Money laundering and terrorist financing - suspicious activity reports
Issued on 8 December 2014
Whilst this document does not form part of the SRA Handbook, the SRA may have regard to it when exercising its regulatory functions.
Who is this warning notice relevant to?
This warning notice is relevant to all regulated persons, especially Compliance Officers for Legal Practice (COLPs), Compliance Officers for Finance and Administration (COFAs) and firms' Money Laundering Reporting Officers.
The Solicitors Regulation Authority (SRA) supervises those it regulates for compliance with money laundering legislation. In the course of its business, the SRA has identified an increasing risk of firms failing to have adequate systems and controls to prevent, detect and report money laundering.
Recently, the National Crime Agency (NCA) produced an analysis of SARs it receives for consent to proceed with transactions ("consent SARs"). You will know that under the Proceeds of Crime Act (POCA) 2002 you are required to submit a SAR to the NCA if you know or suspect, or have reason to know or suspect, that an individual is engaged in money laundering and the information has come to you in the course of your business. There are similar obligations to submit SARs in relation to terrorist financing offences under the Terrorism Act (TACT) 2000.
The analysis conducted by the NCA concluded that a disproportionately high percentage of reports received from the legal sector were of poor quality because firms were providing inadequate information. The NCA has announced that, from 1 October 2014, consent SARs that do not contain reasons for suspicion, or a statement regarding criminal property, will be closed by the NCA upon receipt. The NCA has published detailed guidance on this new process.
Failure to make a disclosure to the NCA in appropriate circumstances can in itself be a criminal offence, and proceeding with a transaction in the absence of consent may result in the commission of a principal money laundering offence.
You should have regard to the SRA Principles; your specific obligations under Chapter 7 of the SRA Code of Conduct 2011, in particular Outcome 7.5 - to comply with the Money Laundering Regulations 2007; and generally with legislation such as your legal obligations under POCA 2002 and TACT 2000.
We expect all firms and individuals regulated by us to comply with the NCA guidance in relation to submitting consent SARs.
The NCA has stated that one of the causes behind delays in the turnaround of consent requests is the non inclusion of one or more of the elements required (where known in your course of business) of a submission, namely:
- The information or other matter that gives grounds for knowledge, suspicion or belief;
- A description of the property that is known, suspected or believed to be criminal property, terrorist property or derived from terrorist property;
- A description of the prohibited act for which consent is sought;
- If known, the identity of the person or persons known or suspected to be involved in money laundering or who committed or attempted to commit an offence under any of sections 15 to18 of TACT 2000;
- If known, the whereabouts of the property that is known or suspected to be criminal property, terrorist property or derived from terrorist property; and
If under (4) and (5) the identity of the person or persons and/or the whereabouts of the property is not known, then any information believed or reasonably believed that may assist in identifying (4) or (5) or both.
The SRA principles
You have a duty to ensure you comply with money laundering legislation. Failure to do so may result in you breaching one or more of the SRA Principles, including:
- Principle 1 - Uphold the rule of law and the proper administration of justice.
- Principle 4 - Act in the best interests of your client.
- Principle 6 - Behave in a way that maintains the trust the public places in you and in the provision of legal services.
- Principle 7 - Comply with your legal and regulatory obligations.
- Principle 8 - Run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles.
The SRA mandatory outcomes
In order to achieve Outcome 7.2 and Outcome 7.3 of the SRA Code of Conduct 2011, we also expect firms to have systems and procedures in place which are adequate to prevent, detect and report money laundering; and that firms monitor the efficacy of such systems to ensure that any risks to compliance are identified and addressed. This includes ensuring that relevant staff are appropriately trained and regularly updated in respect of the relevant legislation and their professional obligations, including the NCA's requirements referred to above (see Outcome 7.6).
Failure to comply with this enforcement notice may lead to disciplinary action, criminal prosecution or both.
For guidance on warning signs that a transaction may be suspicious see our Warning notice: Money laundering and terrorist financing.
NCA guidance on completing SARs; making consent requests; and the closure of inadequate consent SARs:
Further information and assistance on your reporting obligations can be found at Chapter 8 of the Law Society practice note and in the Law Society advice article Help! I'm a new MLRO: making a report.
Please use www.sra.org.uk/aml-sar to link to this page.