Money laundering and anti-money laundering regulations - App...

Learning Outcomes

This article outlines the appropriate reporting channels, legal thresholds, timing standards, consent regime, and practical procedures for handling money laundering suspicions in legal practice, including:

• The appropriate internal recipient (MLRO/nominated officer) and the external body (NCA) for disclosures
• Legal thresholds for knowledge or suspicion in the regulated sector, the meaning of “as soon as is practicable,” and interaction with the DAML consent regime
• Practical steps for internal escalation, SAR drafting and submission to the NCA, consent requests, and client communications without tipping off
• Roles of the MLRO and MLCO; firm obligations under the Money Laundering Regulations 2017 (and amendments); and POCA offences and defences, including failure to disclose, tipping off, privileged circumstances, reasonable excuse, and adequate consideration
• Application to common legal practice scenarios (e.g. conveyancing, company transactions, litigation) and reconciliation of reporting duties with client confidentiality and SRA conduct obligations

SQE1 Syllabus

For SQE1, you are required to understand the anti-money laundering reporting framework in legal practice, with a focus on the following syllabus points:

• The appropriate person to receive internal suspicions (MLRO/nominated officer) and the body for external disclosures (NCA).
• Thresholds and timing: “knowledge or suspicion” and “as soon as is practicable”; interaction with the DAML consent regime (notice and moratorium periods).
• Internal procedures: recording suspicions, escalation, content and submission of SARs, and post-submission restrictions.
• POCA offences relevant to legal practice: s327–329 direct involvement, s330–331 failure to disclose, s333A tipping off.
• Defences and exceptions: DAML/consent, adequate consideration, overseas defence, privileged circumstances, reasonable excuse, training defence.
• Firm obligations under the Money Laundering Regulations 2017 (risk assessment, policies, MLRO/MLCO appointment, employee screening, audit, training, record-keeping).
• Confidentiality vs public interest reporting and protections for reporters under the SRA Codes.
• Indicators prompting suspicion (CDD triggers, PEPs, high-risk third countries, unusual patterns) and alignment with SRA client identification and conduct duties.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Who is the first person you must report a suspicion of money laundering to within a law firm?
2. What is the required timing for making a disclosure of suspected money laundering under the Proceeds of Crime Act 2002?
3. What is a Suspicious Activity Report (SAR) and who is responsible for submitting it to the NCA?
4. What is the offence of "tipping off" and when might it arise in the reporting process?

Introduction

Money laundering is the process of disguising the origins of criminal proceeds to make them appear legitimate. Legal professionals play a key role in preventing money laundering and are subject to strict reporting obligations under the Proceeds of Crime Act 2002 (POCA) and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Understanding who to report to, when to report, and how to report is essential for SQE1.

Key Term: Money Laundering Reporting Officer (MLRO)
The designated individual in a law firm responsible for receiving internal reports of suspected money laundering and determining whether to escalate the matter to the National Crime Agency (NCA).

Key Term: National Crime Agency (NCA)
The UK body that receives Suspicious Activity Reports and decides whether to consent to proposed activity under POCA, including issuing a moratorium where appropriate.

Key Term: Suspicious Activity Report (SAR)
A formal report submitted to the NCA by the MLRO when there is knowledge or suspicion of money laundering, containing relevant details to assist law enforcement.

Reporting Suspicions: The Appropriate Person or Body

When a solicitor or staff member suspects money laundering, the first step is to make an internal disclosure to the firm's nominated officer (the MLRO). This is required to be done promptly and in line with the firm’s written reporting procedures. The MLRO then evaluates whether the suspicion meets the threshold for reporting to the NCA.

If a sole practitioner or small practice has appointed themselves as MLRO, internal disclosure is made to that nominated officer. If the MLRO is unavailable, or the suspicion concerns the MLRO, a report may be made to a deputy nominated officer where one exists; firms should provide a contingency pathway to avoid delay. While the common route is internal disclosure followed by an MLRO report, POCA provides for disclosure to “the appropriate person,” and in exceptional circumstances a direct report to the NCA may be necessary to ensure timely disclosure.

