AML: reforming the suspicious activity reporting regime – have your say

25 July 2018

It seems there is no escape from pronouncements on the scourge of money laundering and how tackling economic crime is a government and law enforcement priority. From the Treasury Select Committee inquiry into Economic Crime to the Financial Conduct Authority’s Anti-Money Laundering Report 2017-18 the message is clear: money laundering is a facilitator of almost all serious, organised and major crime. Tackling it is absolutely a strategic priority for law enforcement in the UK. (See our related blogs)

In addition to political commitments and high level developments, further legislative and procedural reform may be afoot.

In 2017, the Law Commission agreed with the Home Office to review and make proposals for reform of limited aspects of the anti-money laundering regime in Part 7 of the Proceeds of Crime Act 2002 (“POCA”) and of the counter-terrorism financing regime in Part 3 of the Terrorism Act 2000. The primary purpose of the review is to improve the prevention, detection and prosecution of money laundering and terrorism financing in the United Kingdom.

The Law Commission has now published a consultation paper to move the debate forward and set out a number of recommendations.

Parameters of the review

The review will essentially focus on the current reporting of suspicious activity regime and specifically when it is used to seek a defence against money laundering or terrorist financing offences.

What is the system now?

The Proceeds of Crime Act 2002 (POCA) sets out three primary money laundering offences (s327- 329) which apply to everyone. POCA also requires some, for example those in the Regulated sector, to report suspicions of money laundering and failing to do so is a criminal offence unless there is a “reasonable excuse” not to report it (s330-s332). There is also a separate offence of “tipping off” once a report has been made (s330A). These provisions are mirrored in the Terrorism Act 2000.

The regime also provides for a defence to the three primary money laundering offences, if an “authorised disclosure” has been made. This is what is sometimes referred to as “permission to transact or proceed”. Suspicious activity reports (SARs) are made to the NCA who will then investigate before either giving or refusing permission/consent. However the investigation can take days, weeks and sometimes months, and in the meantime the reporter cannot do anything with the money/property in question and cannot inform the subject of the report why.

There are said to be 2000 SARs received each day, with 100 seeking permission to transact and thus a defence to money laundering or terrorist financing. 

The problems

The consultation highlights various issues with the current consent regime which include:

  • the significant numbers of low quality SARs which makes investigation difficult – for example, between October 2015 and March 2017, the NCA received 27,471 suspicious activity reports seeking consent to proceed with a transaction;
  • an onerous compliance burden on the regulated sector –  UK banks say that they spend at least £5 billion annually on core financial crime compliance, including enhanced systems and controls and recruitment of staff;
  • the risk of severe financial loss to businesses and individuals who are the subject of disclosure – they cannot be told why transfers of funds are delayed due to a “tipping off” offence.

Detail of the review

The review therefore will analyse the functions of, and benefits and problems arising from, the consent regime, including:

(a) the defence provided by the consent regime to the money laundering and terrorism financing offences;

(b) the ability of law enforcement agencies to suspend suspicious transactions and thus investigate money laundering and restrain assets;

(c) the ability of law enforcement agencies to investigate, and prosecutors to secure convictions, as a consequence of the wide scope of the money laundering and terrorist financing offences;

(d) the abuse of the automatic defence to money laundering and terrorism financing offences provided by the consent provisions;

(e) the underlying causes of the defensive over-reporting of suspicious transactions under the consent and disclosure provisions;

(f) the burden placed by the consent provisions and disclosure provisions on entities under duties to report suspicious activity; and

(g) the impact of the suspension of transactions under the consent provisions on reporting entities and entities that are the subject of reporting.

Proposals to streamline and strengthen enforcement

Proposals include:

  • statutory guidance on what to look for and a set format for submitting suspicious activity reports;
  • asking whether new tools could help enforcement for example the US-style Geographic Targeting Orders;
  • a new power to require additional detail and record keeping requirements targeted at specific transactions;
  • cutting back on low quality reports by focusing on accounts where there are reasonable grounds to suspect property is criminal property;
  • legal protection for banks which choose to lock into an account the suspected criminal funds but leave the rest of the account open to trade thereby minimising the risk of severe financial loss for those who are the subject of a disclosure;
  •  providing detail as to what amounts to a defence of ‘reasonable excuse’ for not making a suspicious activity report; and,
  • asking whether commercial organisations, rather than the individual employees, should be liable for failure to prevent a criminal offence when an employee fails to disclose a suspicion.

Long overdue

This review will hopefully go some way to addressing the significant criticism of what is generally seen as a cumbersome and confusing regime and lead to one which is more streamlined, clearer and above all workable.  

The consultation will run until 5 October 2018.

Further information

Should you have any questions about the issues covered in this blog, please contact a member of our Criminal Law team.

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