Money laundering and anti-money laundering regulations - Defences to money laundering offences

Learning Outcomes

After reading this article, you will be able to identify and explain the main statutory defences to money laundering offences under the Proceeds of Crime Act 2002 (POCA 2002). You will understand how the authorised disclosure (Suspicious Activity Report), adequate consideration, and overseas conduct defences operate, and how these interact with anti-money laundering compliance duties. You will be able to apply these defences to SQE1-style scenarios and avoid common pitfalls.

SQE1 Syllabus

For SQE1, you are required to understand the statutory framework for money laundering offences and the principal defences available. Focus your revision on:

• the main money laundering offences under POCA 2002 (concealing, arrangements, acquisition/use/possession, and failure to disclose)
• the requirements and operation of the authorised disclosure (Suspicious Activity Report) defence
• the adequate consideration defence and its limitations
• the overseas conduct defence and its conditions
• the relationship between these defences and anti-money laundering compliance duties (e.g. customer due diligence, reporting)
• how to apply these defences to practical scenarios involving legal professionals

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. What is the effect of making an authorised disclosure (Suspicious Activity Report) before carrying out a transaction that may involve criminal property?
2. In what circumstances can a person rely on the adequate consideration defence to a s 329 POCA 2002 offence?
3. When does the overseas conduct defence apply to money laundering offences under POCA 2002?
4. True or false? A solicitor who fails to submit a suspicious activity report when required can rely on the adequate consideration defence if they acted for fair value.

Introduction

Money laundering is the process of disguising the origins of criminal property to make it appear legitimate. The UK has a robust legal framework to combat money laundering, primarily through the Proceeds of Crime Act 2002 (POCA 2002) and the Money Laundering Regulations 2017. For SQE1, you must know not only the main offences but also the statutory defences that may be available to individuals or professionals accused of money laundering. This article explains the key defences—authorised disclosure, adequate consideration, and overseas conduct—and how they operate in practice.

Main Money Laundering Offences: Quick Recap

POCA 2002 creates several main money laundering offences:

• Concealing, disguising, converting, transferring, or removing criminal property (s 327)
• Entering into or becoming concerned in an arrangement which facilitates the acquisition, retention, use, or control of criminal property (s 328)
• Acquiring, using, or possessing criminal property (s 329)
• Failing to disclose knowledge or suspicion of money laundering (s 330–331, regulated sector)

Key Term: criminal property
Property that constitutes or represents a person's benefit from criminal conduct, directly or indirectly, and the alleged offender knows or suspects it is such.

Authorised Disclosure Defence

The most important statutory defence to the main money laundering offences (ss 327–329) is making an authorised disclosure, commonly known as submitting a Suspicious Activity Report (SAR).

Key Term: authorised disclosure
A report made to a nominated officer or the National Crime Agency (NCA) under s 338 POCA 2002, disclosing suspicion or knowledge of money laundering, which may provide a defence to certain offences.

Key Term: Suspicious Activity Report (SAR)
A formal report submitted to the NCA (or a firm's nominated officer) when a person knows or suspects money laundering, triggering the authorised disclosure defence.

How the Defence Works

If a person makes an authorised disclosure before carrying out the act (e.g. a transaction), and either receives consent from the NCA or the statutory notice period expires without objection, they will not commit the offence. If the disclosure is made after the act, it may still be a defence if there was a reasonable excuse for not disclosing earlier and the disclosure is made as soon as practicable.

Practical Steps

• Make the disclosure before the act, if possible.
• Wait for NCA consent (7 working days). If consent is refused, a 31-day moratorium period applies.
• Do not proceed with the act during the moratorium unless consent is granted.
• If disclosure is made after the act, you must show a reasonable excuse for the delay.

Worked Example 1.1

A solicitor suspects that client funds for a property purchase may be proceeds of crime. What should the solicitor do to avoid liability under POCA 2002?

Answer: The solicitor should make an authorised disclosure (SAR) to the firm's nominated officer or directly to the NCA before proceeding. They must wait for consent or the expiry of the notice period before completing the transaction. If they follow this process, they will have a defence to the main money laundering offences.

Adequate Consideration Defence

Section 329(2)(c) POCA 2002 provides a defence to the offence of acquiring, using, or possessing criminal property if the person acquired the property for adequate consideration (i.e. fair market value) and did not know or suspect it was criminal property.

Key Term: adequate consideration
Payment of fair value for property, such that the person did not know or suspect the property was criminal property and did not intend to assist criminal conduct.

This defence does not apply if the person knew or suspected the consideration would help someone carry out criminal conduct. It is not available for services that help criminal activity (e.g. laundering money for a fee).

Worked Example 1.2

A jeweller buys a gold watch from a customer at its full market value, unaware it was stolen. Can the jeweller rely on the adequate consideration defence if prosecuted under s 329 POCA 2002?

Answer: Yes, provided the jeweller paid fair value and did not know or suspect the watch was criminal property, the adequate consideration defence applies.

Overseas Conduct Defence

Sections 327(2A), 328(3), and 329(2A) POCA 2002 provide a defence where the relevant conduct occurred abroad and was lawful in that country.

Key Term: overseas conduct defence
A defence to money laundering offences where the conduct occurred outside the UK, was lawful in that jurisdiction, and would not be punishable by 12 months' imprisonment or more if done in the UK.

This defence is subject to exceptions, such as where the Secretary of State has designated a country as high-risk or subject to financial sanctions.

Worked Example 1.3

A UK accountant assists a client in a transaction that is legal in the client's home country but would be money laundering in the UK. Can the accountant rely on the overseas conduct defence?

Answer: Yes, if the conduct was legal where it occurred and not punishable by 12 months or more in the UK, the overseas conduct defence may apply.

Relationship with Anti-Money Laundering Compliance

The statutory defences operate alongside compliance duties under the Money Laundering Regulations 2017. Legal professionals must:

• Carry out customer due diligence (CDD)
• Monitor transactions for suspicious activity
• Make SARs promptly when required

Failure to comply with these duties may undermine the availability of a defence. For example, not making a SAR when required may mean the authorised disclosure defence is not available.

Key Term: customer due diligence (CDD)
The process of verifying a client's identity and assessing the risk of money laundering before establishing a business relationship or carrying out a transaction.

Key Term: nominated officer
The person within a regulated firm responsible for receiving internal disclosures about money laundering and making external reports to the NCA.

Exam Warning

Failing to make a required disclosure (SAR) when you know or suspect money laundering is a separate offence under s 330 POCA 2002. The adequate consideration defence does not apply to this offence.

Revision Tip

Always check whether the facts of a scenario support the availability of a statutory defence. Pay close attention to timing, knowledge, and whether the person followed internal reporting procedures.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• The main statutory defences to money laundering offences are authorised disclosure, adequate consideration, and overseas conduct.
• Authorised disclosure (SAR) must be made before the act or as soon as practicable, and consent from the NCA may be required.
• The adequate consideration defence applies only to s 329 (acquisition, use, possession) and requires fair value and no suspicion.
• The overseas conduct defence applies where the conduct was legal in the country where it occurred and not a serious UK offence.
• Compliance with anti-money laundering procedures (CDD, reporting) is essential for legal professionals.
• Failure to make a required SAR is a separate offence; the adequate consideration defence does not apply to failure to disclose.

Key Terms and Concepts

• criminal property
• authorised disclosure
• Suspicious Activity Report (SAR)
• adequate consideration
• overseas conduct defence
• customer due diligence (CDD)
• nominated officer