Seven steps to SARs success

22 Oct 2012

Part VII of the Proceeds of Crime Act 2002 (POCA) imposes a reporting regime which is complex and, at times, confusing. Failure to comply may amount to a criminal offence. Solicitors trying to decipher the different disclosure obligations set out in Part VII may find it useful to remember the following:

1. Are the required elements to make a report present?
There are certain elements which must be present before you have a duty to make a SAR.

Do you know or suspect, or are there reasonable grounds for suspecting, that a person is engaged in money laundering (as prohibited by sections 327, 328 or 329 of Part VII – see point 4 below for further details) or in activities which would be money laundering if they occurred in the UK, or in a conspiracy or incitement to commit such an act, or in aiding, abetting, counselling or procuring such an act?

If so,

1 – can you identify such a person?; or
2 – do you know the whereabouts of the criminal proceeds?; or
3 – do you have information that will or may assist in identifying such a person or the criminal proceeds?
If you answer no to all these three questions (a) to (c) you do not have a duty to make a report.

2. Where did the criminal activity giving rise to the alleged criminal property take place?
If the acts took place wholly outside the UK, consider whether the overseas exemption might apply. Remember that conduct that is criminal in the country in which it was committed but would not be criminal in the UK is not “criminal conduct” for the purposes of POCA.

3. How did you obtain the information?
Did the information on which your knowledge or suspicion is based come to you ‘during the course of a business in the regulated sector’? As a solicitor much of your work may be ‘business in the regulated sector’ although certain practice areas, including dispute resolution, fall outside the regulated sector.

Did the information come to you in ‘privileged circumstances’? If so, there is no obligation for you to make a report.

However, if you are advising clients in the regulated sector on their own reporting obligations, remember that in most cases the privileged circumstances defence will not apply to them, so they may have a reporting obligation under POCA.

4. Do you need to get appropriate consent?
In cases where you suspect the presence of criminal property, do you intend to deal with or advise or be concerned in arrangements in respect of it (or property which in whole or in part represents it) in any way? If so, you may be at risk of committing an offence under sections 327, 328 and 329 of Part VII which prohibit the acquisition, possession, use of criminal property as well as the concealing, disguising and transferring of it or the entering into or becoming concerned in arrangements which you suspect may facilitate money laundering by another.

As a general rule, solicitors acting on matters involving criminal property should seek consent in advance to carry out the prohibited act save in the limited circumstances where Bowman v Fels applies.

Although the requirement to obtain consent is separate from the obligation to report suspicions of money laundering, in practice a single report containing a request for consent may be filed.

5. Try to be as accurate as possible while remaining succinct.
When reporting, provide all essential detail but avoid the temptation to clutter your report with extraneous information. SOCA needs to know the nub of the matter without getting submerged in superflous detail (SOCA can always ask for further information if they need it).

Extensive knowledge of the predicate offence is not required but a reporter should be able to state the reasons for his or her suspicion, name the relevant person suspected of money laundering and/or point to the whereabouts of the proceeds of crime or give information that may enable the enforcement agencies to do so.

Make it clear on the face of the report if you are seeking consent to deal in criminal property – and draft your request carefully to cover all the activities you are proposing to carry out.

6. SARs should not be used as a means of establishing whether or not you can take on a client or even act on a particular matter.
SOCA is not an integrity check provider. Where you have reasons to be concerned about the integrity of your clients or the probity of the matter you are acting on you should conduct your own checks (and are required to do so under the Money Laundering Regulations 2007).

Routine requests to your clients for information about themselves or the source of their funds will not generally amount to a ‘tipping off’ offence.

7. Obtaining consent from SOCA will only protect you, by way of a defence, from committing a money laundering offence under Part VII POCA.

It will not protect you from committing or facilitation of any other criminal offence.

Making a suspicious activity report: good practice

Whether you are making your first suspicious activity report (SAR) or you 100th, providing the correct information will ensure that it is processed quickly and can be used most effectively.

Here are a few good practice tips to help enhance your SARs.

Online / Preferred form
As all solicitors know, it is so much easier to deal with information when it is clearly set out and in a format which is compatible with your own systems.

The Serious Organised Crime Agency (SOCA) is no different. They have issued a preferred form which helps ensure all of the information they need is included and that it is in a format which they can quickly enter into their system.

While the form is designed with financial institutions in mind (as they are responsible for more than 80% of the SARs reported annually), law firms can still fill in the parts which are relevant to them.

In addition, SOCA has created an online portal which will allow you to submit the SARs directly on-line and into their database.

The benefits of using the portal include

• there is no delay for someone to enter the information before any consent request can be considered
• you can save a copy for your records, and
• you receive an email confirming receipt.
• You do have to register for the system, but you can do this before you need to make a SAR. For more information on SARs online see the information on reporting on SOCA’s website.

If you prefer to make your report on paper, you can still fax the form through to SOCA on 020 7238 8286.

Make use of the CDD you acquired
Firms spend a lot of time collecting client due diligence information (CDD), so it is important that when the time comes to make a SAR, you make full use of this resource. There are a number of reasons for this.

Firstly, full details help SOCA more quickly identify whether your client is a person of interest to them or not.

Secondly, even if some of the details you have been given are fraudulent, some of the contact details will be real in order to allow you to communicate with the client. This may help law enforcement link in different parts of criminal gangs and provide information about different alias being used.

So make sure you include the following information where you have it:

• full names,
• addresses including post codes,
• dates of birth,
• phone numbers,
• passport or drivers licence numbers
• company registration numbers.
• Why are you suspicious?
The narrative section of the report is the part where you give a concise explanation of your to law enforcement agencies. The easier you make it for them to understand, the quicker they will be able to act on it.

You should provide a brief outline which covers:

• the name of the person you are reporting and their relation to you for example your client, the other side or a third party funder
• what is the transaction you are undertaking or how did you receive the information causing the suspicion?
• details of your suspicion.
• When stating why you are suspicious of money laundering you should either:

• outline what criminal activity you think the person has been engaged in to produce criminal property or
• outline the warning signs which cannot be explained and make you think there must be criminal property involved.

So this section may look something like:

I suspect that the client has accepted bribes / evaded tax / claimed benefits they were not entitled to ….

The client has instructed me to recover a debt from a debtor who lives a long way from both the client and our firm. The debtor is very happy to pay the debt without us taking any action and would like to put the money through our client account. The debt relates to a type of business (eg oil importation) in which our firm has no experience. We have not received a satisfactory explanation for this from our client. We therefore suspect this is scam litigation and they are attempting to use us to launder money.

The vexing issue of consent

You only need consent if you know or suspect that you will be involved in money laundering. If you are simply reporting about someone else’s money laundering, you do not need consent.

If you need consent, make sure you tick the consent box.

In the narrative section clearly state what you would like consent to do.

If you need to take those steps before either the notice period (7 working days starting the day after you put the report in) or the moratorium period (31 days after SOCA refuse consent), include information about those deadlines.

This will assist SOCA and law enforcement agencies to prioritise matters and to consider whether a refusal of consent would actually make it more difficult to trace the assets or would put people at risk.

What not to do

SOCA’s consideration of your SAR may be delayed and you may potentially find yourself on the wrong side of a regulatory or civil claim if you:

• send or attach boxes of files
• ask for consent to take on a client for whom you cannot fully complete CDD
• ask SOCA to verify your client’s identity for you
• use complicated legalese or Latin terms
• report everything just in case.