Last year, the UK's Law Commission promised the Home Office that it would review Part 7 Proceeds of Crime Act 2002 and Part 3 Terrorism Act 2000 with a view to making their provisions more helpful to the Government. Its consultative paper has arrived and contains several recommendations.

The review looks mainly at the reporting of suspicious activity and especially at its usefulness for money-laundering-reporting officers as a defence against money laundering or terrorist financing offences.

At the moment

The Proceeds of Crime Act 2002 (POCA) sets out three primary money laundering offences in ss327-329 which apply to everyone. POCA also requires some people, for example those in the regulated sector, to report their suspicions about money laundering; failing to do so is a criminal offence unless there is a “reasonable excuse” not to report (see ss330-332). 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.” Financial institutions and other firms make suspicious activity reports (SARs) to the National Crime Agency, which might investigate before either giving or refusing permission/consent to transact. Such an 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 tell the subject of the report why.

It is thought that the NCA receives 2,000 SARs each day, with 100 seeking permission to transact and thus potentially affording the senders a defence to a charge of money laundering or terrorist financing.

The problems

The paper looks at the consent regime's various problems, which include the following.

• There are countless low-quality SARs and this makes investigation difficult. Between October 2015 and March 2017, the NCA received 27,471 SARs whose authors wanted its consent to proceed with transactions, so this is a significant problem.
• The regulated sector has to pay a fortune to comply. British banks say that they spend at least £5 billion annually on core financial crime compliance, adding to their systems and controls and recruiting staff.
• Businesses and people who are the subject of disclosures are in danger of losing business. They cannot be told why transfers of funds are delayed, becuase of the “tipping off” offence.

Points of the review

The review therefore will analyse the functions of, and benefits and problems arising from, the consent regime. There are seven of these.

• The defence provided by the consent regime to the money laundering and terrorist financing offences.
• The ability of law enforcement agencies to suspend suspicious transactions and thus investigate money laundering and restrain assets.
• 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.
• The abuse of the automatic defences that the laws afford to their money laundering and terrorist financing offences.
• The underlying causes of defensive over-reporting of suspicious transactions under the consent and disclosure provisions.
• The burden placed by the consent/disclosure provisions on firms that have a duty to report suspicious activity.
• The effect (on reporting entities and entities that are the subject of reports) of the suspension of transactions in accordance with the consent provisions.

Proposals to bolster enforcement

These include:

• Statutory rules that set out things for banks to look for, perhaps with a set format for the submission of SARs.
• The use of new techniques such as US-style Geographic Targeting Orders.
• A new power for the Government to require banks to send it additional details and keep additional records that pertain to transactions that it specifies.
• Obliging banks to concentrate on accounts where there are reasonable grounds to suspect the presence of criminal property.
• Legal protection for banks that opt to freeze suspected criminal funds in an account while leaving the person who is the subject of a disclosure to use the rest trade freely, thereby minimising his chances of seeing his business ruined.
• A public proclamation about the things that can contribute to a defence of ‘reasonable excuse’ for not making a suspicious activity report.
• A straw poll on whether commercial organisations, rather than the individual employees, should be liable for failure to prevent a criminal offence when an employee fails to disclose his suspicion.

Long overdue?

This review is designed to assuage some of the criticism that many have levelled at this cumbersome and confusing regime in recent years. Comments from the regulated community are welcome until 5 October 2018.

* The City law firm of Kingsley Napley can be reached on +44 (0)20 7814 1200