Anti-money laundering

Current project status

• Initiation: Could include discussing scope and terms of reference with lead Government Department
• Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
• Consultation: Likely to include consultation events and paper, making provisional proposals for comment
• Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
• Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

The project has now concluded and the Government has published its response.

View the Government’s response

View the full report.

View the summary of the full report.

View the Welsh summary of the full report.

The problem

Money laundering is the process where criminals hide the origins of their illegally gained money.

Money laundering is estimated to cost every household in the UK £255 a year and allows criminals to profit from their crimes. It is widespread, with between 0.7 and 1.28% of annual European Union GDP detected as being involved in suspect financial activity.

The current law has a system for reporting suspicious financial activity.

This provides law enforcement with the means to investigate and gather intelligence and protects honest businesses from inadvertently committing a crime.

But the reporting scheme isn’t working as well as it should. Enforcement agencies are struggling with a significant number of low-quality reports and criminals could be slipping through the net.

The project

In December 2017 the Home Office asked the Law Commission to review limited aspects of the anti-money laundering regime in Part 7 of the Proceeds of Crime Act 2002 and the counter-terrorism financing regime in Part 3 of the Terrorism Act 2000.

Specifically, we were asked to consider whether there is scope, within the existing legislative framework, for reform of the system of voluntary disclosures known as the “consent regime”.

As such, the review focused on the consent provisions in:

• 2002 Act: sections 327 to 329 and sections 335, 336 and 338.
• 2000 Act: sections 21 to 21ZC.

The review will also consider the disclosure offences in:

• 2002 Act: sections 330 to 333A.
• 2000 Act: sections 19, 21A and 21D.

As part of this process we considered:

• Defensive reporting of suspicious transactions under the consent and disclosure provisions and the high volume of reports
• The burden placed by the consent and disclosure provisions on businesses under duties to report suspicious activity
• The impact of the suspension of transactions under the consent provisions on reporters and those who are the subject of reporting.

The primary purpose of the review is to improve the prevention, detection and prosecution of money laundering and terrorist financing in the UK.

Support for the project

A broad range of stakeholders have engaged with and welcomed our review. These include law enforcement and prosecuting agencies, supervisor authorities, members of the regulated sector, practitioners, academics and the subject of a suspicious activity report.

Ian Mynot, Head of the United Kingdom Financial Intelligence Unit: “The National Crime Agency welcomes the Law Commission report on the Suspicious Activity Reports process, and is grateful for the work of the Commission in producing it. This is a comprehensive report and we will now work with the Home Office, the regulated sectors and law enforcement agencies to consider its recommendations.”

Matthew Bruce, co-head of global investigations at global law firm Freshfields Bruckhaus Deringer said: “There are systemic problems with the current suspicious activities reporting process (SARs) that must be addressed to improve the detection and prosecution of money-laundering. For companies in the regulated sector, compliance with the reporting obligations is mandatory, with the risk of personal criminal liability for those who fail to report. So it is vital that the obligations are properly understood. The Law Commission’s recommendations in relation to clearer guidance produced through public/private collaboration are a welcome step in the right direction.”

Our recommendations

We make 19 recommendations in our final report, these include both legislative and non-legislative mechanism designed to improve the efficiency and effectiveness of the consent regime. Our main recommendations can be summarised as follows:

• An advisory board with oversight for the regime, with a remit to oversee the drafting of guidance, to measure the effectiveness of the regime and advise the Secretary of State on way to improve it.
• Retaining the consent regime, subject to amendments to improve effectiveness.
• Statutory guidance on a number of key legislative concepts underpinning the reporting regime, to assist the regulated sector in complying with their legal obligations. This includes guidance on: suspicion, appropriate consent and arrangements with prior consent and what may amount to a reasonable excuse.
• Prescribing the form in which suspicious activity is reported, making use of technology to devise an online interactive form.
• An exemption to allow ringfencing of suspected criminal property by a credit of financial institution. This provides for a more proportionate response to the reporting of (suspected) criminal property. Supplementary to this, we recommend funds to be released by a Crown Court Judge when an application for an extension of the moratorium period is made.
• Maintaining the status quo for the reporting of “all crimes”.
• Extending the circumstances in which a reporter may have a reasonable excuse not to make a voluntary disclosure.
• Further research into the utility of thematic reporting or geographical targeting orders, which remove the reporter’s discretion to assess suspicion.

Collectively our recommendations will ensure a more proportionate and user-friendly regime; clarify the scope of reporting; reduce the burden of compliance and processing; and produce better quality intelligence for law enforcement.