Feedback from SOCA and Changes to EU Law
By Richard Simms
Changes to EU law and a ‘landmark’ judgement on legal privilege have changed the face of money laundering compliance. We consider both of these plus some useful feedback from SOCA
Feedback from SOCA:
Suspicious Activity Reports
Once your firm’s MLRO has received a report (based upon the internal reporting form in the AMLCC Manual) from a member of staff or fellow partner he or she will review the report and the grounds for suspicion and if considered necessary make a report to SOCA (the Serious Organised Crime Agency). This report is called a Suspicious Activity Report (SAR).
It is recommended that these reports are made online. This makes it easier for SOCA to process them and encourages those reporting to provide fuller details of their suspicions. However, SOCA have found that reports often do not provide enough information for them to assess the circumstances being reported.
Common omissions on SARs are:
• A lack of identifying features about individuals of whom you are suspicious. For example, no date of birth, first/middle names, passport or driving licence information – although you should not contact the client to obtain this information if you are making a report, many of these details should already be on your files from when you carried out client identification and verification procedures.
• No details of the individual’s occupation or employer.
• No reason for suspicion – “I am not suspicious of this client but am making this report anyway because their transactions are different to other clients of mine.” This type of report is made worryingly often but legally is inappropriate: if there is no clear reason to report you may be breaching the client’s confidentiality.
• A lack of details of other individuals associated with the transaction.
• Incomplete reasons for suspicion, for example:
• “Cash transaction of £7,000”. However, what is the suspicion? Cash is not itself suspicious but is merely an indicator. The report needs to explain the transactions the client normally undertakes and why this level or nature of cash transactions is suspicious.
• “Business is not being conducted in the expected manner.” However, what is the ‘usual’ manner? This must be detailed in the report. Why is this transaction unusual?
• Consent box not ticked on report form – if you plan to continue acting for the client after you have made the report or wish to take a specific course of action consent should be requested (and the reason why you want consent noted on the report).
• Submitting a report late to obtain consent near a deadline (e.g. tax filing deadline), when it is clear from the text of the report that suspicion had been identified at an early stage.
The AMLCC internal reporting form has been kept as simple as possible, so as not to discourage staff from making reports.
This does, however, mean that the MLRO will often need to expand the explanation on the report made to SOCA and this will require additional research to gain the information above.
Current developments: legal privilege
The Supreme Court has confirmed that legal advice privilege (‘LAP’) cannot be claimed in respect of confidential communications between accountants and their clients for the purpose of requesting or providing legal advice. The specific case (HMRC vs Prudential) had arisen when HMRC attempted to obtain copies written advice given to Prudential from their accountants about whether the restructuring of certain overseas elements of the group was lawful from a tax perspective. The courts found that although such documents might be legally privileged when provided by a legal professional (and thus not available to HMRC) this did not extent to accountants.
However, do remember that the law regarding ‘litigation privilege’ has not changed. This applies to communications between clients and non-lawyers in relation to pending or contemplated litigation and would normally apply to you if you acted as an expert witness.
A new EU Directive
UK Anti-Money Laundering legislation is based upon the requirements of the EU Anti-Money Laundering Directive. The EU has now adopted proposals to amend the Directive, which means that in due course changes must be made to UK legislation. This has to be done by the spring of 2015 and although it could be sooner than this.
The good news is that the changes are all relatively minor and the impact for the UK is even less significant as our existing legislation goes beyond minimum EU requirements. However, there will inevitably some minor changes to our procedures, which we will update you on once they are known.
The ‘headline’ changes include:
• The inclusion of an explicit reference to tax crime as a money laundering offence;
• Expansion of the definition of politically exposed persons, (i.e. people who are considered to represent higher risk by virtue of the political positions they hold) to now also include “domestic” politically exposed persons (e.g. UK politicians);
• Extending the range of organisations which must have procedures to include letting agents (estate agents are already covered); and
• Extending the requirements to apply anti-money laundering procedures to overseas operations of UK regulated entities.
Published July 2013