Chapter 30 AML – SAR Flashcards
30.1 The reporting regime - crime, proceeds and failure to disclose
Businesses must have internal reporting procedures so employees can disclose suspicions of MLTR. In the regulated sector it is illegal for someone not to report their concerns to their MLRO. The MLRO considers all SARs and can send an external SAR to the NCA. Suspicion is defined as a state of mind more definite than speculation, a positive feeling of actual apprehension or mistrust and a slight opinion, without sufficient evidence. Suspicion is not a mere idle wondering or a vague feeling of unease. It is important for individuals to make enquiries that would reasonably be expected of them and within the scope of engagement, they should exercise professional scepticism.
Crime – there is no overseas conduct exemption for reporting suspicions on terrorist financing. In most cases of suspicious activity, the reporter will have a particular type of criminal conduct in mind, this is not always the case. Money laundering is defined as any criminal conduct that results in criminal property. An innocent error or mistake would not normally give rise to criminal proceeds. If a client has acted in error, they must promptly bring their conduct within law to avoid committing a money laundering offence.
Proceeds – criminal proceeds take many forms. Cost savings (as a result of tax evasion) and other less obvious benefits can be proceeds of crime. Where criminal property is used to acquire more assets, these too become criminal property. If someone knowingly engages in criminal activity with no benefit, then they may have committed some offence other than money laundering and there is no obligation to make a SAR.
Failure to disclose – individuals should make sure that any information in their possession which is part of the required disclosure is passed to the MLRO as soon as possible. If the MLRO has suspicions they should send the SAR to the NCA, otherwise they may have committed an offence. There are following defences against failure to disclose:
• There is a reasonable excuse for not disclosing, only extreme circumstances such as threats to safety would be accepted
• The privileged circumstances exemption
• The relevant employee did not suspect anything and had not received the training required, making them not bound by the objective test
30.1 The reporting regime - offence: tipping off
Offence: tipping off
The offence is committed when a relevant employee in the regulated sector discloses that a SAR has been made and this disclosure is likely to prejudice the investigation and an investigation into allegations of MLTR is underway and this disclosure is likely to prejudice that investigation. Care must be taken when communicating with clients and third parties after any form of SAR has been made. A tipping off offence does not apply if the relevant person did not know or suspect that their disclosure was likely to prejudice any subsequent investigation. There are exemptions to this on disclosing the existence of a SAR or an actual or contemplated investigation. A person does not commit an offence if they make a disclosure:
• To a fellow relevant employee of the same undertaking
• To a relevant professional adviser in a different undertaking if both people are located in an EEA state or a state with equivalent AML requirements and both undertakings share common ownership or control
• To an anti-money laundering supervisory authority
• For the purposes of the prevention, investigation or prosecution of a criminal offence in the UK or elsewhere or an investigation under POCA or the enforcement of any court under POCA
• Following the notification that the moratorium period for a consent SAR has been extended beyond 31 days, to the subject of the report
An offence is not committed if a relevant adviser makes a disclose to someone in the same profession but from a different business when that disclosure:
• Relates to a single client or former client of both advisers
• Involves a transaction or the provision of a service that involves both of them
• Is made only for the purpose of preventing a money laundering offence
• Is made to a person in an EU member state
Although normal commercial enquires would not generally lead to tipping off, care is still required. Enquires should be kept to what is in the normal scope of engagement. No attempt should be made to investigate matters unless within the scope of engagement. Continuing work may require that matters relating to the suspicions be discussed with the client’s senior management. It is important documents relating to a SAR is not released to third parties without first consulting the MLRO.
30.1 The reporting regime - offence: prejudicing an investigation
Offence: Prejudicing an investigation
Revealing the existence of a law enforcement investigation can lead to an offence of prejudicing an investigation. Falsification, concealment or destruction of documents relevant to an investigation can also fall within this offence.
30.3 Internal SARs
Most businesses include in their AML controls, arrangements to enable relevant employees to discuss, with suitable people whether their concerns amount to suspicion, then a SAR may be submitted. Deciding if something is suspicious may require further enquiries to the client or their records. The UK AML regime does not prohibit normal commercial enquiries to fulfil client duties and these may help establish is something is a proper suspicion. Investigations into suspected MLTF should not be conducted unless within the scope of the engagement. To perform additional investigations is not necessary and could risk tipping off a money launderer.
Only sole practitioners should submit a SAR straight to the NCA. POCA requires all employees to send SARs to the MLRO. When more than one employee is aware of the same matter, only one SAR should be submitted with it contains all the names of those making the SAR.
30.4 External SARs
The MLRO is responsible for sending SARs to the NCA and also deciding if consent is required from law enforcement for the engagement to continue and how client business should be conducted while a consent decision is awaited. The MLRO may want to make reasonable enquiries of other relevant employees and systems within the business, this may confirm or end suspicion. Various submission methods are available for sending SARs to the NCA.
The following is essential information in an external SAR. The name of the reporter, date of report, the name of the suspect or information that may help identify them, details of who else is involved or associated, the facts regarding what is suspected and why, the relevant NCA glossary code, the whereabouts of any criminal property and the actions the business is taking which require consent. It is also recommended that reporters do not include confidential information not required, show the name of the business, individual or MLRO submitting the report only once, do not include the names of employees who made the internal SAR, include other parties as subjects only when the information is necessary for an understanding of the SAR and highlight any particular concerns the reporter has about safety.
