Money laundering and anti-money laundering regulations - Reporting obligations under the Suspicious Activity Reports (SARs) regime

Learning Outcomes

After reading this article, you will be able to explain the legal framework for anti-money laundering (AML) in England and Wales, identify when and how Suspicious Activity Reports (SARs) must be made, describe the responsibilities of solicitors and Money Laundering Reporting Officers (MLROs), and apply the rules on confidentiality and tipping off. You will also be able to analyse practical scenarios involving AML obligations for SQE1-style questions.

SQE1 Syllabus

For SQE1, you are required to understand the reporting obligations under the SARs regime as part of anti-money laundering law and practice. Focus your revision on:

  • The legal framework for anti-money laundering in England and Wales, including the Proceeds of Crime Act 2002 (POCA) and Money Laundering Regulations 2017.
  • The definition and recognition of suspicious activity.
  • The process for making Suspicious Activity Reports (SARs), including internal and external reporting.
  • The role and duties of the Money Laundering Reporting Officer (MLRO).
  • The risk-based approach and customer due diligence requirements.
  • The rules on confidentiality, legal professional privilege, and tipping off.
  • Practical application of AML obligations in client scenarios.

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. Under POCA 2002, what triggers the obligation to make a Suspicious Activity Report (SAR)?
  2. Who is responsible for submitting a SAR to the National Crime Agency (NCA) in a law firm?
  3. What is the offence of 'tipping off' and when might it arise in the context of AML reporting?
  4. How does legal professional privilege affect the duty to report suspicious activity?

Introduction

Money laundering is the process of disguising the origins of criminal property to make it appear legitimate. The UK has strict anti-money laundering (AML) laws requiring legal professionals to report knowledge or suspicion of money laundering. The Suspicious Activity Reports (SARs) regime is central to this obligation. Solicitors must understand when and how to report, the role of the Money Laundering Reporting Officer (MLRO), and how to balance reporting duties with client confidentiality.

The Legal Framework: POCA and the Money Laundering Regulations

The main AML legislation in England and Wales is the Proceeds of Crime Act 2002 (POCA), supported by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

Key Term: Proceeds of Crime Act 2002 (POCA)
POCA is the primary statute criminalising money laundering and setting out reporting obligations for the regulated sector, including solicitors.

Key Term: Money Laundering Regulations 2017
These regulations require firms to implement risk-based AML controls, including client due diligence and internal reporting procedures.

Recognising Suspicious Activity

A solicitor must be alert to transactions or conduct that may indicate money laundering. Suspicion may arise from:

  • Unusual payment methods (e.g. large cash deposits)
  • Complex ownership structures
  • Reluctance to provide identification
  • Transactions with no clear commercial rationale

Key Term: Suspicious Activity
Any transaction or behaviour that gives rise to a suspicion that money or property may be the proceeds of crime.

The SARs Reporting Process

When a solicitor knows or suspects that a person is engaged in money laundering, they must report this as soon as practicable.

Internal Reporting

All staff must report suspicions to the firm's MLRO (also called the nominated officer). The MLRO is responsible for evaluating the report and deciding whether to make a SAR to the National Crime Agency (NCA).

Key Term: Money Laundering Reporting Officer (MLRO)
The person in a firm responsible for receiving internal reports of suspicious activity and making external SARs to the NCA.

External Reporting

If the MLRO decides that the suspicion is reasonable, they must submit a SAR to the NCA. The SAR should include all relevant details, such as the identity of the suspect, the nature of the transaction, and the reasons for suspicion.

Key Term: Suspicious Activity Report (SAR)
A formal report submitted to the NCA when there is knowledge or suspicion of money laundering.

Defence Against Money Laundering (DAML)

If a solicitor seeks to proceed with a transaction that may involve criminal property, they must request a DAML from the NCA. The transaction cannot proceed until consent is granted or the statutory time period has expired.

The Risk-Based Approach and Customer Due Diligence

Firms must assess the risk of money laundering in their business and apply proportionate controls.

Key Term: Risk-Based Approach
A method where AML measures are tailored to the level of risk posed by clients, transactions, and services.

Key Term: Customer Due Diligence (CDD)
The process of verifying a client's identity and understanding the nature of the business relationship.

CDD must be performed:

  • When establishing a business relationship
  • For occasional transactions over €15,000
  • When suspicion arises
  • If previous identification is inadequate

Enhanced due diligence (EDD) is required for higher-risk clients, such as politically exposed persons (PEPs) or clients from high-risk jurisdictions.