Key Term: Money Laundering Compliance Officer (MLCO)
The senior person responsible for AML compliance systems and liaison with the regulator; in many firms this is distinct from the MLRO and serves as the SRA’s main AML contact.

The MLRO’s responsibilities include:

• Maintaining a central register of internal disclosures and decisions.
• Seeking further information from the reporting fee earner where necessary.
• Deciding whether to submit a SAR and, if the firm intends to proceed with an act that might otherwise be a prohibited act, whether to request consent (DAML).
• Instructing that no further steps are taken that could amount to a prohibited act until consent is obtained or the statutory periods expire.
• Ensuring staff are trained and understand reporting and non-tipping-off obligations.

Timing of Reporting

The law requires that disclosures are made "as soon as is practicable" after suspicion arises. In practice, this means immediately once the threshold of knowledge or suspicion is met, allowing only the time reasonably needed to prepare the report and avoid tipping off. In the regulated sector, the failure-to-disclose offence under s330 POCA is committed if a person knows or suspects (or has reasonable grounds to know or suspect) money laundering and does not make a disclosure as soon as is practicable.

Key Term: as soon as is practicable
The legal standard requiring immediate action to report suspicions of money laundering, allowing only the time reasonably needed to prepare and submit the report.

The MLRO, upon receiving an internal report, must promptly determine whether to submit a SAR to the NCA. If the firm intends to carry out a transaction or other act that may involve criminal property, the MLRO should consider requesting consent (DAML) so that the act may lawfully proceed if consent is granted or deemed.

Key Term: Defence Against Money Laundering (DAML)
Also known as “consent,” a defence obtained by making an authorised disclosure to the NCA and receiving consent (or deemed consent) before carrying out a potentially prohibited act.

Timing interacts with the consent regime:

• After the NCA receives a SAR with a consent request, there is a seven working day “notice period” in which the NCA may grant or refuse consent.
• If consent is refused within the notice period, a “moratorium period” of up to 31 days applies. This can be extended by court order up to a maximum total of 217 days, in increments, in serious cases.
• If the NCA neither refuses nor grants consent within the notice period, consent is deemed, and the firm may proceed with the act described in the SAR.

Worked Example 1.1

A solicitor notices that a client wants to pay legal fees in large amounts of cash and cannot provide a clear explanation for the source of funds. The solicitor suspects money laundering. What should the solicitor do, and by when?

Answer:
The solicitor must report their suspicion to the firm's MLRO as soon as is practicable. The MLRO will then decide whether to submit a SAR to the NCA. The solicitor should not wait for further evidence or delay the report.

Procedures for Reporting

The reporting process involves several key steps, each aligned with the Regulations and POCA.

1. Internal Disclosure to the MLRO

The solicitor or staff member prepares an internal report detailing the facts, reasons for suspicion, and any supporting documents. Firms should have simple, accessible procedures so that staff can escalate immediately. Internal reports should be logged and retained securely.

2. MLRO Evaluation

The MLRO reviews the internal report and may seek further information from the fee earner, the client file, or other sources within the firm. The MLRO assesses whether the information meets the threshold of knowledge or suspicion and whether a SAR is required. In regulated sector work, the threshold of “reasonable grounds” also applies to failure to disclose.

3. Submission of a SAR to the NCA

If the MLRO concludes that there is knowledge or suspicion of money laundering, they must submit a SAR to the NCA via the secure online portal (preferred), setting out:

• The parties involved (client and counterparties), identifiers (addresses, dates of birth, account numbers), and known associates.
• The transaction or activity, including amounts, dates, and context.
• The reasons for suspicion (patterns, contradictions, risk factors).
• Any request for consent (DAML), making clear the act that would otherwise be prohibited and the timeline.

4. Awaiting Consent

After submitting a SAR, the firm must not proceed with the relevant transaction or act that could amount to a prohibited act until consent is received from the NCA or deemed consent arises after the notice period. If the NCA refuses consent, the moratorium period (up to 31 days) applies, and may be extended on application up to a maximum of 217 days.

During this period, staff must avoid telling the client about the SAR or consent process, and communications should be managed to avoid tipping off. If the act is not prohibited (e.g., taking routine steps that do not involve dealing with criminal property), the firm may continue with general case progression but should seek MLRO guidance.

