Money laundering and terrorism financing constitute a global. It involves concealing and transferring illicit funds through companies and other entities for illegal purposes, including supporting terrorism. It can occur in many advanced methods, and individuals may unknowingly participate in such crimes without realising their involvement.
In an effort to combat criminal activities such as money laundering and terrorist financing, the UK has implemented several measures. These include the introduction of the Proceeds of Crime Act 2002 (POCA), the Terrorism Act 2000, and the Money Laundering, Terrorist Financing and Transfer of Funds Act 2017. Furthermore, the Action Plan for Anti-Money Laundering and Counter-Terrorist Finance 2016, and the Law Commission consultation paper 2018, discussed in detail some aspects of the anti-money laundering framework, which came in response to requests for a review of specific aspects of the regime.
One of the main topics in both papers was introducing methods to develop the Suspicious Activity Report (SAR) regime as a central mechanism in combating such a crime, especially within the financial sector.
The Suspicious Activity Report (SAR) in the UK is a piece of document filed by financial institutions, professionals, or other entities and individuals when they identify or even subjectively suspect potentially illegal activities or transactions which may be related to money laundering or terrorist financing.
The SAR report is usually submitted to the competent authority under the duty imposed by Section 330 (1)(2)(a-b) POCA 2002 on the regulated sector and individuals to submit such reports if they suspect that any financial transaction might involve a money laundering offence. By filing the SAR report, the authorities can investigate and take appropriate actions.
Filing the SAR form is usually to obtain consent from the authorised officer or nominated person[1] to continue such a transaction without being liable by any means. However, because failing to submit such a report would make the reporter liable for a money-laundering offence, the reporter may submit a defensive report just to shield the allegation of being involved in a money-laundering process.[2]
A Suspicious Activity Report (SAR) should be filed when an individual “suspects” that another person or transaction is involved in money laundering. That suspicion does not need to be based on hard evidence, but it must be more than mere speculation. Such suspicion might arise from various situations, such as unusual transactions, significant changes in behaviour, or activities that do not match the client’s normal business activities or profile.
The “Suspicion” necessary to trigger the reporting obligation is not firmly defined by courts, which can make it somewhat subjective. Courts in the UK have generally interpreted it as being beyond mere speculation but did not reach certainty. Essentially, if an individual thinks there is a possibility, however remote, that a person is involved in money laundering, a SAR report should be filed. Failing to report this situation can lead to criminal penalties, including imprisonment and/or a fine.
It is also worth mentioning that the decision to submit a SAR should be made on a case-by-case basis, taking into account all available information.
Section 330(3)[3] confirms that filing SAR reports is an obligation imposed upon the workers in the regulated sector who may receive such information in the course of business. SCHEDULE 9 (a)[4] describes the regulated sector as any entity accepted by a credit institution of deposits or other repayable funds from the public. However, the regulated sector that falls under that obligation can include:
- Banks and credit institutions
- Stockbrokers and investment firms
- Insurance companies and insurance intermediaries
- Auditors, accounts, bookkeepers, tax advisers
- Property dealers and estate agents
- Trust or company formation and management
- Legal services
- Trading in goods for cash of at least £13,000
- Casinos
- Auction platforms
The statutory interpretation of suspicion under s.330
Money laundering and terrorism financing, as a term, expressly and impliedly contains four definitions, Terrorism[5], Fund-raising[6], Terrorism property[7]and Criminal property[8]. All of these definitions are stated in Terrorism Act 2000 and POCA 2002.[9] However, those four definitions need to be explored to find the areas where the significant impact lies to establish a solid suspicion necessary to trigger the obligation under section 330 POCA.
The definition of “Terrorism” in section 1, TA2000
In 1999, The American Federal Bureau of Investigation (FBI) defined terrorism as “the unlawful use, or threatened use, of force or violence by a group or individual… committed against persons or property to intimidate or coerce a government, the civilian population, or any segment thereof, in furtherance of political or social objectives“.[10] This definition is similar to the Terrorism definition in TA2000.[11] Both have mentioned the use or threat of action against persons, government, or other entities to describe terrorism as a criminal act. While the FBI definition had described the act as “unlawful”, both definitions did not draw a clear line for the requisite mens rea (intention) to establish liability, which would widen the definition of terrorism, creating a state of vagueness among the reporters, especially between reporters who have no legal background in identifying or describing such definitions.
The definition of terrorism property, s.14 TA 2000:
Section 14[12] TA 2000 describes the property as “money or other property which is likely to be used for the purposes of terrorism”. This definition did not give more details about in which form that property should be. Also, ss(2) stated that, even if the money were partly or indirectly used for terrorism, it would be considered as terrorism proceeds. Using words like “partly or indirectly” in ss(2) could be seen as widening the definition of terrorism property, giving the reporter discretionary power to make his decision. This situation may create a state of inconsistency, where a particular banking transaction could be allowed in one bank and suspended in another.[13]
In the following article, we will delve into the definitions of fund-raising and criminal property to reach a conclusion on how the reporter should evaluate his suspicion necessary to trigger his reporting obligation under s.330 POCA 2002.
[1] Proceeds of Crime Act 2002, s 330 (4)(a-b).
[2] Law Commission, Anti-money laundering: the SARs regime Report, (Law Com No 384, 2019), para 5.12, page 91.
[3] Proceeds of Crime Act 2002, s 330 (3).
[4] Proceeds of Crime Act 2002, SCHEDULE 9 Regulated sector and supervisory authorities.
[5] Terrorism Act 2000, s 1(2).
[6] Terrorism Act 2000, s 15(2)(a)(b).
[7] Terrorism Act 2000, s 14(1)(A).
[8] Proceeds of criminal act 2002, s 340(3)(b).
[9] Proceeds of criminal act 2002.
[10]Alex Schmid, Terrorism – The Definitional Problem, 36 Case W. Res. J. Int’l L.375 (2004), “https://core.ac.uk/download/pdf/214078705.pdf” page 377.
[11] Terrorism Act 2000, s 1(1)-(5).
[12] Terrorism Act 2000, s 14 (1)(A).
[13] Law Commission, Anti-money laundering: the SARs regime Report, (Law Com No 384, 2019), case study 2, page 97.