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

Learning Outcomes

This article examines money laundering and anti-money laundering regulations in England and Wales, focusing on tipping off and confidentiality issues, including:

• Tipping off offences under the Proceeds of Crime Act 2002 (POCA)
• Distinction between tipping off and prejudicing an investigation
• Interaction between AML obligations, client confidentiality, and legal professional privilege
• The crime/fraud exception to privilege
• Procedures for reporting suspicious activity and avoiding tipping off liability
• The consent (defence against money laundering) regime and statutory time limits
• Roles of the MLRO and MLCO under the Money Laundering Regulations 2017
• Application of principles to SQE1-style scenarios

SQE1 Syllabus

For SQE1, you are required to understand the anti-money laundering regime as it applies to legal professionals, with a focus on the following syllabus points:

• the legal definition and stages of money laundering
• the offences of tipping off and prejudicing an investigation under POCA
• the duty of confidentiality and legal professional privilege in the AML context
• the reporting obligations for solicitors and the role of the nominated officer (MLRO)
• the function of the money laundering compliance officer (MLCO) and the requirement for firm policies, controls and procedures
• the correct procedure for making Suspicious Activity Reports (SARs) and the consent (defence against money laundering) regime
• the defences and exceptions to tipping off
• practical steps to avoid breaching AML regulations while maintaining professional duties
• firm duties under the Money Laundering Regulations 2017 on risk assessment, training, customer due diligence (CDD), enhanced due diligence (EDD), ongoing monitoring, and record‑keeping
• the interaction with the UK financial sanctions regime

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 offence of tipping off under the Proceeds of Crime Act 2002, and when might a solicitor commit it?
2. How does legal professional privilege interact with the duty to report suspected money laundering?
3. What practical steps should a solicitor take if a client asks about a delayed transaction after a SAR has been made?
4. Who is responsible for submitting a Suspicious Activity Report (SAR) to the National Crime Agency in a law firm?

Introduction

Money laundering is the process of disguising criminal proceeds to make them appear legitimate. The UK has strict anti-money laundering (AML) laws, including the Proceeds of Crime Act 2002 (POCA) and the Money Laundering Regulations 2017, which impose specific duties on solicitors. These duties include reporting suspicious activity and avoiding actions that could prejudice an investigation, such as tipping off a client. At the same time, solicitors must balance these obligations with their duty of confidentiality and legal professional privilege. Understanding how to comply with AML rules, especially regarding tipping off and confidentiality, is essential for SQE1.

The AML regime sits alongside professional conduct duties under the SRA Codes of Conduct: firms must have a firm-wide risk assessment (reg 18 MLR 2017), written policies, controls and procedures (reg 19), appointed officers (including an MLRO and, where required, an MLCO) (reg 21), staff training (reg 24), and appropriate record‑keeping (reg 40). The UK financial sanctions regime also applies to law firms; engagement with designated persons requires a licence from the Office of Financial Sanctions Implementation (OFSI), and discussions of public sanctions status do not amount to tipping off.

Key Term: tipping off
Tipping off is the offence of disclosing to a person that a Suspicious Activity Report (SAR) has been made or that a money laundering investigation is underway, where that disclosure is likely to prejudice the investigation.

Tipping Off: The Legal Framework

Solicitors working in the regulated sector must not disclose information that could prejudice a money laundering investigation. This is known as the offence of tipping off.

Tipping off offences are set out in POCA, primarily sections 333A–333D for the regulated sector (including solicitors) and section 342 for all persons. The offence is committed if a person discloses that a SAR has been made, or that an investigation is being contemplated or carried out, and that disclosure is likely to prejudice the investigation. The regulated sector provisions focus on disclosures about SARs and investigations; section 342 addresses the wider offence of prejudicing an investigation (for example by falsifying, concealing, or destroying documents, or by informing a suspect of steps to be taken), and applies to any person.

Key Term: Suspicious Activity Report (SAR)
A SAR is a report made to the National Crime Agency (NCA) by a solicitor or nominated officer when they know or suspect money laundering.

Key Term: prejudicing an investigation
Prejudicing an investigation is the offence of doing any act which is likely to prejudice a POCA money laundering investigation, including (but not limited to) disclosing information that an investigation is underway, falsifying, concealing or destroying relevant documents, or otherwise obstructing investigative steps. It applies to any person (not only the regulated sector).

