This article was originally published in 2012.
In your previous roles, you may have made internal reports about transactions to your money laundering reporting officer (MLRO), or even helped with making reports to the National Crime Agency (NCA) as a deputy MLRO. However, now that you are the MLRO, the buck stops with you to ensure that your firm meets its reporting obligations.
Under the Proceeds of Crime Act 2002, the mental elements for the principal offences are knowledge or suspicion that criminal property is being laundered. For the failure to disclose offences, the mental elements are knowledge, suspicion or (in the regulated sector) reasonable grounds for suspicion .
So generally, if you suspect, that money laundering is occurring and fail to make a report, you may be guilty of an offence. The challenge for a new MLRO can be deciding... am I suspicious?
What do I have to suspect?
The courts have avoided defining exactly what counts as suspicion, but in the Da Silva case, Longmore LJ stated that an essential element of suspicion is that 'the defendant thinks there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice.' This approach was confirmed in the 2010 Court of Appeal decision in Shah v HSBC.
So the test for suspicion is low, but what is it that you are to be suspicious about?
When training fee earners it is generally best to say if you have any concerns at all, if the client or retainer just doesn’t feel / smell right... come and speak to the MLRO. However as the MLRO, what you must have is a suspicion that money laundering is occurring, before you make a report to the NCA. In order to have money laundering, you must have existing criminal property.
Following Anwoir's case, there are two ways you may form a suspicion of existing criminal property:
- If you know or suspect that a specific type of criminal conduct, such as fraud, tax evasion ordrug trafficking is occurring and you suspect such conduct has generated property.
- If there are such a cluster of warning signs which cannot be satisfactorily explained so that the manner in which you are asked to handle the funds gives rise to an irresistible inference that the funds must be criminal in origin.
For the first limb of the Anwoir test, you are more likely to have direct information from the client, law enforcement agencies, media or other third parties, while for the second limb you will be looking more at warning signs of money laundering.
Chapters 2 and 12 of the legal sector AML Guidance list warning signs that may give you cause for concern. One warning sign provides a basis for making further enquiries of your client. Several warning signs at once, without reasonable explanation, are more likely to provide grounds for suspicion.
Just because a fee earner raises a concern, does not mean that you will automatically have a suspicion. Following the 2011 trial in Shah v HSBC, the court confirmed that, where concerns are raised by an employee, it is appropriate for an MLRO to ask questions about those concerns and review information held on the client before forming their own view about whether they have a suspicion.
However, there is no obligation to undertake extensive investigations to form or test a suspicion.
Once you have formed a suspicion, subject to whether the information is protected by legal professional privilege, you are required to make a report. It is also good practice to document the basis for your suspicion to help defeat any allegations of reporting in bad faith.
Another source of information on possible criminal conduct by a client is the police or other law enforcement other agencies. We occasionally get calls from solicitors who have been contacted by the police and other agencies advising them that their client is under investigation.
Such contact will not automatically transfer the suspicion to you, but like concerns raised by a fee earner, it is something a MLRO should consider in light of all of the information they have on the file.
You may have information on the file that that clearly demonstrates your client's innocence, which would mean that you do not have a suspicion of money laundering.
Otherwise, you should consider carefully the factual information provided by the police or other agencies to support any allegation of wrongdoing by your client, in light of the information on the file and the low threshold for suspicion. A court may be unsympathetic to a solicitor who says they simply disregarded specific warnings about a client provided by the police or other agencies.
Equally, if as a result of contact from the police or other agencies you decide that you have a suspicion, you will need to carefully consider what you put in the suspicious activity report.
You are not permitted to provide information which is subject to privilege, and for the crime/fraud exemption to apply, you need strong prima facie evidence that you are being involved in a criminal offence, not just a suspicion. Any requests by the police or other agencies for files should be accompanied by an appropriate court order or notice.
Making a report to the NCA
Once you have decided that you have a suspicion of money laundering, and that privilege does not apply, the next thing to do is to actually submit the report. For more information on how to do so, see Seven steps to SARs success, Making a suspicious activity report and chapter 9.3 of the legal sector AML Guidance.