UK Law Commission Seeks Input on Proposals for Reform of Anti-Money Laundering and Counter-Terrorism Financing Law in England and Wales
07/20/2018The Law Commission has published a substantial consultation paper entitled "Anti-Money Laundering: the SARs Regime," seeking views on proposals to reform the law of England and Wales governing anti-money laundering. In particular, the report considers issues around Suspicious Activity Reports, which are the mechanism by which the private sector make disclosures relating to money laundering and terrorism financing.
The Law Commission has identified a number of legal difficulties that arise from the current regime and, following extensive fact-finding meetings with stakeholders, it has also identified a number of issues in the current regime that are causing particular practical difficulties. In the consultation paper, the Law Commission: (i) identifies the most pressing problems and proposes provisional solutions to improve the current regime; (ii) consults on reforming the consent regime within the Proceeds of Crime Act 2002 (POCA), which sets out the process whereby an individual who suspects that they are dealing with the proceeds of crime can seek permission to complete a transaction by disclosing their suspicion to the U.K. Financial Intelligence Unit of the National Crime Agency; and (iii) seeks to generate and consider ideas for long term reform.
The key elements of the anti-money laundering regime of England and Wales are located in Part 7 of POCA, which sets out the money laundering offences, legal obligations to report suspected money laundering (and criminal offences for failure to disclose), the "consent regime" of authorized disclosures which offer protection from criminal liability and a prohibition on "tipping off" (warning an alleged money launderer that a report has been made to the authorities or an investigation has begun). The POCA regime is supplemented by EU law and by the Terrorism Act 2000.
The Law Commission has identified the following legal difficulties within the current POCA regime (and parallel issues within the counter-terrorism financing regime) and makes proposals to address them:
- the "all-crimes" approach, whereby any criminal conduct which generates a benefit to the offender will be caught by the regime as "criminal property" and the consequent impact of this on the scope of reporting;
- the terminology used in Part 7 of POCA and the meaning of appropriate consent;
- the meaning of "suspicion" and its application by those with obligations to report suspicious activity;
- fungibility, criminal property and issues arising from mixing criminal and non-criminal funds;
- the extent to which information should be shared between private sector entities;
- the wide definition of criminal property which applies to the proceeds of any crime and has no minimum threshold value; and
- what should constitute a "reasonable excuse" for failure to make a disclosure within Part 7 of POCA.
The Law Commission's extensive fact-finding meetings with stakeholders have revealed that the following issues cause particular difficulties in practice:
- the large volume of disclosures to the UKFIU (on average, 2000 SARs are received per working day);
- the low intelligence value and poor quality of many of the disclosures that are made in accordance with present legal obligations;
- misunderstanding of the authorized disclosure exemption by some reporters;
- abuse of the authorized disclosure exemption by a small number of dishonest businesses and individuals;
- defensive reporting of suspicious transactions leading to high volume reporting and poor quality disclosures;
- the overall burden of compliance on entities under duties to report suspicious activity; and
- the impact of the suspension of transactions on reporting entities and those that are the subject of a SAR.
Comments on the consultation paper are invited by October 5, 2018.
In the light of the responses the Law Commission receives to the consultation, it will decide on final recommendations to be presented to the U.K. Government.
View the consultation paper.
View the summary of the consultation.
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