Money laundering is estimated to cost every UK household £255 each year. Enacted in 2003, Part 7 of the Proceeds of Crime Act 2002 (‘POCA’) represented a watershed in Parliament’s efforts to tackle the money laundering problem. For the first time, lawyers, businesses and other individuals were required to act as instruments of the State by providing information about suspected criminal activity through Suspicious Activity Reports (‘SARs’). Information provided through SARs remains crucial in helping law enforcement agencies identify the proceeds of crime and investigate money laundering and wider criminality.
Over the last ten years, the number of SARs has doubled. This might suggest that the regime is working effectively. Yet the efficacy of a SAR depends on its quality. High quality SARs are data rich but many are of low quality and therefore of limited use. With the aim of improving the prevention, detection and prosecution of money laundering and terrorism financing in the UK, the Home Office asked the Law Commission in 2017 to conduct a review of the systemic problems in the suspicious activity reporting process. The Law Commission published its report (Law Com No 384 (‘the Report’)) on 18 June 2019.
The Report considers the legislative distinction between the two types of disclosure that are made to the UK Financial Intelligence Unit (‘UKFIU’): ‘required disclosures’ and ‘authorised disclosures’. As the name suggests, ‘required disclosures’ are those required by law. A person who fails to submit a ‘required disclosure’ in accordance with their obligations under Part 7 of POCA may be liable for prosecution for one of three disclosure offences contrary to sections 330, 331 and 332 of POCA. An ‘authorised disclosure’, in contrast, is a voluntary disclosure, triggered when a person has a suspicion that they have encountered criminal property and the person with the suspicion wishes to do one of the acts prohibited in sections 327, 328 and 329 of POCA (respectively concealing, disguising, converting or transferring criminal property; becoming concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property; and acquiring, using or possessing criminal property).
According to the Report, ‘required disclosures’ require minimal processing. They are made available to law enforcement agencies and have the potential to be exploited as a useful source of intelligence. They may trigger an investigation or lie dormant unless and until they become relevant. ‘Authorised disclosures’, however, require additional resources. As they alert law enforcement agencies to criminal property which is about to be the subject of some activity, they require an informed response within defined time limits. On average, 2000 SARs are received by the UKFIU each working day. Of those, 100 will be ‘authorised disclosures’ seeking consent to proceed with a financial transaction (now referred to by the UKFIU as a defence against money laundering or ‘DAML’ SARs and defence against terrorist financing or ‘DATF’ SARs). The UKFIU (which is part of the National Crime Agency (‘NCA’)) has 25 members of staff dedicated to processing DAML and DATF SARs. According to the NCA, the volume of authorised disclosures continues to rise and the regime in its present form is untenable.
Anyone who has had to consider making an ‘authorised disclosure’ will know that deciding whether, when and what to submit often involves finely–balanced decisions. When has the relevant threshold for suspicion been met? What is the position if you have a general suspicion but cannot identify with any degree of precision the criminal property in question? What if ‘dirty’ funds have been mixed with ‘clean’ funds? Do the ‘dirty’ funds need to be traced, or is the requirement to submit a SAR triggered where there is possession of sums equivalent in value to the sum of the criminal property? Do you have a ‘reasonable excuse’ if you have submitted a SAR to the UKFIU but it has been rejected as lacking specific information which is not known and cannot be provided? The existing guidance issued by the NCA is not as helpful as it might be and imposes requirements regarding specificity which are not reflected in the ‘authorised disclosure’ statutory scheme.
To assist reporters making disclosures (both ‘required’ and ‘authorised’) with the answers to questions such as these, the Law Commission recommends (amongst other measures):
- The creation of an Advisory Board to oversee drafting of guidance, to continue to measure the effectiveness of the reporting regime and to advise the Secretary of State on ways to improve it.
- Rationalising the existing ‘fragmented and sometimes conflicting’ guidance across industries by imposing an obligation on the Secretary of State to issue guidance covering the operation of Part 7 of POCA. Guidance should be provided on a number of key statutory concepts including suspicion, ‘appropriate consent’, the reasonable excuse exemption and ringfencing criminal property.
- Using the Secretary of State’s existing power to prescribe the form of a SAR.
Detailed, authoritative guidance in an area fraught with such difficulty can only be welcome. Until such guidance is published, however, practitioners will have to continue to grapple with the existing regime as best they can.