-off prohibition.

It is therefore not sufficient for an individual employee merely to speak to their immediate manager or document the matter in a case management system. One element of the requirement under anti-money laundering legislation is that reporting must be made to the Financial Intelligence Unit once the threshold of reasonable grounds for suspicion has been met.

Where should suspected money laundering not be reported?

Knowing who the correct recipient is matters. Knowing who is not the correct recipient is just as important. Incorrect handling can increase both legal and commercial risk.

• The customer must not be informed that a suspicion exists or that reporting has taken place, due to the tipping-off prohibition.
• Reports should not be made to other external parties, such as suppliers or the media.
• Reporting must not be omitted by reference to the business relationship or the importance of the customer to the business.

The board and senior management should have overall insight into AML work, but they do not replace the statutory reporting obligation to the Financial Intelligence Unit.

How will AMLR affect suspicious activity reporting?

AMLR, the Anti-Money Laundering Regulation, is a forthcoming EU regulation intended to harmonise anti-money laundering rules across the EU. Once it applies, many rules will become directly applicable.

The core principle of reporting suspected money laundering to national Financial Intelligence Units, such as the Financial Intelligence Unit, will remain. However, AMLR may introduce:

• more detailed requirements for how suspicious activity reporting is to be carried out;
• additional requirements for internal governance and control; and
• more uniform EU standards for how businesses organise their AML work.

For businesses operating in and serving clients across Europe, this means that existing procedures for internal and external reporting may need to be reviewed in light of AMLR once the regulation is fully implemented.

Practical recommendations for reporting suspicions

To ensure that the reporting obligation is met in practice, the business must combine legal requirements with clear internal working methods. Key measures include:

• Updating internal AML procedures so that they state precisely who employees must report suspicions to internally.
• Ensuring that roles such as AML officer and reporting officer are clearly defined and documented.
• Training employees regularly on when suspicion arises, what they must do and what they expressly must not do.
• Testing the reporting process through internal controls or exercises, so that bottlenecks or uncertainties are identified in time.
• Monitoring the development of AMLR and other EU regulation, so that procedures remain current.

A well-functioning reporting process is not only a matter of regulatory compliance. It reduces the risk of the business being used for criminal purposes, protects against administrative fines and strengthens confidence among customers, owners and supervisory authorities.

For businesses seeking to ensure that their procedures for reporting suspicions are robust and up to date, it may be valuable to bring in external legal expertise. At Morling Consulting, experts in the anti-money laundering regulatory framework support companies in analysing and developing governance documents, reporting processes and training initiatives.