The Law Commission published a 219-page Report on the Suspicious Activity Report (SAR) regime on Tuesday 18 June.
SARs must be submitted to the National Crime Agency (NCA) when, for example, a person in the regulated sector knows or suspects that another person is engaged in money laundering. However, it is widely recognised that the SAR regime is in need of reform. As we commented in January, 2018 was a record year for the submission of SARs, with the NCA receiving 463,938 reports, representing a 10 per cent increase on the previous year.
The Law Commission's Report therefore comes partly in response to calls for reform that will help manage this flood of SARs. There are many interesting recommendations made by the Law Commission, including new guidance being issued on the "suspicion" threshold for submitting a SAR; statutory guidance being issued on "appropriate consent" for the purpose of the Proceeds of Crime Act 2002 (POCA); a new Advisory Board being established and amendments being made to the money laundering offences in POCA (ss327, 328 and 329), among many others.
However, of particular interest was a short section at the end of the report addressing legal conduct overseas. We wrote an article in January explaining how POCA places UK investors at risk of committing a money laundering offence when they invest in the (now very significant) legal cannabis industry abroad, for example, in Canada. The "overseas conduct" defence, introduced in 2006, only applies to offences punishable by up to 12 months' imprisonment in the UK, so recreational cannabis businesses and investments cannot benefit from it. UK Finance, a trade association for the UK banking and financial services sector, was consulted by the Law Commission on the SAR regime and this issue. It is quoted as saying that "common sense would suggest that reports about dealings with the proceeds of such lawful businesses would be of no actionable or intelligence value to law enforcement, but the legal position is less clear".
A mitigating step to this potential criminality is to submit a "Defence Against Money Laundering" (DAML) SAR and seek permission to proceed from the NCA and the Report did acknowledge that many firms are submitting DAML SARs in relation to this issue. However, the Report also went on to conclude that: "the policy questions raised by the application of the legal conduct overseas exceptions are broader than the remit of this review and extend beyond the example of legal cannabis".
The ambiguous legal framework observed by us in January and by UK Finance in relation to this issue therefore remains in place and the UK's finance sector has not been given the clarity it appears to be seeking. We will continue to watch with interest to see whether any proposed change to the law or guidance from the UK Government is produced in due course to clarify the issue.
Consultees noted these provisions [the overseas conduct defence] create some practical difficulties. UK Finance argued they are "too narrowly drawn" and in effect "exacerbate rather than resolve" the challenges created by the breadth of the definitions in section 340.