Make me a SuperSAR: Criminal Finances Act 2017

The Criminal Finances Bill received Royal Assent on 27 April 2017. Its aim is to significantly improve the government’s ability to tackle money laundering and recover the proceeds of crime, and is considered the most significant development in the UK’s anti-money laundering laws since the introduction of the Bribery Act in 2010. This article will focus on the changes to information sharing in connection with the suspicious activity reports (SARs) regime, although we note there are a number of broader changes under the Act, including the introduction of unexplained wealth orders, disclosure orders for AML investigations and the corporate failure to prevent tax evasion.

The Act has made several key amendments to the SARs regime: POCA regulated entities can now share information if certain conditions are met and the National Crime Agency (NCA) can extend the “moratorium period” that prevents dealing in property that is subject to a SAR by up to six months.

By way of background, SARs are reports which alert law enforcement agencies that certain client or customer activity is suspicious and might indicate money laundering or terrorist financing. Under the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000 persons in the regulated sector are required to submit a SAR in relation to information that comes to them in the course of their business if they know, or suspect, or have reasonable grounds for knowing or suspecting, that a person is engaged in, or attempting, money laundering or terrorist financing.

The Act provides a new mechanism for information sharing between POCA regulated entities (e.g. banks and financial institutions) in relation to suspected money laundering. Under the Act, information can be shared either on the regulated entities’ own initiative or at the request of the NCA. The Act sets out the conditions under which such information sharing can take place including that the required notification has been made to an NCA authorised officer. This notification will be treated as satisfying the requirements to make disclosures about suspected money laundering under ss 330 and 331 of POCA. The Act provides that a relevant disclosure, made in good faith by a regulated entity, will not breach any obligations of confidence owed by the person making the disclosure or any other restriction on the disclosure of information. This change is significant and responds to the concerns of many regulated entities about breaching confidentiality obligations by sharing their customers’ information.

Following the exchange of information, the Act provides for the information to be provided to the NCA in a joint disclosure report (otherwise known as a “super SAR”). The super SAR mechanism is intended to fulfil both entities’ reporting obligations and will obviate the need for multiple entities to submit SARs on the same subject matter.

The provision for the sharing of information between private entities builds on the work of the Joint Money Laundering Intelligence Taskforce (JMLIT). JMLIT was initially a twelve month pilot task force made up of UK and international banks, the British Bankers Association and law enforcement agencies. It has been praised for demonstrating the benefits of information sharing to disrupt money laundering in the UK. Building on this success, the information sharing provisions in the Act aim to increase efficiency in reporting potential instances of money laundering. The amendment enables regulated entities to access more information prior to submitting their SAR (or super SAR) reports, allowing them to compile detailed intelligence about potential money laundering and to provide a more complete picture of the facts. There was hope from businesses in the regulated sector that the amendments would go further to reduce the reporting burden on them and remove the consent regime with an “intelligence-led approach”, but the proposal was not progressed for lack of a suitable alternative. The ultimate changes are more of a compromise with a view to better use of both public and private sector resources to fight money laundering.

Whilst the aims behind the amendments are clearly worthy, there are a number of uncertainties in the provisions which may result in regulated entities being reluctant to make use of the new mechanism. Whilst the Act gives regulated entities the ability to make an information sharing request, there is no obligation to do so. Without such an obligation it is difficult to predict how proactive regulated entities will be in requesting information from each other, rather than simply submitting a traditional SAR. The possibility of sharing information and submitting joint reports could be extremely useful to some entities, as long as their interests align, however it could prove problematic where entities are not in agreement as to whether a SAR needs to be submitted. The new option to request additional information also creates a further administrative burden, a regulated entity must make both the required notification, and then the super SAR.

Under the Act, the NCA now has the ability to extend the “moratorium period” (i.e. the period pending consent from the NCA) that prevents dealing in property subject to a SAR by up to six months. The maximum moratorium period under the previous regime was 31 days. In order for the moratorium period to be extended, there must be an application by a senior officer (i.e. a member of the police, HMRC or NCA) to the Crown Court. The court can only grant an extension where an investigation is ongoing, is being conducted diligently and expeditiously, further time is needed to complete the investigation and such an extension is considered reasonable in all the circumstances.

While the potential to increase the moratorium period by up to six months may raise concerns for time critical, or high value, transactions, under the previous regime the NCA often found that 31 days was not a long enough period to carry out a thorough and diligent investigation. The fact that the Act only allows for the moratorium period to be increased incrementally, by 31 day extensions, and a condition for the extension is that the ongoing investigation is being carried out “expeditiously”, should reduce the risk of unwarranted lengthy extensions. It should be noted that it is currently rare for the NCA to refuse consent and if this remains the case, the extended moratorium period should only impact a limited number of cases. In such cases, regulated entities will need to continue to carefully consider the “tipping off” provisions under POCA when dealing with customers.

The changes to the SAR regime are certainly positive from an information sharing perspective, but it remains to be seen how frequently these new provisions will be relied upon by businesses and the NCA alike, and how the uncertainties in the provisions will be dealt with in practice.