In 2017, the Law Commission agreed with the Home Office to review and provide recommendations on the UK’s anti-money laundering (AML) and counter terrorist financing (CTF) regimes, in particular, the suspicious activity reporting (SAR) regime.
On 18 June 2019, the Law Commission published a report on the SARs regime. The report looked at the current flaws in the making of SARs.
The Law Commission noted a double increase in SAR submission over the last decade. Nevertheless, it expressed concern over the low quality of the SARs which, it found, were due to a broad definition of “criminal property” under the Proceeds of Crime Act 2002 (POCA), which requires that suspected laundering the proceeds of any criminal conduct must be reported. According to the Law Commission, around 15% of authorised disclosure SARs did not meet the threshold of suspicion, i.e. may have been submitted unnecessarily.
The Law Commission found evidence of over-cautious SAR reporting with individuals in the regulated, reporting, sector engaging in defensive SAR reporting for fear of individual criminal liability. Moreover, it appeared that there was also a misunderstanding by those reporting SARs as to their legal obligations, which, according to the Law Commission, was partially due to persistently fragmented supervision of the AML regime.
The Law Commission made 19 recommendations, including both legislation and non-legislative mechanisms, to improve the SAR regime. The key recommendations were as follows:
- An Advisory Board is created to measure the effectiveness of the SAR regime and advise the Secretary of State on ways to improve it. It should also have input into the analysis of SARs.
- POCA is amended to impose an obligation on the Secretary of State to issue guidance covering the operation of Part 7 of POCA in the context of the regulated sector. Guidance should, in particular, cover the concept of suspicion, appropriate consent and reasonable excuse exemption.
- The SAR form should be prescribed and technology should be used to devise an online form which would assist those reporting to make more effective disclosures to the National Crime Agency (as the UK Financial Intelligence Unit).The Law Commission’s conclusions confirm the industry view that the POCA and SARs regime need reform. The vagueness of key terms and threat of individual criminal liability are the main driver for the poor quality of SARs, therefore, government-backed guidance will be very much welcome.The government is expected to review the Law Commission’s recommendations and provide an interim response.
The Law Commission’s conclusions confirm the industry view that the POCA and SARs regime need reform. The vagueness of key terms and threat of individual criminal liability are the main driver for the poor quality of SARs, therefore, government-backed guidance will be very much welcome.
The government is expected to review the Law Commission’s recommendations and provide an interim response.