Confidentiality – a correctly made SAR provides full immunity from action for any form of confidentiality breach
Documenting reporting decisions – adequate records of internal SARs must be kept. This is done by the MLRO and normally includes details of all internal SARs made, how the MLRO handled matters, assessments of the information provided, the rationale for deciding whether or not to make an external SAR and any advice given to engagement teams about continued working and any consent requests made.
30.5 the privileged circumstances exemption
Members of relevant professional bodies who suspect MLTF are not required to submit a SAR if the information came to them in privileged circumstances as long as the information was not provided with the intention of advancing a crime. This only covers SARs and should not be confused with legal professional privilege. If the business provides a variety of services to a client, they should be aware not all services will create the circumstances for the exemption. In this section a relevant professional adviser is defined as an accountant, auditor or tax advisers who is a member of a professional body and the body makes provision for testing professional competence as a condition of admission and they impose and maintain professional ethical standards for members, with sanctions for not complying.
The crime/fraud exception – communications that otherwise would qualify for the privilege reporting exemption are excluded if they are intending to facilitate or guide someone in committing or advancing crime or fraud. Someone worried about being guilty of tax evasion can seek legal advice from a tax adviser without fear of the exemption being invoked.
30.6 Consent
When preparing a SAR, the MLRO must consider if the business commits an offence if it continued to act as it intends. In some cases, the NCA may provide a defence against money laundering in the form of a consent for the activity in question to go ahead. Before applying for consent, you need to consider if the NCA is able to grant one, the NCA are limited under sections 327-9 of the POCA. Common situations where consent may be required are:
• Designing and implementing trust or company structures where a suspicion arises that the client is using them to launder money
• Acting on behalf of a client in the negotiation of the implementation of a transaction where there is an element of criminal property
• Handling through client accounts money that is suspected of being from a criminal origin
• Providing outsourced business processing services to clients when the money is suspected of having criminal origins
Consent be sought on the basis of a SAR under provisions of section 338 of the POCA. The consent required option should alert the NCA and enable them to prioritise the request. The request should state the reasons for suspicion and the consent could cover the nature and extent of the intended activity. If no refusal has been received 7 working days following the submission consent is deemed to have been given and the activity can proceed. If consent is refused, a further 31 days must pass before the activity can continue, the period can be extended by a court order up to a maximum of 186 days. If no deliverables are provided until after consent has been obtained it may be acceptable to continue working. When informing clients or anyone else about delays the business must consider the risk of tipping off or prejudicing an investigation and may wish to seek legal advice.
30.7 Post-SAR responsibilities
Client relationships – after s SAR has been submitted the business needs to stop working unless consent has been requested. Even when consent is not requested the business may consider whether to continue acting for the client. challenges may arise out of the requirement for auditors to file resignation statements at companies’ house. Consider these carefully to ensure statutory and professional duties are met without tipping off.
Data protection – under data protection act 1998 business need not to comply with data subject access requests likely to prejudice the prevention or detection of crime or leads to tipping off. When a business received a data subject access request covering personal data it should consider whether the exception applies to that specific request.
Production orders, further information orders and other requests for information – the NCA or law enforcement may seek further information about a SAR. If a request is received from the NCA other than in relation to a SAR or from a source other than the NCA, any further disclosure should be made only in response to the exercise of a statutory power to obtain information.
Requests regarding CDD information from another advisor – the disclosure request can be made under regulation 39 of the 2017 regulations. Businesses should not release confidential information without the consent of the client.
Requests for information on suspicious activity from another advisor – it is recommended the requests are declined. Accountants who are relevant advisers may not commit a tipping off offence however if they share the information with another accountant of similar standing, providing they meet certain requirements.
Reporting to other bodies – businesses should regard their obligations to their reporting responsibilities under the international auditing standards, statutory regulatory returns or the reporting of misconduct by fellow members of a professional body. The risk of tipping off must be considered. A tipping off offence is not committed if the relevant employee did not know or suspect they were likely to prejudice any subsequent investigation.
30.9 Outsourcing, subcontracting and secondments
Outsourcing and subcontracting – third party still obliged to maintain appropriate risk management procedures to prevent MLTF. A business still remains responsible for ensuring CDD standards even if the client work is outsourced or subcontracted out. Some aspects of CDD can be delegated to an outsourcer but the business remains responsible for compliance with legislation. A business will also remain responsible for reporting a SAR. But the business is not responsible for reporting suspicion that comes to the attention of the outsourcer or subcontractor where the knowledge has not been passed to the business. There is no legal requirement for the outsourcer/subcontractor to report a SAR but if they do the business should consider their reporting obligations. It may be relevant to train a subcontractor on MLTF procedures adopted by the business.
Secondees and those temporarily outside the UK – the formal terms of the secondment should be clear to how the obligations imposed by the UK AML regime is applied. The position of a secondee working outside the UK or on foreign secondments is difficult. The duty to report will be influenced by the terms of the secondment, things to consider are:
• If the work outside the UK is part of a UK defined service in some circumstances it will be reportable
• If an individual works permanently outside the UK for a UK business, it is appropriate to consider if they are working at a separate business or at a branch of the UK business