When Might Tipping Off Occur?

Tipping off can occur if, after making a SAR, a solicitor tells the client (or another person) that a report has been made or that the authorities are investigating. This includes direct statements or indirect hints that could alert the client. Even an explanation that a transaction is delayed due to involvement of the NCA or “money laundering checks” can be problematic if, in context, it is likely to alert the client that a SAR has been made.

Typical high‑risk scenarios include:

• discussing specific reasons for a delay in executing instructions where a SAR has already been filed
• forwarding correspondence that reveals the existence of a SAR or consent request
• signalling that “authorities are reviewing” a particular matter, or that the firm is “awaiting consent,” in terms which could reasonably alert a suspect

Who Can Commit the Offence?

The offence applies to anyone working in the regulated sector, including all solicitors, employees, and nominated officers (MLROs). It also applies to any person under section 342 POCA, not just those in the regulated sector. Internally, disclosure to the firm’s MLRO or within an organisation for compliance purposes is generally permitted (see exceptions below), but disclosure outside a controlled compliance context can attract liability.

Elements of the Offence

To commit the offence, the following must be present:

• A disclosure is made to any person.
• The disclosure relates to a SAR or an investigation.
• The disclosure is likely to prejudice the investigation.
• The person making the disclosure knows or suspects this is the case.

The “likely to prejudice” test is fact‑sensitive: consider what the recipient could infer in context. A generic statement about internal processes may be acceptable; a description that pinpoints law enforcement involvement is unlikely to be.

Key Term: appropriate consent
Appropriate consent (sometimes described as the “defence against money laundering”) is the consent under POCA obtained via a SAR that permits a person to proceed with a transaction that would otherwise constitute a money laundering offence. If consent is refused, a statutory moratorium prevents the transaction proceeding for a period (with potential extensions in certain circumstances).

Defences and Exceptions

There are limited defences to tipping off, including:

• The person did not know or suspect that the disclosure would prejudice an investigation.
• The disclosure was made to dissuade a client from committing a criminal offence (only with great caution, and only where no prejudice is likely).
• The disclosure was made within an organisation for AML compliance purposes (for example, to the MLRO, or within a controlled compliance chain).
• The disclosure was permitted by law (e.g., made to law enforcement, to a supervisory authority, or to a legal adviser for the purpose of obtaining legal advice, subject to privilege rules).

Disclosures to supervisory authorities or for the purpose of legal advice are carefully circumscribed; privilege cannot be misused to shield communications intended to further a criminal purpose.

Exam Warning

Tipping off is a strict liability offence in many respects. Even an unintentional hint or explanation for a delay can be enough if it alerts the client to the existence of a SAR or investigation. Solicitors must be extremely cautious in all communications after making a SAR.

Consent and Moratorium Periods

Once a SAR seeking consent is submitted, the transaction must not proceed until either consent is granted or the statutory time limits expire. There is an initial seven working day “decision period” for the NCA to respond. If consent is refused, a moratorium period of 31 calendar days applies. In certain cases, this moratorium can be extended by court order up to a maximum total of 217 days. A failure to respect these time limits risks both substantive money laundering offences and tipping off if communications alert the client to the SAR.

Worked Example 1.1

A solicitor makes a SAR about a client's property transaction. The client later asks why the transaction is delayed. The solicitor replies, "We have reported your matter to the authorities for suspected money laundering." Has the solicitor committed an offence?

Answer:
Yes. The solicitor has committed the offence of tipping off under POCA by disclosing that a SAR has been made, which is likely to prejudice the investigation.

Confidentiality and Legal Professional Privilege

Solicitors owe a duty of confidentiality to their clients, but this duty is limited by AML obligations. Disclosure required or permitted by law (e.g., a SAR under s 338 POCA) will not breach confidentiality duties under the SRA Codes of Conduct.

Key Term: confidentiality
The duty of a solicitor to keep client affairs private, unless disclosure is required or permitted by law or the client consents.

Key Term: legal professional privilege
The right of a client to keep communications with their solicitor confidential, protecting them from disclosure in legal proceedings. Privilege does not apply if the communication is made with the intention of furthering a criminal purpose.

