Reform of the Suspicious Activity Regime: A Wild Goose Chase?

BCL Partner, John Binns looks at the Law Commission’s consultation on the problem of Suspicious Activity Reports.

The Law Commission is currently consulting on aspects of the Suspicious Activity Reports (SARs) Regime under the Proceeds of Crime Act 2002 (POCA), with a deadline for responses of 5 October 2018. By way of background, this regime comprises two parts: the first provides defences to money laundering offences where the person submits a SAR to the National Crime Agency (NCA) and requests consent; the second requires banks and others in the regulated sector to submit SARs where they know or suspect, or have reasonable cause to suspect, that a person is money laundering.

The main trigger for the consultation is that the NCA is increasingly finding the volume of SARs it receives unmanageable, particularly those in the first category (which request consent). The consultation acknowledges two main causes for this: the ‘all crimes’ approach, by which laundering can be committed with the proceeds of literally any offence, however trivial; and the broad nature of ‘suspicion’ in this context. It asks for views on finding a narrower definition of ‘serious crime’, and of requiring statutory guidance on what ‘suspicion’ means. Peculiarly, it also suggests providing a defence for those who fail to report based on a suspicion that turns out to be true, but which he shows was not based on reasonable grounds.

The consultation also makes a number of suggestions in other areas. With respect to ‘mixed funds’ (that is, which contain a mix of tainted and untainted money), it suggests a specific defence for credit institutions who pay out the untainted part and leave the tainted part intact. With respect to the scope of the obligation to submit SARs, it suggests guidance that would limit the obligation to submit where (for instance) the offences concerned are of low value, or very old, or have no connection to the UK. It also asks about how consent is defined in this context, whether and when banks and others should share information about their customers, and possible new corporate offences to supplement or replace the regime.

The overall impression given by the consultation is of a regime that has multiple unconnected problems, and a distinct lack of an overarching vision of how to reform it. The most important problem in fact, barely acknowledged by the consultation, is that of resources: having set up in POCA a system that generates vast amounts of intelligence for law enforcement, the UK has singularly failed to put the investment into the NCA (and, more specifically, in the computer system that receives and analyses SARs) that is needed in order to make use of it.

The Law Commission has done its best to take a fair look at the regime within the parameters it has been given, but while a number of its suggestions have some merit, it can necessarily offer no magic bullet to solve the problem of SARs. Absent any realistic proposals on funding the system, the consultation and its responses can do little more than fiddle on the margins, proving the adage that no answer is what the wrong question begets.

The Law Commission’s page on the consultation is available to view here.

 

John Binns is a partner at BCL specialising in all aspects of business crime, with a particular interest in confiscation, civil recovery and money laundering under the Proceeds of Crime Act 2002 (“POCA”). He has particular expertise in the myriad legal provisions on anti-money laundering (“AML”) requirements in the regulated sector under the Money Laundering Regulations (“MLR”), civil recovery and confiscation of the proceeds of crime, and criminal offences of money laundering under POCA, as well as related areas such as financial sanctions. He advises businesses (inside and outside the regulated sector) on AML policies and procedures generally, as well as particular risks that may arise under the MLR, POCA, and sanctions laws, including advice on the submission of Suspicious Activity Reports and consent requests. He regularly represents individuals and businesses in connection with confiscation, property freezing and restraint orders, including in relation to applications to defend, discharge or vary such orders.

If you wish to discuss this topic or any other business crime issue please contact John Binns in the strictest confidence.