Money laundering: Solicitors mainly make voluntary reports
The Law Commission has rejected pleas from the legal profession to narrow the rule that all criminal activity that generates funds or other property is caught by the anti-money laundering regime.
Solicitors have complained that they had to report regulatory breaches or low-level offences that they came across in large commercial transactions – such as a copyright licencing infringement or planning law breach – and that this distracted from the focus on money laundering.
The Law Commission came to this conclusion even though its report on the suspicious activity report (SAR) regime, published today, found that this broad definition contributed to too many low-quality SARs being submitted, “undermining the entire process”.
In adopting an ‘all-crimes’ approach, the UK has chosen to exceed the minimum international standards required by EU law or recommended by the Financial Action Task Force, the commission noted.
“This simplifies reporting obligations to some extent because reporters need not try to identify the types of crime that may have been committed.
“However, it does mean that all criminal activity that generates funds or other property is caught by both the consent regime and the required disclosure provisions regardless of the gravity of the crime.”
It said this has had some unintended consequences, such as “the disproportionate burden placed on the legal profession” – and more than half of those who responded to its consultation in support of moving away from the all-crimes approach were from the legal sector.
Research by Dr Sarah Kebbell indicated that three-quarters of all legal sector SARs were authorised disclosures – made voluntarily and triggered by a suspicion that the reporter has encountered criminal property – seeking consent.
“There is a perception that a large number of those reports concern minor offences or ‘regulatory’ offences that technically amount to money laundering because of the definition of criminal property,” the Law Commission said, potentially shifting the focus away from serious crime.
It continued: “For example, a solicitor executing a high-value commercial transaction may identify a regulatory breach or the commission of a low-level offence (such as a copyright licencing infringement or planning law breach).
“Notwithstanding the non-serious nature of the offence, the solicitor will need to submit an authorised disclosure and seek consent to continue.
“So, for example, a solicitor may identify that a client has, at some stage, failed to comply with a tree preservation order during the development of a piece of land (a non-imprisonable offence).
“The transaction would be paused, pending consent from the NCA, resulting in delay and additional costs to all parties involved in the process.”
However, the commission concluded that, while the all-crimes approach was not perfect, it has two principal advantages.
“First, it helps to make the process of submitting SARs as simple as possible for the regulated sector, even if it means some SARs are submitted that will not lead to investigation or prosecution for serious offences.
“Secondly, it places the burden of assessment and triage, where necessary, on law enforcement agencies as those best placed and most qualified to pass judgement.
“It is principally for these reasons and to avoid the potential complexity of the alternatives that we favour the retention of the all-crimes approach.”
But, offering an olive branch, the Law Commission said that “if there was agreement between law enforcement agencies and the regulated sector on specific offences which are considered to generate little in the way of useful intelligence, there could be a greater focus on reporting only serious crimes”.
It said this could be achieved by way of examples included in statutory guidance illustrating what may amount to a reasonable excuse not to lodge an authorised disclosure.
This guidance, on key concepts underpinning the regime, along with a new advisory board and a standardised form for the submission of SARs, were at the heart of the Law Commission’s report to tackle the problem of low-quality SARs.
The number of SARs submitted has doubled over the last decade and continues to rise, culminating in a record 470,000 reports in 2018-19.
As well as the all-crimes approach, the Law Commission said low-quality reports were caused by a “lack of clarity in the definitions of key terms” and the threat of individual criminal liability for officials for a failure to make a disclosure, which “encourages defensive reporting”.
The advisory board – made of experts from the public and private sector – would be charged with ensuring the “continued effectiveness” of the regime, including overseeing the guidance and advising ministers on appropriate improvements and how best to respond to emerging threats.