The suspicious transactions reporting system
| Published date | 01 July 2005 |
| Date | 01 July 2005 |
| DOI | https://doi.org/10.1108/13685200510620948 |
| Pages | 252-259 |
| Author | He Ping |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control Ð Vol. 8 No. 3
The Suspicious Transactions Reporting System
He Ping
INTRODUCTION
Suspicious transactions reporting,
1
as one of the most
important obligations of ®nancial systems and other
vulnerable professions, can be easily found in several
international anti-money laundering documents,
such as the FATF Recommendations and the EC
Directives. These documents, as preventative
approaches, both play signi®cant roles in taking pre-
cautions against money laundering. Tracing back to
its source, it is noteworthy that the reporting of suspi-
cious transactions has evolved considerably during the
last decade or so.
From non-reporting, voluntary reporting
to mandatory reporting
In 1988, the Basel Committee on Banking Regu-
lations and Supervisory Practices issued a Statement
of Principles, which was intended to ensure that
banks are not used to hide or launder funds derived
from criminal activities, particularly from drug traf-
®cking. There is no obligation for suspicious trans-
actions reporting in the Basel Committee Statement.
It only requires that banks should not set out to oer
services or provide active assistance in transactions sus-
pected of being associated with money-laundering
activities.
2
Where there are reasonable grounds for
suspecting money laundering, they should take appro-
priate measures, for example, to deny assistance, sever
relations with the customer and close or freeze
accounts.
3
That is to say, under this document, it is
enough for banks to sever relations with the suspected
customer, rather than report their suspicion to the
competent authorities. It can be concluded that ®nan-
cial institutions do not play a positive and radical role
in the ®ght against money laundering. This situation
re¯ects the fact that the concept of bank secrecy was
deep-rooted at that time. Since banks secrecy rules
are stipulated in many countries, ®nancial institutions
have no choice than to deny assistance, sever relations
with the customer and close or freeze accounts when
they suspect that funds stem from a criminal activity.
The consequence of the above case, however, is that
funds can ¯ow through other undetected channels,
frustrating eorts to combat money laundering. In
consideration of this fact, the 1990 FATF Recommen-
dations take a further step. Recommendation 16 pro-
vides that, `If ®nancial institutions suspect that funds
are connected to criminal activity, they should be per-
mitted or required to report promptly their suspicions
to the competent authorities.'
4
It is meritorious that
the FATF for the ®rst time addressed the issue of
reporting suspicious transactions at the international
level. However, it is easily seen that mandatory report-
ing and permissive reporting are concomitant in the
1990 FATF Recommendation. Thus, in countries
which adopt the permissive reporting obligation, if
®nancial institutions and their employees choose to
make no report to the competent authorities, it is
likely that there will be no result.
One year later, the Council Directive of 10th June,
1991 on the Prevention of the Use of the Financial
System for the Purpose of Money Laundering came
into being. Under this directive, mandatory reporting
of suspicious transactions is stipulated. Article 6 pro-
vides that, `member states shall ensure that credit and
®nancial institutions and their directors and employees
cooperate fully with the authorities responsible for
combating money laundering: by informing those
authorities, on their own initiative, of any fact
which might be an indication of money laundering
. . .' Although the directive does not de®ne or give
examples of suspicious transactions, the mandatory
system of suspicious transactions reporting is con-
sidered as the most eective measure to accomplish
cooperation between ®nancial systems and judicial
and law enforcement authorities.
5
With the evolution of money laundering schemes,
the measures against money laundering activities
need to be dynamic in like manner. To make the
measures against money laundering more eective,
in 1996 the revised 40 Recommendations came into
being. Under these revised FATF Recommendations,
the change from either a mandatory or a permissive
reporting system to a mandatory reporting system is
enhanced.
6
This change re¯ects the FATF's intention
to ensure ®nancial institutions are in a uniform and
consistent way engaging in the ®ght against money
laundering, since the overwhelming majority of
®nancial institutions in FATF member countries
have been working diligently to detect and report sus-
picious transactions.
7
In the current situation, the man-
datory system for reporting suspicious transactions is
Page 252
Journalof Money Laundering Control
Vol.8, No. 3, 2005, pp. 252± 259
#HenryStewart Publications
ISSN1368-5201
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