Money laundering and anti-money laundering regulations - Appropriate person or body for reporting suspicions, timing, and procedures

Learning Outcomes

After studying this article, you will be able to identify the correct person or body for reporting suspicions of money laundering in a legal practice, explain the required timing for such reports, and outline the step-by-step procedures for internal and external disclosures. You will also understand the legal obligations, potential offences, and the importance of confidentiality and consent in the reporting process, as required for SQE1.

SQE1 Syllabus

For SQE1, you are required to understand the legal and practical requirements for reporting suspicions of money laundering in the context of legal services. Focus your revision on:

• The appropriate person or body to whom suspicions of money laundering should be reported within a legal practice.
• The timing requirements for making internal and external disclosures.
• The procedures for making reports, including internal escalation and submission of Suspicious Activity Reports (SARs) to the National Crime Agency (NCA).
• The legal consequences of failing to report, including the offences of failure to disclose and tipping off.
• The interaction between reporting duties and client confidentiality.

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.

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, usually called the Money Laundering Reporting Officer (MLRO).

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).

The MLRO acts as the central point for evaluating suspicions and deciding whether a Suspicious Activity Report (SAR) should be submitted to the NCA. This process ensures that suspicions are handled consistently and confidentially within the firm.

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.

Timing of Reporting

The law requires that disclosures are made "as soon as is practicable" after suspicion arises. This means that once a solicitor or staff member has knowledge or suspicion of money laundering, they must promptly report it to the MLRO without unnecessary delay.

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 must then consider the internal report and, if appropriate, submit a SAR to the NCA as soon as possible. Delays in reporting can result in criminal liability for failure to disclose.

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:

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. This report is submitted directly to the MLRO.

2. MLRO Evaluation

The MLRO reviews the internal report, may seek further information, and decides whether the suspicion meets the threshold for external reporting.

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. The SAR should include as much detail as possible about the client, transaction, and reasons for suspicion.

4. Awaiting Consent

After submitting a SAR, the firm must not proceed with the relevant transaction until either consent is received from the NCA or the statutory notice period expires (usually 7 working days). If consent is refused, a moratorium period of up to 31 days may apply.

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.

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.

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.

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.

Confidentiality and Consent

Reporting suspicions of money laundering overrides the usual duty of client confidentiality. Solicitors must not seek the client's consent before making a report, as this could alert the client and constitute tipping off.

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.

Summary Table: Reporting Process

Key Point Checklist

This article has covered the following key knowledge points:

• The MLRO is the appropriate person for internal reporting of money laundering suspicions in a law firm.
• Disclosures must be made as soon as is practicable after suspicion arises.
• The MLRO evaluates internal reports and submits SARs to the NCA if required.
• The SAR must be detailed and submitted promptly; the firm must await consent before proceeding with the transaction.
• Failure to disclose and tipping off are criminal offences under POCA.
• Reporting obligations override client confidentiality; do not seek client consent or inform the client of a report.

Key Terms and Concepts

• Money Laundering Reporting Officer (MLRO)
• Suspicious Activity Report (SAR)
• as soon as is practicable
• failure to disclose
• tipping off