Internal Reporting Procedures relating to Suspicious Transactions and the Filing of STRs – Recent changes to the FIAU Implementing Procedures

In the case of subject persons, the five (5) day working period has been, for many years, synonymous with the time frame within which suspicious transactions were to be reported to the FIAU.  Following the changes to the Prevention of Money Laundering and Funding of Terrorism Regulations (the “Regulations”) which entered into force on the 22 May 2020 (through Legal Notice 214 of 2020), this period is no longer applicable. As set out in Regulation 15(3) of the PMLFTRs, subject persons are now obliged to report any such transaction promptly.

The replacement of the five (5) day working with an obligation of a prompt submission has necessitated some changes to the FIAU Implementing Procedures (the “Implementing Procedures”) on how subject persons are meant to comply with this obligation. On the 15 September 2020, the FIAU, in fact, published a marked-up version of Chapter 5 of the Implementing Procedures highlighting, among other things, the changes to Section 5.4 on Internal Reporting.

Internal Reporting to the MLRO

Where an employee of a subject person becomes aware of any information or matter, that, in his opinion, gives rise to knowledge or suspicion that a person or a transaction is connected to money laundering (ML) or funding of terrorism (FT), the employee should treat the matter with utmost urgency and shall report the matter to the MLRO without delay.  It is crucial for employees to be aware that the Implementing Procedures expressly state that the expectation of the FIAU is that the internal report to the MLRO is made by not later than the next working day and therefore, “without delay” should be construed accordingly.

Discussions with an employee’s superior before raising an internal report need also to be factored in within this time frame.  In other words, these discussions should be undertaken with priority in such a way that the internal report is raised with the MLRO by not later than the next working day from when the employee became aware of the matter.

Where a transaction is alerted to a subject person through automated transaction monitoring (e.g. a transaction exceeding certain thresholds or a transaction with unusual features), it is understood that the reports generated by the system will need to be analysed further.  The assessment of these reports is also to be undertaken with priority and a report to the MLRO is to be raised without delay, and in any case, by not later than the next working day from when the transaction in question was “found to have an indication of knowledge or suspicion” of Money Laundering/Funding of Terrorism (“ML/FT”).

Subject persons are to ensure that its Internal Procedures are updated accordingly and that all their staff members within the relative teams are clearly cognisant of these time frames.

Consideration of internal reports by the MLRO

The MLRO must consider, with the utmost urgency and without unreasonable delay, every internal report he/she receives to determine whether or not the information contained in the report:

• does give rise to a knowledge or suspicion of ML/FT in which case the MLRO should proceed to submit a STR to the FIAU in a prompt manner in accordance with the reporting procedures set out in the Implementing Procedures; or
• whether additional information is necessary to reach this determination.

In the latter circumstances, the MLRO must collect and consider without delay any such additional information.

It is noticeable that throughout the new additions to the Implementing Procedures the emphasis is on action being taken “without delay” or “without unreasonable delay”.  The FIAU states that a clear definition of what constitutes an unreasonable delay is not possible, as this may vary from one case to another. However, the Implementing Procedures provide that subject persons should be guided by the following expectations:

• MLROs are not expected to carry out investigative or analytical work. Their role is that of determining whether there is knowledge or suspicion of ML/FT which ought to be flagged to the FIAU for analysis;
• The highest priority should be given to those cases which might be related to FT;
• Priority should also be given to cases of ML involving substantial amount of funds (especially if the funds in question are still within the control of the subject person), pending transactions, or cases involving PEPs;
• MLROs should be supported by adequate human and technical resources to be able to make such assessments as expeditiously as possible;
• Where the MLRO identifies the need to obtain information from the customer or any person or other external sources, the request should be made immediately and followed up regularly. The lack of cooperation, including non-response, by a customer could be seen as a further indicator of suspicion;
• Information that is already held by the subject person (e.g. previous transactional history or information on connected accounts) should be obtained without delay; and
• There shouldn’t be any unnecessary delays in making the necessary considerations and determinations.

The Implementing Procedures expressly provide that the subject person and MLRO are not only expected to ensure that their ongoing monitoring and internal/external reporting processes are conducted in an expeditious and effective manner, “but that the analysis of internal reports is carried out with the necessary due diligence, keeping in mind that subject persons would be in breach of their reporting obligations where they are in possession of information that constitutes even a reasonable ground to suspect ML/FT, and which is not brought to the attention of the FIAU.”

The FIAU recommends that timing is an aspect that should be clearly considered by subject persons when drawing up their internal reporting procedures, especially if they include intermediate filtering levels.

Submission of the STR by the MLRO

The Implementing Procedures require the MLRO to make any disclosures to the FIAU promptly, meaning that a suspicious transaction report should be submitted on the same day when knowledge or suspicion of ML/FT is considered to subsist by the MLRO. This notwithstanding, there is a recognition by the FIAU that “in certain more complex cases the compilation and submission of the STR within the same day when the knowledge or suspicion of ML/FT would prove challenging in view of the extensive volume and/or complexity of information / documentation that may need to be provided. In such instances the MLRO shall ensure that the STR is submitted within the shortest time possible.”  In such a situation the STR need not therefore be submitted within the same day. However, one needs to clearly construe “within the shortest time possible” in the context of the obligation to report promptly and without undue delay.  It is therefore highly advisable that the MLRO records the process undertaken by him or his team from the moment of receipt of the internal report leading up to the filing of the STR in order to substantiate the timing of the relative submission.