Confidentiality, Legal Professional Privilege, and Tipping Off

Solicitors owe a duty of confidentiality to their clients, but this is overridden by the legal obligation to report under POCA.

Key Term: Legal Professional Privilege (LPP)
A protection that exempts certain communications between a lawyer and client from disclosure, unless used to further a crime or fraud.

Key Term: Tipping Off
The offence of informing a client or third party that a SAR has been made or that an investigation is underway, where this is likely to prejudice the investigation.

Solicitors must not inform clients that a SAR has been made. LPP may excuse reporting if the information was received in privileged circumstances, but this does not apply if the communication is intended to further a crime.

Worked Example 1.1

A solicitor is instructed to transfer funds for a client who is evasive about the source of the money. The solicitor suspects the funds may be criminal property and reports this to the MLRO. The MLRO submits a SAR to the NCA. The client later asks why the transaction is delayed. Can the solicitor explain the reason?

Answer: No. Informing the client that a SAR has been made would likely constitute tipping off, which is a criminal offence under POCA.

Worked Example 1.2

A client refuses to provide identification documents for a property purchase. The solicitor cannot verify the client's identity and suspects money laundering. What should the solicitor do?

Answer: The solicitor should not proceed with the transaction, must report the suspicion to the MLRO, and may need to terminate the client relationship if CDD cannot be completed.

Worked Example 1.3

A solicitor receives information from a client in the course of seeking legal advice about a past transaction. The client admits to tax evasion. Is the solicitor required to report this?

Answer: If the information is received in privileged circumstances (for the purpose of legal advice, not to further a crime), legal professional privilege may apply and the solicitor may be excused from reporting.

Practical Application: Common Scenarios

Solicitors must be vigilant for red flags, such as:

  • Clients using offshore companies without clear reason
  • Requests to return funds to third parties
  • Unusual urgency or secrecy in transactions

If any of these arise, the solicitor should escalate the matter internally and follow the firm's AML procedures.

Exam Warning

Failing to report suspicion of money laundering, or tipping off a client, are criminal offences under POCA. For SQE1, be able to identify when a report is required and the correct procedure.

Revision Tip

Always document your decision-making process and keep records of internal reports and communications with the MLRO. This is essential for compliance and defence if challenged.

Key Point Checklist

This article has covered the following key knowledge points:

  • The legal framework for anti-money laundering in England and Wales is set by POCA and the Money Laundering Regulations 2017.
  • Solicitors must report knowledge or suspicion of money laundering to the MLRO, who decides whether to submit a SAR to the NCA.
  • The MLRO is responsible for external reporting and maintaining AML records.
  • Firms must apply a risk-based approach and conduct customer due diligence on clients.
  • Legal professional privilege may excuse reporting in limited circumstances, but does not apply if the communication furthers a crime.
  • Tipping off a client about a SAR or investigation is a criminal offence.
  • Solicitors must balance confidentiality with statutory reporting obligations.

Key Terms and Concepts

  • Proceeds of Crime Act 2002 (POCA)
  • Money Laundering Regulations 2017
  • Suspicious Activity
  • Money Laundering Reporting Officer (MLRO)
  • Suspicious Activity Report (SAR)
  • Risk-Based Approach
  • Customer Due Diligence (CDD)
  • Legal Professional Privilege (LPP)
  • Tipping Off
The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising. This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.
No resources available.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
Assessment Day
One-time Fee
$20-39
Barbri SQE
One-time Fee
$3,800-6,900
BPP SQE
One-time Fee
$5,400-8,200
College of Legal P...
One-time Fee
$2,300-9,100
Job Test Prep
One-time Fee
$90-350
Law Training Centr...
One-time Fee
$500-6,200
QLTS SQE
One-time Fee
$2,500-3,800
University of Law...
One-time Fee
$6,200-22,400

Note the above prices are approximate and based on prices listed on the respective websites as of May 2025. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

All-in-one Learning Platform

Everything you need to master your assessments and job tests in one place

  • Comprehensive Content

    Access thousands of fully explained questions and cases across multiple subjects

  • Visual Learning

    Understand complex concepts with intuitive diagrams and flowcharts

  • Focused Practice

    Prepare for assessments with targeted practice materials and expert guidance

  • Personalized Learning

    Track your progress and focus on areas where you need improvement

  • Affordable Access

    Get quality educational resources at a fraction of traditional costs

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal