Existing reporting obligations
As most financial institutions are aware, the Proceeds of Crime Act 2002 (POCA) requires those in the regulated sector to report knowledge or suspicion of money laundering (Suspicious Activity Report or SAR).
Where a financial institution is concerned about potentially committing a money laundering offence, for example, by carrying out customer instructions in circumstances where it is suspicious about a particular transaction, consent to carry out the transaction can be sought from the National Crime Agency (NCA). By submitting a SAR and seeking consent to proceed, a financial institution is protected from committing a money laundering offence under POCA.
One of the on-going difficulties experienced by financial institutions having made a SAR, is how to deal with its customer in the intervening period when a response is awaited from the NCA, bearing in mind the 'tipping off' provisions under POCA.
The difficulties of balancing the legal and regulatory obligations under POCA with contractual obligations to their customers has led to a number of financial institutions being challenged in the courts, most notably in Shah v HSBC Private Bank (UK) Limited, where the bank faced a significant claim for damages after submitting a SAR and the customer faced losses due to delays in consent being obtained from the NCA. Whilst these challenges have not been successful, they have highlighted a clear deficiency in the legislation, as front line employees faced criticism (and in certain cases cross-examination) for actions taken as a result of their personal liability under POCA.
Amendment to POCA
On 1 June 2015, s.37 of the Serious Crime Act 2015 (the SCA) came into force. The SCA makes numerous amendments to POCA, one of which amends s. 338 of POCA (Authorised Disclosures) to include the following at s. 338(4A):
“Where an authorised disclosure is made in good faith, no civil liability arises in respect of the disclosure on the part of the person by or on whose behalf it is made.”
This important amendment to POCA attempts to deal with the issues which arose in Shahand restrict the ability of customers to bring civil claims against financial institutions as a result of their proper compliance with POCA. It should be noted, however, that the ‘tipping off’ provisions under POCA remain in effect and so whilst a financial institution may act in good faith at all times it is important that the tipping off provisions continue to be adhered to.
What does this mean for financial institutions?
Financial institutions should already be aware of the need to adopt stringent processes around SARs in light of the decision in Shah. The statutory immunity from liability requires financial institutions to demonstrate that they have acted in good faith. Keeping detailed records of the reasons as to why a SAR is submitted, including the basis for the suspicion which has arisen, will be key for financial institutions to demonstrate that it has acted in good faith at all times.
Although the new provision may not prevent a customer complaining, or indeed bringing a civil action against a financial institution, it is a welcome additional form of protection for financial institutions and their employees.