Concerns that the revised guidance on money laundering offences published by the Crown Prosecution Service (“CPS”) on 2nd June this year will lead to a significant increase in prosecutions brought under section 330 of the Proceeds of Crime Act 2002 (“POCA”) are almost certainly misplaced. Instead, the likely impact will be felt in an increased number of criminal prosecution cases brought for breach of the Money Laundering Regulations 2017 as amended (“MLR”).
Section 330 establishes a criminal offence for a person working in the regulated sector to fail to make a suspicious activity report (“SAR”) where there are reasonable grounds for suspecting that another person is engaged in money laundering. The offence is punishable by a maximum sentence of five years imprisonment and an unlimited fine.
Prior to 2nd June 2021, the CPS had made clear that a prosecution would not be commenced where a person had failed to make a SAR but there is insufficient evidence to establish that money laundering was planned or undertaken. So even where there are reasonable grounds for suspecting money laundering, but no money laundering is taking place, no prosecution would be brought. This position accorded with common sense, as well as a plain reading of the language used by Parliament when enacting the section 330 offence. The public interest in the prosecution of a case where no money laundering is taking place is highly questionable, and in any event the statutory wording makes clear that the failure to report offence is committed only where there are reasonable grounds for suspecting that “another person is engaged in money laundering” (emphasis supplied). As the Government acknowledged when presenting section 330(1) to Parliament, the fact that money laundering was planned or undertaken constituted a material ingredient of the actus reus needed to be proved before the failure to report offence can be committed. (See Lord Goldsmith QC’s statement in the House of Lords on 25 March 2002).
Some years later, the waters were muddied by a decision of the High Court of Justice in Scotland to contrary effect. The Scottish court held that there was nothing in the language of section 330 that required money laundering to be taking place, and it was sufficient for a prosecutor to show merely that a person had failed to make a SAR in circumstances where there were reasonable grounds to suspect that this was so (Ahmad v HM Advocate  HCJAV 60). The Court’s reasoning is not without some attraction since, the policy underlying section 330 is to encourage those working in the regulated sector to make suspicious activity reports, and at the time when reasonable grounds are suspected, it is not always possible for the reporter to know whether or not money laundering is actually taking place.
Basing itself on the Scottish decision, the CPS now says in its revised guidance that from 2nd June 2021 “it is possible to charge an individual under section 330 even though there is insufficient evidence to establish that money laundering was planned or has taken place”.
However, notwithstanding the statutory objective in section 330 to encourage reporting of suspicious activity in the regulated sector, it is shameless that the CPS should have changed its guidance in this way. First, the new policy knowingly flies in the face of a clear representation made to Parliament by the then Government introducing the legislation that a criminal offence would not apply on these facts. Secondly, the guidance in its unrevised form had been followed for almost twenty years without criticism since the legislation was enacted. Thirdly, there is a serious question mark over whether the point of statutory construction was correctly decided by the High Court of Justiciary. It is quite possible that the issue was wrongly decided. Fourthly, whilst Scottish case law is interesting and on occasions influential, it is not binding in the courts of England and Wales. Fifthly, the obligation to prove the existence of money laundering is not an insurmountable obstacle for the prosecution authorities to overcome. The existence of money laundering can be established inferentially by adducing circumstantial evidence. This occurs frequently in prosecutions brought for the commission of the principal money laundering offences under sections 327, 328 and 329 of POCA, and it has not been an insuperable obstacle there. (R v Montila  1 WLR 3141).
Against this background, I look forward to defending an individual who has been charged with a failure to report a suspicion of money laundering where no money laundering is taking place!
In the event, the revised prosecution guidance is unlikely to lead to a significant increase in the number of cases brought under section 330. Although the revised guidance is clear that “it is possible to charge an individual under section 330 [where] there is insufficient evidence to establish that money laundering was planned or has taken place”, the guidance is silent as to the circumstances in which the commencement of such a prosecution would be appropriate. In addition to the “evidential test”, the “public interest” test must also be satisfied, and there will be few cases where this hurdle can be cleared if no money laundering has taken place.
In this type of case, by far the more appropriate CPS response is to initiate a criminal prosecution for breach of compliance requirements which must be satisfied by persons working in the regulated sector under the MLR. The offence is set out in regulation 86(1) and is punishable by a maximum of two years’ imprisonment and an unlimited fine. Rightly, here the CPS emphasises that it is not necessary to prove money laundering in order to successfully prosecute a breach of the MLR requirements. This is consistent with the standing of regulation 86 as a regulatory offence, in contrast to section 330 which is a full-throttled criminal offence.
The revised CPS guidance sets out the type of failures which it has in mind to prosecute. Variously, these may involve failures to identify and assess risks of money laundering, deficient policies and procedures to prevent money laundering, inadequate due diligence when establishing a business relationship, and a failure to cease involvement in a transaction when required to do so.
In recent years, the number of prosecutions brought for breach of the MLR, and equivalent regulations in the Channel Islands, has gradually increased, and this trend is bound to continue. Presumably proceedings under regulation 86 are likely to be deployed in the more serious cases where there have been regulatory breaches, but no money laundering has taken place.
There is a statutory defence set out in regulation 86(3) which provides that a person is not guilty of an offence if “that person took all reasonable steps and exercised all due diligence to avoid committing the offence”. This is helpful for regulated persons to remember, but the protection is limited. The more egregious the breach, the easier it will be for the CPS to negate the defence and prove that all reasonable steps and/or all due diligence could not have been taken.