The UK Government kicked off the New Year with a reminder that tackling economic crime remains top of its agenda. The Home Secretary and Chancellor announced last week1 that they will chair the new "Economic Crime Strategic Board", a taskforce that brings together representatives from the private sector (such as financial institutions), law enforcement agencies and regulatory bodies to tackle the economic crime threat. The Board will meet bi-annually to set its priorities and direct its resources.
This 'public/private' approach to tackling financial crime will be familiar to those who have kept an eye on the evolution of anti-money laundering measures in recent years. It builds on the perceived success of the Joint Money Laundering Intelligence Taskforce, another partnership between the financial sector, law enforcement and government agencies2. It seems clear that the Government thinks that the regulated sector shares a joint responsibility to fight economic crime.
Such a responsibility creates a significant burden for banks and other financial institutions when it comes to the suspicious activity report ("SAR") regime. Seemingly in recognition of this burden, last week's announcement committed more funds to reform the SAR regime.
SAR Regime Reform
Those operating in the regulated sector are obliged to raise suspicions about potential money laundering. We have previously commented3 on the issues the current SAR regime raises and welcome the Law Commission's proposed reform of this area.
One particularly thorny area of the SAR regime is worth considering whilst we wait for the outcome of the Law Commission's work. This is the issue of mixed funds. Under the Proceeds of Crime Act 2002, if a bank account has received funds regarding which suspicions exist, then the bank risks committing a substantive money laundering offence if it continues to operate the account. The bank will manage this risk by making a consent SAR. If consent is granted, the bank will then have a defence against a substantive money laundering offence. However, in the meantime, the bank will not operate the account, the customer may be prejudiced and the bank faces litigation risk.
Particular issues arise where the bank is suspicious that the customer account contains legitimate and potentially illicit funds. This is largely a result of the Court of Appeal’s decision in Causey4. This case indicated that once criminal funds are mixed with legitimate funds, the whole amount is deemed criminal property for the purposes of the money laundering regime.
If the decision in Causey accurately represents the law, then banks cannot ring fence funds whilst they wait for consent to proceed with the transaction. There are practical and effective proposals for reform on the table. For example, the Law Commission seems open to a system that would allow banks to ring fence monies to that amount without having to seek consent. However, this does not address a more fundamental issue.
Causey is a good example of the predicament the regulated sector finds itself in when it comes to applying the law in this area to its unique set of circumstances. All too often, the relevant case law arises out of general crime fact patterns, like drug trafficking. Applying the decisions in these cases to a commercial situation is difficult and can lead to illogical outcomes. Judges may not always consider the repercussions for the regulated sector. Law reform is helpful, but there is a strong argument for greater consideration of the regulated sector in proceeds of crime cases, particularly at appellate level.
1https://www.gov.uk/government/news/new-taskforce-to-tackle-economic-crime.
2http://www.nationalcrimeagency.gov.uk/about-us/what-we-do/national-economic-crime-centre/joint-money-laundering-intelligence-taskforce-jmlit.
3 "Money laundering: the net closes in?", 23 August 2018. https://www.whitecase.com/publications/alert/money-laundering-net-closes?s=money laundering.
4 R v Causey, Court of Appeal (Criminal Division); unreported, 18 October 1999. The court was interpreting Criminal Justice Act 1988, s. 93C which has the same definition of criminal property as the Proceeds of Crime Act 2002, s.340. The decision was upheld in N v RBS [2017] EWCA Civ 253.
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