THE LAW COMMISSION SARS REPORT: THE NEXT LEG OF A JOURNEY
The Law Commission has concluded that the POCA consent regime should be maintained but improved to make it more efficient and effective, says Sue Mawdsley
T he Law Commission has been undertaking a review of the Proceeds of Crime Act 2002 (POCA) consent regime since 2017. After wide consultation with stakeholders, its report, Anti-money laundering: the SARs regime, was published on 18 June 2019. The background to the review stems from criticism of the current regime operating in the UK. A little bit of a history may give that criticism some perspective. Since the introduction of the consent regime, and the Money Laundering Regulations 2003, the UK has operated a system whereby lawyers (and other relevant professionals) handling client matters and who suspect that proceeds of crime may feature in that matter, may make an authorised disclosure to the National Crime Agency (NCA); the current UK Financial Intelligence Unit (FIU); through their firm’s money laundering reporting officer (MLRO) or nominated officer – and receive appropriate consent to continue with that matter without committing a money laundering offence.
There are a large number of jurisdictions, including the Republic of Ireland, where there is no such consent regime. The legislation provides for a relatively short turnaround period of seven working days, which on any interpretation – and given the number of potential ‘disclosers’ – does not afford time for a great deal of investigation to be undertaken, whatever the level of resources available. As those involved in the area for many years will know, there have been various iterations of the UK FIU culminating in the NCA. As last year’s Financial Action Task Force (FATF) Report on the UK identified, given that until now the NCA has had neither huge resources nor modern technology at its fingertips, the chances of it being able to make meaningful decisions on authorised consent must surely mean that often, consent is given and any enquiry ensues subsequently.
Since the NCA came into being in 2013, this system of consent has been scrutinised by law enforcement; and concerns raised that the consent may be seen as a licence to, effectively, allow matters to proceed which assist money launderers – where it would be better if professionals refused to act. Over the past decade, there have been numerous articles and speeches referring to ‘professional enablers’ (unwittingly, for the most part) facilitating the concealing of proceeds of crime, say, through property purchases. The NCA stopped using the term ‘appropriate consent’ and started using ‘DAML’ (Defence Against a Money Laundering offence) to highlight that consent was not a cover-all for any and every potential offence or legal consequence that could arise if money launderers were assisted. POOR QUALITY SARS There was also widely publicised criticism by the NCA of the quality of some of the authorised disclosures or suspicious activity reports (SARs) submitted. Some, it was said, effectively sought consent to act on a general and ongoing basis for someone who appeared to have, for example, associations with a highrisk country. This, of course, is why firms have to undertake customer due diligence meas-ures and risk assessment to ensure it does not constitute an authorised disclosure.
Running alongside all of this, there is no statutory definition of what amounts to a ‘suspicion’ – the trigger for needing to make an authorised disclosure to the NCA. Until clarification was provided in Bowman v Fels (2005) and subsequent guidance from the Law Society, it was unclear where the obligation to report sat in relation to the obligations under legal professional privilege. In the early days, precautionary reports were not unusual and this led to a large volume of reports from law firms, particularly, for example, those dealing with family law financial settlements. Since that was clarified, there has been a diminution in reports from the legal sector; something else which has been the subject of criticism when many of the methods used to launder money must involve services provided by law firms, for instance, property transactions, operation of front companies or use of trust structures to mask the ownership of money. Given the interpretation and understanding of what amounts to a suspicion (most clearly set out in the case of R v Da Silva (2006)), it is very easy to encounter the circumstances required for information to amount to a suspicion: “a possibility, which is more than fanciful, that the relevant facts exist”. While nobody could suggest that lawyers should be able to use the consent regime – or the DAML regime as it has come to be known – as an easy way of accepting even overtly nefarious activities of a client with criminal intent; ethics and wider professional obligations and exposure to other offences beyond money laundering obviously come into it.
This is because lawyers handling matters for their clients on a day-to-day basis are going to come across situations within the Da Silva definition. So – lawyers are criticised for making too few reports, reports of poor quality and playing the role of ‘professional enablers’, no matter how unwittingly. Unless the position on what amounts to a suspicion changes, or the definitions of criminal property and criminal conduct (which are very wide indeed and with no de minimis cut off), it is difficult to see how they could function without the consent regime.
COMMISSION: IMPROVE THE REGIME
The Law Commission review did not focus solely on the legal profession but looked at the entire SARs regime, seeking contributions from all key stakeholders. I contributed to the discussion by participating in the symposium held by the Law Commission to share and obtain commentary on the provisional proposals in its consultation paper in July 2018.
The Law Commission report (now available) recommends that the consent regime is maintained, but subject to improvements to “render it more efficient and effective”.
The key recommendations which may impact on law firms are:
— Retaining the consent regime – with the improvements, as mentioned.
— Creation of an advisory board – this was an overarching recommendation. Constituted by those with relevant expertise, the board would oversee drafting of guidance, measure the effectiveness of the reporting regime and make recommendations on ways to improve it.
— Guidance – imposition of an obligation on the secretary of state to provide guidance, including on the key areas of Part 7 of POCA which relate to businesses in the regulated sector, such as the definition of ‘suspicion’, ‘appropriate consent’ and ‘reasonable excuse’. The report recommends an amendment to the legislation to provide for this.
— Manner of making a report – a specific reporting method using a prescribed form and making best use of technology, shaping the reporting process so that quality is addressed and providing the NCA with the key information it needs to make the process useful.
— Limiting the scope of reporting – tackling the longstanding issue of the requirement to make what lawyers often refer to as reports on technical breaches, eg. reports which are self-evidently of little investigative value, but may technically require reporting because of the breadth of the ‘criminal conduct’ and ‘criminal property’ definitions referred to above.
The Law Commission did, however, recommend retaining the “all crimes” definition rather than just all “serious” crimes on the basis that it would create more challenges and “add an extra layer of unnecessary analysis”. What happens as a result of the recommendations remains to be seen once the government has reviewed and considered them. If implemented, in particular guidance on the definitions and the potential removal of the requirement for technical reports could well assist the life of the law firm MLRO.
