In 2018 the government asked the Law Commission to review aspects of anti-money laundering (AML) legislation in the UK.
In July 2018 the Law Commission opened a consultation focusing on the defence against money laundering (DAML) regime (also known as the ‘consent regime’) in part 7 of the Proceeds of Crime Act (POCA) 2002 and part 3 of the Terrorism Act 2000.
The Commission’s view was that the regime was not working as well as it could. This was because the:
- current regime leads to large numbers of suspicious activity reports (SARs) being submitted that are of limited use to law enforcement
- UK Financial Intelligence Unit is receiving far more SARs than was initially envisaged
- UK reporting thresholds are lower than most countries
Law Commission proposals
In the consultation, the Law Commission initially asked whether some of these problems could be solved by:
- adopting a serious crimes approach instead of the current all-crimes approach
- changing the lowest reporting threshold from ‘suspicion’ to ‘reasonable grounds for suspicion’
- issuing universal rather than sector-specific guidance on reasonable excuses (for more information on reasonable excuses, see sections 6.5.1 and 6.7.1 of the AML guidance)
The Law Commission published its final report on 18 June 2019. It ultimately made 19 recommendations, including creating an advisory board to:
- oversee the drafting of guidance
- measure the effectiveness of the reporting regime
- recommend improvements
- input into SARs analysis
It also recommended:
- keeping the consent regime, with some improvements
- issuing universal guidance on key legal concepts in part 7 of POCA 2002
- using prescribed forms to improve the quality of SARs
- creating an exemption in POCA 2002 to allow credit and financial institutions to ring-fence the portion of the account tainted by suspected criminal property rather than the whole account.
We were disappointed that the Law Commission did not recommend reforms to the current ‘all crimes for all time’ approach to reporting in POCA 2002. In our view, requiring SARs to be filed for all criminal offences imposes a disproportionate burden on the regulated sector and produces a significant number of SARs of limited intelligence value to law enforcement.
In our response we had argued a ‘serious crimes’ approach is unlikely to be adopted and would come with its own challenges, potentially making reporters responsible for identifying the underlying criminal offence.
Instead we suggested introducing a reasonable excuse defence for those who fail to report specific offences on a ‘de-scoped list’. The list would contain offences recognised by law enforcement and reporters as generating low-value intelligence.
We welcomed other reforms the Law Commission suggested, such as the proposal to make SARs Online more user friendly.
We also agree that the case has not yet been made for introducing new forms of reporting such as geographical targeting orders, which are currently used in the US. These require domestic financial institutions within a geographic area to report transactions above a specified amount.
What this means for solicitors
The government has not yet responded to the Law Commission’s recommendations.
If they’re accepted, it’s likely that some of the more substantial changes, such as ring-fencing, will only affect the financial sector.
If the government accepts the recommendations on guidance, there may be significant impacts for solicitors.
We’ll update this page as soon as we have more information.