Worked Example 1.2

A fee earner submits an internal report to the MLRO about a suspicious property transaction. The MLRO agrees and files a SAR with the NCA. The client calls the fee earner to ask why the transaction is delayed. What should the fee earner say?

Answer:
The fee earner must not reveal that a SAR has been made or that the NCA is involved. Disclosing this information could amount to the offence of tipping off. Provide a neutral explanation (e.g., “We are completing internal checks” or “Third-party clearances are awaited”) without misleading the client.

5. Post-SAR Restrictions and Record Keeping

The MLRO should issue instructions on what can and cannot be done pending consent. All related communications and decisions must be documented. Under regulation 40, firms must retain due diligence and transaction records for at least five years after the relationship or transaction ends to reconstruct the transaction if needed.

Key Term: privileged circumstances
Information received in connection with giving legal advice, or for the purpose of legal proceedings, may be privileged; disclosures under s330/s331 are not required where information is obtained in privileged circumstances, unless furthering a criminal purpose.

Key Term: reasonable excuse
A defence to failure to disclose under s330/s331 where, for example, a person intended to make a disclosure but had a reasonable excuse for not doing so.

Legal Consequences of Failing to Report

Failure to report suspicions of money laundering as required can result in criminal liability under POCA. The offence of failure to disclose (s.330 POCA) applies to those working in the regulated sector, including solicitors. It covers knowledge or suspicion, and “reasonable grounds to suspect.” MLROs are subject to a parallel offence (s.331) if they fail to make external disclosures as soon as practicable.

Key Term: failure to disclose
The offence committed when a person in the regulated sector does not report knowledge or suspicion of money laundering as soon as practicable.

In addition, tipping off (s.333A POCA) and prejudicing an investigation (s.342) carry serious consequences.

Key Term: tipping off
The offence of informing a person that a SAR has been made or that a money laundering investigation is underway, where this is likely to prejudice the investigation.

Other POCA offences to be mindful of:

• s327 (concealing, disguising, converting, transferring, or removing criminal property).
• s328 (arrangements enabling acquisition, retention, use, or control of criminal property).
• s329 (acquisition, use, or possession of criminal property).

Defences include:

• DAML/consent where an authorised disclosure is made and consent obtained (or deemed).
• Adequate consideration (s329) where a solicitor received reasonable fees for services, provided they did not suspect the services would help criminal conduct.
• Overseas defence (for certain conduct lawful abroad and below the UK’s threshold).
• Privileged circumstances and reasonable excuse (see above).
• Training defence (s330/s331) where an employer failed to provide AML training, and the person had no knowledge or suspicion.

Worked Example 1.3

A conveyancer is due to complete today. Funds have arrived from an unconnected overseas company with no apparent link to the buyer. The fee earner suspects layering and reports internally. The MLRO submits a SAR with a DAML request. The buyer pressures for immediate completion.

Answer:
Completion must not proceed until the NCA grants consent, consent is deemed after seven working days, or the moratorium expires. Proceeding without consent could amount to a prohibited act under POCA. The firm should give a neutral transactional explanation for the delay without tipping off.

Confidentiality and Consent

Reporting suspicions of money laundering overrides the usual duty of client confidentiality. The public interest in preventing and detecting crime justifies disclosure. Solicitors must not seek the client's consent before making a report; doing so could alert the client and constitute tipping off. SRA conduct duties require solicitors to be honest and open with clients if things go wrong, but disclosures concerning SARs and investigations must be carefully managed to avoid prejudicing law enforcement.

Where privileged circumstances apply, a disclosure may not be required—but privilege does not apply where information is communicated with the intention of furthering a criminal purpose. Privilege is also not a bar to the SRA’s regulatory access to client information for supervised investigations, provided confidentiality protections are maintained.

Exam Warning

Disclosing to a client that a SAR has been made or that the NCA is investigating may amount to tipping off, which is a criminal offence. Always maintain strict confidentiality during the reporting process. If discussing sanctions, note the sanctions list is public; informing a client about their designation status is not tipping off, but engaging in prohibited activity is unlawful without a licence.

Worked Example 1.4

You discover a client is on the UK sanctions list. The client asks whether you can continue to act and receive fees. They are worried you will “report them.”