Legal professional privilege (LPP) can provide a defence to the failure to disclose offence under POCA, but it does not excuse tipping off if the disclosure to a client is not privileged. Communications made to obtain legal advice on complying with the law are privileged, but those made to further money laundering are not (the crime/fraud exception). Privilege belongs to the client; a solicitor cannot use it to withhold material from a regulator where statute expressly permits or requires confidential production in a manner that does not infringe privilege, and cannot rely on privilege to justify alerting a client to a SAR.

Where the duty of confidentiality conflicts with the duty of disclosure to another client, confidentiality prevails; solicitors must avoid placing themselves in such conflict positions in the first place.

Worked Example 1.1

A client confesses to a solicitor that they committed tax fraud in the past. The solicitor advises the client to comply with the law in the future. Is this advice protected by legal professional privilege?

Answer:
Yes, advice on future compliance is privileged. However, if the client seeks advice to conceal past fraud, privilege does not apply, and the solicitor may be required to report.

Worked Example 1.2

A client asks their solicitor whether they should destroy historical invoices which might reveal an undeclared income stream while HMRC inquiries are pending. The solicitor cautions against destruction and declines to assist. Is the communication privileged?

Answer:
No. The crime/fraud exception would likely apply because the communication seeks advice to further a criminal purpose (concealment). Privilege would not attach, and the solicitor should consider reporting obligations.

Reporting Suspicious Activity and the Role of the Nominated Officer

Solicitors must report knowledge or suspicion of money laundering to their firm's nominated officer (MLRO), who then decides whether to submit a SAR to the NCA. Firms subject to the Regulations must also appoint, where appropriate, a money laundering compliance officer (MLCO) responsible for ensuring the firm maintains appropriate policies, controls and procedures.

Key Term: nominated officer (MLRO)
The person in a law firm responsible for receiving internal reports of suspected money laundering and making SARs to the NCA.

Key Term: money laundering compliance officer (MLCO)
The officer responsible for ensuring a firm has appropriate AML policies, controls and procedures, and that the firm’s AML systems meet regulatory requirements.

The nominated officer must make the report as soon as practicable. After a SAR seeking consent is made, the transaction must not proceed until consent is received from the NCA or the statutory time period has expired. Failure to disclose under section 330 POCA (applicable to the regulated sector) is an offence if a person knows, suspects, or has reasonable grounds to suspect money laundering and does not report as soon as practicable. Defences include having a reasonable excuse, LPP (where communication is genuinely privileged), and—in some circumstances—lack of AML training provided by the employer.

Worked Example 1.3

A trainee solicitor suspects a client is laundering money and informs the firm's MLRO. The MLRO submits a SAR. The client later calls the trainee and asks if there is a problem. What should the trainee say?

Answer:
The trainee should not mention the SAR or investigation. They may refer to generic "internal checks" or "regulatory requirements" but must avoid any statement that could alert the client to the SAR.

Worked Example 1.4

A junior fee earner in the regulated sector failed to make an internal report despite obvious red flags. The firm had never provided any AML training. The fee earner is charged under s 330 POCA. What potential defence exists?

Answer:
Lack of training can, in certain circumstances, be relevant to the s 330 offence. If the fee earner did not know or suspect money laundering and the employer failed to provide AML training, this may be a defence. However, where knowledge or suspicion existed, the lack of training will not excuse a failure to disclose.

Worked Example 1.5

A solicitor files a SAR seeking consent on Monday. The NCA does not respond within seven working days. The solicitor proceeds with the transaction on Wednesday the following week. Is this permissible?

Answer:
Yes, if the initial decision period has expired without refusal, the transaction may proceed. If consent had been refused, a 31‑day moratorium would apply (extendable up to a total of 217 days by court order), and proceeding in that period would be unlawful.

Customer Due Diligence, Enhanced Due Diligence, and Ongoing Monitoring

Under the Money Laundering Regulations 2017, firms must apply customer due diligence (CDD) measures at onboarding, when conducting certain transactions, when suspicion arises, or when doubts emerge about previously obtained identification. Where higher risk circumstances exist, enhanced due diligence (EDD) must be carried out (e.g., dealings with high‑risk third countries, politically exposed persons (PEPs), complex or unusually large transactions, or unusual patterns of transactions lacking apparent purpose). Firms must maintain ongoing monitoring to ensure transactions are consistent with their knowledge of the client.

