Government Action Plan promises AML shake-up

The Home Office and HM Treasury have published an "Action Plan for anti-money laundering and counter-terrorist finance" (the "Action Plan"). This sets out 19 actions that the Government is considering in order to deliver its strategic aim to "make the UK a more hostile place for seeking to move, hide or use the proceeds of crime or corruption". The 19 actions, which are to be taken by government departments, agencies and private sector bodies including the National Crime Agency (NCA), the Home Office, the British Bankers’ Association (BBA) and the Charity Commission, fall under the following four priority areas:

• a stronger partnership with the private sector
• enhancing the law enforcement response
• improving the effectiveness of the supervisory regime, and
• increasing international reach.

The Action Plan does not set out much detail on many of the proposed actions, all of which are work in progress. As a number of the proposals will require legislative changes, the Action Plan includes a consultation on these. The deadline for responses is 02 June 2016.

While many of the proposed actions are in very general terms, there are several that are worth highlighting.

Reforming the Suspicious Activity Reports (SARs) regime

By far the most significant action relates to changes to the SARs regime, a task that is to be completed by October 2018. The existing SARs regime has come in for criticism, particularly that a huge volume of reports leads to very little action. According to a National Crime Agency report, in the year to September 2015, 381,882 SARs were filed. Of those seeking consent to deal with suspected proceeds of crime, fewer than 10% were refused. A total of £46m of payments were restrained, but only £2.4m of cash was seized and only 22 people were arrested as a result of SRAs filed. Many feel that the results of the SAR regime do not justify the administrative burden, particularly on those operating in the financial sector. The Action Plan also notes that the IT infrastructure of the reporting system is nearing the end of its life.

The Action Plan announces that the SARs regime is to be refocused on entities that pose the highest risks, rather than on individual transactions. In addition, consideration is being given to whether the consent regime should be removed and replaced with an “intelligence-led approach”. The statutory defence would also be removed, although it is envisaged that if that were to happen, the Proceeds of Crime Act would be amended to ensure that reporters who fulfil their legal obligations would not be criminalised. It is suggested that powers would be created to enable reporters to be granted immunity for taking specified courses of action, such as maintaining a customer relationship when to terminate it would alert the subject to the existence of a law enforcement investigation. The Government also proposes legislating to give the NCA the power to oblige reporters to provide additional information following submission of a SAR.

At the same time, the financial intelligence unit's capabilities are to be upgraded both in terms of IT and personnel.

New powers to tackle money laundering

The Action Plan states that, in order to plug current gaps in the asset recovery provisions of POCA, the Government will explore options for new legal powers, to reach conclusions by October 2016. The proposals include:

• The introduction of unexplained wealth orders.
• A new forfeiture power allowing forfeiture of assets for when a satisfactory explanation cannot be given to the court.
• The introduction of an illicit enrichment offence (consideration of such an offence is required by Article 20 of the UN Convention Against Corruption).
• The introduction of a power enabling law enforcement to designate entities of "primary money laundering concern". The US has such a mechanism under the PATRIOT Act. Once a designation is made, precautions in dealing with the designated entity are required.
• Considering whether new powers are needed to enable quick and effective forfeiture of money held in bank accounts in cases where there is no criminal conviction against the account holder and there is suspicion that the funds are the proceeds of crime.
• Considering whether the previous power could be used administratively where the value held in the account is below a certain limit.

Stronger partnership with private sector

Following the establishment of the Joint Money Laundering Intelligence Taskforce (JMLIT) as a pilot scheme in February 2015, the government is keen to further the involvement of the private sector in combating money laundering. The Action Plan proposes that the BBA create a register of firms with specialist knowledge to allow JMLIT to call upon these firms for assistance in particular cases.

Consideration is also being given to permitting the reporting sector to share information, under legal safe harbour, on money laundering and terrorist financing risks. Such a power exists in the US under the PATRIOT Act. There are also proposals for a public-private partnership in educating consumers and businesses on money-laundering risks.

Completing the review of the supervisory regime

The Action Plan includes a Call for Information on changes to the supervisory regime, including on the effectiveness of having 27 separate bodies responsible for supervising compliance with AML requirements, and on the usefulness of guidance issued by supervisors and other bodies. The Call for Information runs until 02 June 2016, with the review due to be completed by the autumn of 2016.

International reach

Amongst other initiatives, the Action Plan proposes the creation of Liaison Officer posts in key jurisdictions for combating money laundering, to be staffed by NCA officers. Private sector institutions are also to be part of wider information sharing across borders to address international money laundering, possibly involving new legislation. Support is also voiced for various EU initiatives, such as greater control over high denomination currency notes and accelerated implementation of United Nations’ freezing orders. The last action proposed is to offer greater support to charities operating internationally to assist them in avoiding becoming involved in money laundering and to help avoid the diversion of charitable funds.

Implementing the Action Plan

Dates are provided by which each of the actions is to be completed, though in many cases the proposals are sufficiently broad that their completion may be hard to pinpoint. Nonetheless, the promise of new legislation in the AML sphere, and in particular in relation to the reporting regime, is likely to mean significant change over the next two years. All firms required to report under the SARs system will need to watch developments carefully and many will want to participate in the consultation process launched by this document.