CPS signals tougher approach to UK regulated sector enforcement

The updated guidance, issued at the start of June, confirms that the CPS will now consider prosecuting under section 330 of the 2002 Proceeds of Crime Act (POCA) those in the regulated sector who fail to disclose “even though there is insufficient evidence to establish that money laundering was planned or has taken place”.

This change of stance follows on from the announcement of the first criminal investigation for breach of the 2007 Money Laundering Regulations in March 2021. It underlines the reporting obligations on those in the regulated sector, confirming the significance placed on the sector’s unique ability to make a difference in the fight against corruption and the intention of law enforcement to take a more aggressive approach to prosecutions for failure to flag suspicions which are “more than fanciful”.

Care needs to be taken by those operating in the regulated sector to ensure that they are meeting the letter and intent of their reporting obligations, while at the same time ensuring that suspicious activity reports (SARs) submitted are of good quality and proportionate. The potential consequences of failure include an unlimited fine and, for individuals involved, up to five years imprisonment in addition to the obvious reputational consequences, so the risks associated with non-compliance are significant.

Reporting obligations on regulated firms

The updated guidance applies only to prosecutions under section 330 of POCA. This requires those in the regulated sector to report “money laundering” if they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering; and that knowledge or suspicion is based on information acquired in the course of their business in the regulated sector. Failure to do so within a reasonable period is a specific criminal offence.

Section 330 prosecutions are rare, with only four during the period 2018-20 according to official figures. Prior to the recent update to the guidance, the practice appeared to be not to charge under section 330 where there was insufficient evidence to establish that money laundering itself was planned or undertaken. However, this approach has been the subject of some debate, as the language of the section does not appear to restrict the offence in this manner. All that is required is that the regulated body suspects that money laundering is planned or has taken place. This means that, where individuals in the regulated sector receive information giving rise to a suspicion of or providing reasonable grounds for suspecting that another is engaged in money laundering, an offence is committed by failing to make a disclosure, regardless of whether it subsequently transpires that the money laundering did not actually occur.

Those within the financial services sector must be particularly mindful of their regulatory obligations in respect of money laundering, particularly those individuals who hold the money laundering reporting officer senior management function. We are increasingly seeing greater scrutiny by the Financial Conduct Authority (FCA) in this area with, in some cases, enquiries being raised by the FCA as to whether firms have sufficient capability and expertise to address money laundering issues.

According to the most recent annual figures released by the National Crime Agency (NCA), over 570,000 SARs have already been submitted for the period 2019-20. The practical concern will be that the confirmation by the CPS of its charging position will simply increase the number of SARs submitted.

In its 2019 report on the regime (204-page / 2.8MB PDF), the Law Commission recognised that requiring those with a reporting obligation to file a SAR whenever they have a “suspicion” means that the trigger for reporting is a light one. Confirmation that there is no requirement to prove a predicate offence for a successful prosecution under section 330 is significant. The difficulty is in ensuring that the burden of reporting is proportionate to the gravity of the conduct; the value of the criminal property; and the benefit to law enforcement agencies of the intelligence – so ensuring that law enforcement is not simply flooded with low quality SARs.

The Law Commission sought to address this by recommending that statutory guidance be produced on what might amount to a “suspicion” of money laundering. In the meantime, the NCA has recently published revised guidance on submitting better quality SARs (24-page / 416KB PDF). This goes some way to help balance the competing interests at stake, although many feel the examples in the guidance do not allow for the complexities of ‘real world’ commercial transactions.

The UK government is committed to harnessing the knowledge of the private sector, and regulated businesses in particular, in combatting corruption. The revised CPS guidance is an indication that it intends to take a more aggressive approach when deciding whether to prosecute in cases where the required reporting standards are not adhered to.