Money Laundering and the Regulations: When to Report ‘Suspicious Activity’

The last decade or so has seen the job of detecting financial crime in the UK increasingly outsourced to businesses and professionals in the private sector.

Banks, solicitors, accountants and others have particular obligations when conducting ‘regulated’ business, not only to make reports to the authorities where they have reasonable grounds to suspect money laundering, but also to conduct the sort of due diligence on their customers’ sources of funds and wealth from which suspicions may arise. But for most firms and in most circumstances, the job of deciding whether or not to make a report is not an easy one.

Could my business or anyone in it be guilty of an offence?

The first consideration, not just for those in the regulated sector, is whether you or your business have any liability for a predicate offence, including for instance of failing to report bribery or facilitation of tax evasion, or for breaching financial sanctions. If so, then a self-report to the authorities should be considered (though, importantly, it will not necessarily be either prudent or legally required). The second consideration, again whether your business is regulated or not, is whether you are at risk of liability for handling (or becoming concerned in arrangements about) ‘criminal property’ or ‘terrorist property’ (all of which are very broadly defined), which will include the subjective and often uncomfortable question of your suspicions about your customer. Where a suspicion does arise, a report to the National Crime Agency (NCA) may be necessary to obtain a defence before handling such property or becoming concerned in such arrangements.

Do I have a duty to report?

The third consideration is your duty to report, which (except for solicitors in relation to targeted sanctions) arises only in the course of business in the regulated sector. Here, the question is objective rather than subjective: do you have ‘reasonable grounds’ to suspect someone in engaged in money laundering or terrorist financing? Importantly, these are terms that have specific (albeit broad) legal meanings and can sometimes be misunderstood. The fact that someone is guilty of tax offences, for instance, may or may not also make them guilty of money laundering. Receiving the proceeds of overseas conduct that would be criminal if took place in the UK may also be money laundering, depending on what it was received for and the seriousness of the conduct.

Should I report ‘just in case’?

It may be tempting to adopt a precautionary approach and submit a report whenever the circumstances are ‘too close for comfort’: indeed, this is in practice what most high street banks will commonly do. For a professional who holds information that may be subject not only to a duty of confidence but also to legal professional privilege (LPP), it is not so easy: an aggrieved client who discovers (perhaps via a data subject access request) an improper report may have a legitimate cause of action. Indeed, the protection of ‘privileged circumstances’ in this area can even protect additional categories of material that would not be covered by LPP.

Do I need specialist advice?

The biggest firms will have the specialist expertise needed to deal with these questions in the majority of cases. Most firms, however, do not fall into this category. Indeed, it is an ironic feature of the UK’s anti-money laundering (AML) regime that, while the categories of businesses and individuals who are subject to it have increased, so has the level of specialist expertise required to navigate it. Where a firm or its Money Laundering Reporting Officer (MLRO) is faced with what may be suspicious activity, it will increasingly be prudent to take advice that is prompt, pragmatic, and protected by LPP. The value of such advice is not only to help them comply with both the law and their obligations to their clients, but also (where required, by their regulators, law enforcement, or their clients) to demonstrate that they have done so.

If you’d like to discuss any of the issues raised in this article with one of our solicitors then please get in touch in the strictest confidence.

 

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”). His business crime experience includes representing suspects, defendants and witnesses in cases invoking allegations of bribery and corruption, fraud (including carbon credits, carousel/MTIC, land-banking, Ponzi and pyramid scheme frauds), insider trading, market abuse, price-fixing, sanctions-busting, and tax evasion. He has coordinated and undertaken corporate investigations and defended in cases brought by BEIS, the FCA, HMRC, NCA, OFT, SFO and others.