Proceeds of Crime: new Asset Recovery Action Plan seeks to leave “no safe space” for dirty money
The Law Commission has this week made an important intervention in the world of anti-money laundering with its report on the Suspicious Activity Report (SARs) regime, including an analysis of weaknesses of the current system and a series of recommendations to make things streamlined, clearer and above all more workable.
It has been known for some time that the current regime is confusing and not achieving its intended purpose for an authority with the Law Commission¹s weight to say so is helpful.
There is no doubt that the scale of money laundering impacting the UK needs to be addressed (the latest National Crime Agency (NCA) Strategic Assessment of Serious and Organised Crime 2019-20 report published in May says it is believed to be hundreds of billions of pounds annually).
Given the scale of the problem, the fact that the number of SARS has doubled over the past decade to reach more than 470,000 in 2018-19 – a record for a single year – might appear a positive indication.
However, as the Law Commission highlights, the system has become driven by defensive reporting.
Lawyers, accountants and banks are in fear of being criminalised as professional enablers, thanks to The Proceeds of Crime Act 2002 (POCA) which makes reporting mandatory in certain circumstances and creates personal criminal liability for those responsible for deciding whether to make a SAR.
The result has been an increasing volume of low value reports swamping the limited resources of the NCA’s UK Financial Intelligence Unit (UKFIU).
The current system is not only inefficient and burdensome for the professional community but is also impacting client side too. An unintended collateral consequence of the SARs regime is that individuals and businesses can find their bank accounts frozen and may even have their banking facilities withdrawn sometimes on the basis of a single low value suspicious transaction. Affected individuals and businesses generally have very limited recourse to challenge this process and do not even have the right to know the reason for their account being frozen.
The proposed changes by the Law Commission are therefore to be welcomed. It recommends that the regime is amended to allow particular property (say a particular suspicious transaction) to be ring-fenced by credit and financial institutions, rather than entire accounts being frozen. This would be a more proportionate response and less likely to cause the economic harm that can be the result of an entire account being frozen.
It further proposes the addition of a provision allowing for funds to be released by a Crown Court Judge when an application for an extension to the moratorium period is made.
And lastly the call for statutory guidance to reduce confusion and uncertainty around a number of key legal concepts and ensure reporters understand their legal obligations to report suspicious activity is key.
A significant number of those making SARs are said to misunderstand their legal obligations under Part 7 of POCA, due to the fragmented supervisory regime and a lack of uniformity across approved guidance that has led to conflicting interpretations of the key principles.
There are limitations to this review. The Law Commission was confined to suggesting changes that could be made within the existing legislative framework. Whilst helpful therefore, the recommendations perhaps don¹t go far enough.
At its heart the SARs regime is driven by the fear of the criminal penalties that exist for making the wrong judgement. Most Money Laundering Reporting Officers will be more focussed on that issue than what the regime is intending to achieve.
For the SARs system to work effectively the focus for those responsible for making SARs must not simply be defensive reporting, but also better quality reporting. This report provides sensible suggestions as to how improvements can be made without fundamentally changing the core underlying legislation.
We need to ensure the SARs system works more effectively and is proportionate. A system that is not just about advisers going through the motions to cover their backs, but genuinely assists the authorities in arresting the dirty money problem we face.
Welcome though this report is it makes only recommendations. The next step is for the government to demonstrate its commitment to resolving the problems identified by putting in place the resources that will be required to bring about the changes suggested.
This blog was first published by economia on 20 June 2019.
Jonathan Grimes is a criminal lawyer specialising in serious and complex criminal cases. His practice includes all areas of financial services and business crime, including money laundering and proceeds of crime work. He advises in a wide variety of other criminal law matters with a particular emphasis on cases with an international aspect, including war crimes and related work. Jonathan is rated as a leading expert in Chambers UK and Legal 500 UK.
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