Answer:
Sanctions lists are public; confirming designation status is not tipping off under POCA. However, you must not deal with a designated person’s funds or economic resources without an appropriate licence from OFSI (including receiving fees). Seek a licence where permitted and consider the need to file a report to OFSI; ensure all AML and sanctions checks are documented.

Risk-Based Controls, Training, and Record-Keeping

The Regulations impose firm-wide obligations that underpin timely and effective reporting:

• Regulation 18: firm-wide AML risk assessment, kept current and documented, taking account of services, delivery channels, clients, and geographical risk (including high-risk third countries).
• Regulation 19: written policies, controls, and procedures to manage identified risks—approved by senior management and proportionate to the firm’s size and nature.
• Regulation 21: appoint a nominated officer (MLRO) and, where appropriate, an MLCO; screen relevant employees at hiring and periodically; establish an independent audit function; and be able to respond rapidly to law enforcement enquiries about past business relationships.
• Regulations 27–31: customer due diligence (CDD) at onboarding and in specified transactional scenarios; enhanced due diligence (EDD) for PEPs, high-risk third countries, unusual or complex transactions, or situations with no apparent economic or legal purpose; simplified due diligence only where low risk is demonstrably present.
• Regulation 24: regular AML training for relevant employees, with records maintained.
• Regulation 40: retain due diligence and transaction records for at least five years after the relationship or occasional transaction ends.

CDD and EDD findings often prompt suspicions. For example, unexplained third-party payments, inconsistent source-of-funds explanations, complex ownership structures, PEP involvement, or high-risk jurisdictions should trigger escalation to the MLRO. Ongoing monitoring (reg 28(11)) ensures emerging risks are acted upon quickly.

Key Term: politically exposed person (PEP)
An individual entrusted with prominent public functions (or close associates/family members), requiring enhanced due diligence and senior management approval due to heightened corruption risk.

Worked Example 1.5

A corporate client incorporated in a low-tax jurisdiction instructs your firm for a UK property acquisition. The beneficial ownership is opaque; a relative of a minister is an ultimate beneficiary. Payments will be split among multiple accounts with no clear rationale.

Answer:
Apply EDD, obtain senior management approval (for PEP linkage), and escalate promptly to the MLRO. If suspicion arises that criminal property will be used or the transaction will involve laundering (e.g., layering), the MLRO should consider filing a SAR and requesting DAML if proceeding would otherwise be a prohibited act. Do not inform the client about any SAR.

Summary Table: Reporting Process

Key Point Checklist

This article has covered the following key knowledge points:

• The MLRO (nominated officer) is the appropriate person for internal reporting; the NCA is the external body for SARs.
• Disclosures must be made as soon as is practicable after suspicion arises; in the regulated sector, failure to disclose may be committed on “reasonable grounds” as well as actual suspicion.
• The MLRO evaluates internal reports and submits SARs to the NCA; request DAML if the firm intends to carry out an act that would otherwise be prohibited.
• Consent regime: seven working day notice period; refusal triggers a moratorium up to 31 days, extendable by court up to an overall maximum of 217 days; do not proceed with prohibited acts until consent or expiry.
• POCA offences relevant to practice include s327–329 direct involvement, s330–331 failure to disclose, s333A tipping off; understand defences (DAML, adequate consideration, overseas, privileged circumstances, reasonable excuse).
• Reporting obligations override client confidentiality; do not seek client consent; avoid tipping off by using neutral, accurate communications.
• Regulations require risk assessments, policies, MLRO/MLCO appointments, employee screening, independent audit, training, and record-keeping; be able to respond rapidly to law enforcement enquiries.
• CDD/EDD findings (PEPs, high-risk third countries, unusual patterns) are common triggers for suspicion and escalation to the MLRO.

Key Terms and Concepts

• Money Laundering Reporting Officer (MLRO)
• Money Laundering Compliance Officer (MLCO)
• National Crime Agency (NCA)
• Suspicious Activity Report (SAR)
• Defence Against Money Laundering (DAML)
• as soon as is practicable
• failure to disclose
• tipping off
• privileged circumstances
• reasonable excuse
• politically exposed person (PEP)