All regulated or supervised firms are covered by the requirements of the Proceeds of Crime Act 2002 (as amended) and its requirements to report to the relevant Financial Intelligence Unit (FIU). In the case of the UK, this is the National Crime Agency (NCA). A regulated or supervised firm should report where knowledge, suspicion or reasonable grounds exist that a person or customer is engaged in, or attempting, money laundering or terrorist financing (or that the proceeds of crime exist).
Whilst all regulated or supervised firms are covered by these requirements, some institutions, in some sectors, make more disclosures to the NCA than others, and in some sectors, very few disclosures are made at all.
Whilst there will always be discrepancies of this nature based on the sector type, the number of customers per sector, the value of the transactions per sector and the volume of transactions, there still can be a lack of disclosures made due to two common myths:
1. Our Part in The Activity is Small
Often, institutions feel that their part in the chain of activity is small, that their interaction with the customer is limited (compared to other parties involved) or that someone else will report the matter – usually presumed to be the party with the greater level of customer engagement or the party with the higher profile. Alternatively, an institution may feel that their part in the chain is so small, that the activity that they conceive as suspicious, is only conceived as such because they themselves are restricted in their knowledge of the customer, and they do not know the full picture, and should they do so, they would not be suspicious after all.
Whilst some of these considerations may have merit (to a lesser or greater degree), the fact remains that where suspicion (or knowledge or reasonable grounds) exist, then so does a reporting obligation. Institutions cannot sit back and assume another party will make a disclosure, or that whatever information they have has little or no value to law enforcement. There is a legal requirement to report knowledge, suspicion, or reasonable grounds and that is what institutions must do or face the penalties for failing to do so (up to 5 years in prison and/or a fine).
Doing nothing is rarely the right thing to do, and assuming someone else will do the job for you, well the story of Everybody, Somebody, Anybody and Nobody comes to mind!
2. We Didn’t Undertake the Transaction or On-Board the Customer
This is a common premise shared amongst a few sectors, that if they do not process the transaction of concern, or on-board the customer who is generating concern, then they have escaped the responsibility of reporting. This is untrue.
Not doing something is not an adequate or sensible defensive position to take. We know from R v Da Silva [2006] EWCA Crim 1654, that the threshold for reporting is low, (You have a reportable suspicion if you think there’s a possibility, which is more than fanciful, that the relevant facts exist)
Whilst in Da Silva, it was noted that “a vague feeling of unease would not suffice”, it would be hard to evidence that it did not satisfy the threshold of having more than a fanciful thought, or a vague feeling of unease of something. This is in terms of whether that firm was prepared to either decline to undertake a transaction, or on-board a new customer on the back of that thought.
To let a customer walk away based on a concern held about them and/or the risk that they present from a financial crime point of view must mean that the reporting thresholds above are met.
Further, on the NCA website is states:
“Suspicious Activity Reports (SARs) alert law enforcement to potential instances of money laundering or terrorist financing. SARs are made by financial institutions and other professionals such as solicitors, accountants and estate agents and are a vital source of intelligence not only on economic crime but on a wide range of criminal activity”.
So, from here, the key word for the purposes of this matter is “potential”. Even if an institution has a concern of potential money laundering or terrorist financing it has a reporting obligation.
In addition, the Joint Money Laundering Steering Group (JMLSG) Part I, Section 6.2 states:
“6.2 In order to provide a framework within which suspicion reports may be raised and considered:
- each firm must ensure that any member of staff reports to the firm’s nominated officer or their appointed alternate39 (who may also be the MLRO in an FCA-regulated firm), where they have grounds for knowledge or suspicion that a person or customer is engaged in, or attempting, money laundering or terrorist financing”;
The key word in this section being “attempting”.
We must conclude therefore, that if a firm has a suspicion, concern, or reason to decline business due to the risk of money laundering, then a reporting requirement exists. Otherwise, how could a firm defend itself against the reasonable grounds test, if by its own admission it was not prepared to undertake business due to the money laundering risk presented by that business, that it did not in turn have reasonable grounds to suspect, the potential or attempted criminal activity that it suspected?
Anti-Financial Crime Support – How can Complyport Help?
Our experienced Financial Crime and Forensics team led by Martin Schofield—one of the world’s leading specialists in the field—brings a wealth of experience to every project we are engaged in. Our highly experienced financial crime professionals and forensic experts, in subjects such as anti-money laundering, counter terrorist financing, anti-bribery and corruption and fraud and regularly help our clients navigate the complexities of the financial crime and money laundering environment. Services offered by Complyport include:
- Financial crime health checks and audits,
- Implementation of financial crime, AML, CTF, ABC, Fraud and market abuse controls and frameworks,
- Ongoing advice on financial crime, AML, CTF, market abuse and fraud prevention,
- Authoring/reviewing financial crime policies,
- Outsourced MLRO support
- Outsourced KYC and CDD support,
- Assistance in identifying Politically Exposed Persons (PEPs),
- Assistance in navigating international sanctions,
- Support with preventing market abuse and insider dealing,
- Expert Witness in Financial Crime cases
- Forensics and Investigations
- Design and/or delivery of online or face to face financial crime training
If this article has raised any questions, or you think your firm may require assistance, please contact either Martin Schofield via martin.schofield@complyport.co.uk or Jan Hagen via jan.hagen@complyport.co.uk to book in a free consultation.
About Complyport
Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.
We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.
Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.
Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Our clients tell us we live our values; we are driven, agile and collaborative.