CDD and EDD include identifying and verifying the client and (where relevant) beneficial owners, understanding the control structure of corporate clients, and assessing sources of funds and wealth in higher risk cases.

Key Term: politically exposed person (PEP)
An individual entrusted with prominent public functions (and their family members or close associates). PEP relationships require senior management approval, measures to establish source of wealth and funds, and enhanced ongoing monitoring.

Records of CDD and transaction monitoring must be retained for the prescribed period. Failure to maintain appropriate procedures is a regulatory breach and may attract criminal liability under the Regulations.

The UK Financial Sanctions Regime and Tipping Off

The UK financial sanctions regime imposes restrictions on dealing with designated persons. Firms must check clients against sanctions lists and, if acting for a designated person, obtain an OFSI licence to receive reasonable fees. The sanctions list is public; discussing a person’s public sanctions designation does not amount to tipping off. However, revealing confidential steps (for example, that a confidential application for a licence has been made for a specific transaction) could, in some contexts, risk prejudicing an investigation and should be controlled.

Practical Steps to Avoid Tipping Off

• Do not inform the client that a SAR has been made or that an investigation is underway.
• Use neutral language if questioned about delays (e.g., "We are carrying out routine checks required by law.").
• Avoid explanations that could indirectly alert the client to the existence of a SAR or consent request.
• Ensure all staff receive regular AML training and know escalation and reporting procedures.
• Maintain controlled internal communication: restrict disclosure of SAR‑related information to the MLRO and those who need to know for compliance purposes.
• Keep a clear audit trail of risk assessments, CDD/EDD checks, internal reports, SAR submissions, and consent outcomes.
• Do not proceed with transactions until consent is received or the statutory decision/moratorium periods have expired.
• Coordinate with your MLRO before replying to client queries in sensitive matters, and document agreed response scripts.
• Implement proportionate policies, controls and procedures, approved by senior management, and review them against firm-wide risk assessments.

Revision Tip

Always remember: after making a SAR, avoid discussing the report or investigation with the client. If in doubt, seek advice from your firm's MLRO or compliance officer.

Summary Table: Tipping Off and Confidentiality

Worked Example 1.6

A client appears on the UK sanctions list. The partner tells the client, “You are on the OFSI sanctions list and we will need a licence from OFSI to accept payment.” Is this tipping off?

Answer:
No. The sanctions list is public information, and stating that a licence will be needed is a factual compliance step. However, the firm should avoid disclosing confidential aspects of any licence application beyond what is necessary.

Key Point Checklist

This article has covered the following key knowledge points:

• Tipping off is a criminal offence under POCA if a disclosure is likely to prejudice a money laundering investigation.
• Prejudicing an investigation under s 342 POCA applies to any person and captures a wider range of obstructive acts.
• Solicitors must not inform clients that a SAR has been made or that an investigation is underway; use neutral explanations only.
• Appropriate consent must be obtained or the statutory time periods must expire before proceeding with suspect transactions.
• Legal professional privilege does not apply to communications intended to further a crime; the crime/fraud exception removes privilege in such circumstances.
• The nominated officer (MLRO) is responsible for receiving internal reports and submitting SARs; firms must also have an MLCO where required and maintain policies, controls and procedures.
• Failure to disclose in the regulated sector (s 330 POCA) can attract criminal liability; relevant defences include reasonable excuse, genuine LPP, and in limited cases lack of AML training.
• Firms must meet AML obligations under the Money Laundering Regulations, including CDD/EDD, training, ongoing monitoring, record‑keeping, and maintaining a firm‑wide risk assessment.
• Discussing public sanctions status does not amount to tipping off; acting for designated persons requires licences and controlled communications.

Key Terms and Concepts

• tipping off
• prejudicing an investigation
• Suspicious Activity Report (SAR)
• appropriate consent
• confidentiality
• legal professional privilege
• nominated officer (MLRO)
• money laundering compliance officer (MLCO)
• politically exposed person (PEP)