Law Commission – Anti-Money Money Laundering SARs Regime

Key Anti-Money Laundering recommendations from the Law Commission

Retention of the Consent Regime

Law Commission has recommended that government retain the consent regime and the defence against Money Laundering but has developed a number of recommendations below for government to improve the prevention, detection and prosecution of money laundering and terrorism financing in the UK.

Advisory Board

Law Commission recommends that an Advisory board is created to oversee drafting of AML guidance, to continue to measure the effectiveness of the reporting regime, and to advise government on how to improve it. The law commission says that a introducing a board with responsibility for overseeing the AML regime will make the regime more responsive to new and emerging threats.

Guidance

Law Commission recommends that the government rationalises the existing fragmented and sometimes conflicting guidance across various industries. It also recommends that the Proceeds of Crime Act (POCA) is amended to impose an obligation on the Secretary for State to issue guidance covering the operation of Part 7 of POCA (the section on which covers firms’ AML obligations).

Guidance on the following key concepts is recommended:

• Suspicion: What constitutes suspicion and how to interpret the Da Silva test case in which the judge gave the following definition of suspicion: “A possibility, which was more than fanciful, that the relevant fact existed”. The Law Commission hopes that additional clarity here should reduce the number of low quality Suspicious Activity Reports submitted.
• “Appropriate consent” and “arrangements with prior consent”: To clarify the terminology around this aspect of the consent regime which provides a criminal defence against a money laundering offence providing that this consent is obtained before making a transaction.
• The reasonable excuse exemption: to clarify what may amount to a reasonable excuse for not obtaining consent before making a suspicious transaction.
• Ring-fencing: Guidance on reforms to how criminal property is dealt with in particular circumstances. Instead of freezing the bank account in its entirety, only the funds that are suspected to be criminal would be ‘ring-fenced’ and non-withdrawable.

Suspicious Activity Report Form

Law Commission recommends that Secretary of State prescribes the form of a Suspicious Activity Report (SAR). They recommend the introduction of an online form with a prescribed format that is easier and more accessible for law enforcement agencies to read. The form will be designed to guide reporters to providing the critical information which allows law enforcement agencies to understand more quickly the nature of the suspicion.

A balanced regime

Law Commission makes two recommendations aimed at addressing the balance of the competing interests of the regime (law enforcement and those who are the subject of a suspicious activity report). Whilst, freezing an account prevents criminal funds from being dispersed, the practice of freezing an account entirely can have severe economic consequences on a potentially innocent individual if they have no other source of funds. The two recommendations are:

• The aforementioned ring-fencing reform which would allow suspected individuals access to a proportion of their funds in some cases.
• The addition of a provision to allow funds to be released by a Crown Court Judge where a moratorium period has been applied for.

Moratorium period explained: When an authorised disclosure is made accounts are usually frozen for up to 7 days provided that consent is not refused by the UK Financial Intelligence Unit (UKFIU). If consent is refused, funds are frozen for a further initial moratorium period of 31 days. However, UKFIU can apply for the account to be frozen for a yet another 186 days to in order to fully investigate an authorised disclosure.

Conclusion

ABCUL participated in this consultation last year and are pleased with the outcome of this report. All of the additional guidance proposed should help clarify when credit union Money Laundering Reporting Officers (MLROs) are required to make a disclosure or request consent. We also feel that these recommendations go some way to address the potential serious harm that can arise from freezing someone’s assets, particularly if that person is already financially excluded.

ABCUL is also satisfied that a number of problematic proposals have been dropped such as the proposal to file SARs in relation to ‘serious crimes’. We felt that MLROs already have a difficult job in determining where there is genuine suspicion without having to have the legal knowledge required to determine whether the potential money laundering was a result of an imprisonable offence or some other measure of a serious crime.

Another problematic proposal that has been dropped was that financial entities would share ‘pre-suspicions’ which would involve some level of suspicion below the current ‘more than fanciful’ threshold set by the Da Silva case that would trigger personal data sharing between financial institutions but would not result in a SAR being submitted to law enforcement.

As the level of suspicion for submitting a SAR is already low, we could not see how any pre-suspicion could contain information useful enough to justify sharing individual’s personal information between private entities. On the contrary if the data being shared in the ‘pre-suspicion’ reports contained any useful intelligence on criminal activity then it would in fact be suspicious and should be reported to law enforcement as usual under the consent regime. Our main concern was how this proposal could potentially create a subset of financially excluded people who are refused access to financial services on the basis of ‘pre-suspicion’ flags which by definition are based on very little evidence.

ABCUL’s view is that the Law Commission has found the right balance in its report. ABCUL will keep its members’ informed and revise its AML guidance as the Government implements these recommendations.