Earlier this year the Law Commission issued a consultation asking how the UK’s Suspicious Activity Reporting (SARs) regime could be improved. The consultation paper is a detailed and comprehensive analysis of the UK’s SARs regime under the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000. The regime is picked apart and contrasted with the reporting benchmarks set in the EU and with practices in other countries.
The consultation paper focuses primarily on the workability of the regime across all sectors. Although examples from the banking sector are used more often and analysed in more detail than those of solicitors, many of the interim conclusions of the consultation agree with the Law Society’s previously expressed views.
The Law Commission recognises that the current regime leads to large volumes of low value SARs being reported; that the UK Financial Intelligence Unit is receiving far more SARs than originally envisaged, and that the UK’s reporting thresholds are for the most part lower than in the EU or other countries.
In fact, the UK submits the largest number of SARs in the EU. At least some of these SARs are reports made on issues that are far removed from organised crime. The example of a SAR submitted on a breach of a Tree Preservation Order shows that there are clear problems with the regime and the burden it places on reporters.
Law Commission proposals
The Law Commission asked respondents whether the problems could be solved by making some or all of the following changes (not exhaustive):
- adopting a serious crimes approach instead of the current all-crimes approach
- amending the lowest reporting threshold from ‘suspicion’ to ‘reasonable grounds for suspicion’
- issuing government-level guidance on reasonable excuses
- providing reasonable excuses in new circumstances such as where the substance of a report is wholly in the public domain (so far only the HM Treasury approved Legal Sector AML Guidance includes this reasonable excuse).
Less substantive suggestions included:
- defining suspicion
- providing government guidance on the suspicion threshold
- providing further government guidance on ‘consent’
- making SARs reporting forms more user-friendly.
Other proposals focused on improving information-sharing practices across the regulated sectors.
The Law Commission asked whether additional reporting requirements (such as Geographic Targeting Orders) should be introduced and, unexpectedly, whether the existing regime under the Money Laundering Regulations and POCA should be duplicated by introducing a new corporate criminal offence for failure to report suspicions.
Law Society’s response
Our response makes clear that many of these suggestions would only tinker around the edges of the SARs reporting regime. It is unlikely, for example, that solicitors currently make SARs without any ‘reasonable grounds’ for their suspicions, so raising the reporting threshold would not significantly reduce the reporting burden.
A serious crimes approach (instead of the current all-crimes approach) would be unlikely to be adopted and would come with its own challenges, potentially putting the onus on reporters to identify the predicate offence.
Suggestions for additional guidance on areas where plenty of guidance is already available would simply use up valuable government time in duplicating information rather than introducing substantive reform.
We have recommended two major changes. The first, not mentioned by the Commission, is a proposal to introduce a reasonable excuse defence for failure to report specific offences on a ‘de-scoped list’. The new list would contain offences recognised by law enforcement as well as reporters as generating low value intelligence. Tree Preservation orders and other failures to obtain licenses could be included on this list, as could minor regulatory offences and situations where a SAR was only generated by the reporter being presented with a production order from a law enforcement agency.
The second change supports a proposal by the Law Commission. We agree that statutory guidance on reasonable excuses would help reporters gain confidence in relying on those reasonable excuses. The guidance would need to include the reasonable excuses currently available in supervisors’ guidance. If done well, this change could reduce the number of low value SARs currently received by the NCA and save reporters time.
We have opposed proposals to duplicate existing criminal penalties in the Money Laundering Regulations through the introduction of another corporate criminal liability offence and have rejected suggestions for additional reporting obligations through geographic or other ad hoc targeting orders.
Other reforms suggested by Law Commission, such as the proposal to make SAR Online more user friendly, would be very welcome.
The Law Commission’s response to the consultation is expected in the new year.