John Binns discusses NCA fraud reporting system with Money Laundering Bulletin

John Binns discusses NCA fraud reporting system with Money Laundering Bulletin

BCL partner John Binns’ article discussing the NCA’s head of the Financial Intelligence Unit’s comments, calling for further reform of the system for flagging potential money laundering, has been published by Money Laundering Bulletin.

Here’s an extract from the article:

Record numbers

The latest set of figures for Suspicious Activity Reports (SARs) in the UK, from the UK Financial Intelligence Unit (UKFIU) of the National Crime Agency (NCA), showed a record number of 573,085 in the year to March 2020, a 20% increase on the previous year. The increase was even greater in those SARs that requested consent, or a Defence Against Money Laundering (DAML), which showed an 81% increase to 62,408.

Announcing the figures, the head of the UKFIU, Ian Mynot, reportedly called for further reform of the SARs system, citing a tendency towards low quality or unnecessary defensive reports. For those of us whose roles include having to make such reports, that is a comment that needs some unpacking. In truth, it makes two quite distinct points, of which the first is so obvious that it need not be said at all, and the second is so unfair that it would be better left unspoken.

A system with flaws

To start with the point on which most would agree, this is not a system that is working perfectly well as it is; many, including the NCA and the reporting sector, have been arguing for some time that it needs reform. The sheer volume of reports generated and received by the UKFIU is simply too much for it to process, analyse and act upon, which means that a lot of the effort and resource put into it from the private sector is going to waste. The issue, of course, is about what reforms are appropriate, or even possible.

Broadly speaking, the problem is that the Proceeds of Crime Act 2002 (POCA) creates criminal liability for handling property that comes from crime wherever the person handling it has a suspicion that this is so, subject to a defence of consent (the DAML regime), and separately requires the regulated sector to report wherever there are ‘reasonable grounds’ for such a suspicion. This inevitably creates strong incentives to report and request consent wherever even low-level suspicions arise, the alternative being the prospect of several years’ imprisonment.

The latest round of debate began with an ill-advised plea from the NCA itself to consider abolishing the DAML regime altogether, leaving banks and other reporters to decide for themselves what to do with funds and transactions that they regarded as suspicious. With this clearly unworkable idea set quietly aside, the Law Commission was asked to look at what reforms could be made without either changing the terms of POCA or vastly increasing the resources of the UKFIU. Not surprisingly, it recommended little more than statutory guidance on, for example, what would constitute ‘reasonable grounds’ for suspicion. Even that small step has not been taken forward at the time of writing.

This article was originally published by Money Laundering Bulletin on 30/11/20 . You can read the full article on their site.

John Binns is a partner in the business crime and corporate regulatory department of BCL Solicitors LLP, with experience in advising corporate and professional clients on criminal law aspects of the regulation of controlled drugs and medicinal products, including criminal enforcement and asset-freezing by the MHRA.