PROPERTY JOURNAL

Suspicious activity reports in transactions

The key is to adopt a risk-based approach rather than just obtaining confirmation of identity and bills to tick a box

Author: Nadia Kohli

05 October 2019

Q: I'm unsure whether a client Im working for is acting in a suspicious manner or just unorthodox. Do I have to make a suspicious activity report?

A: Where someone suspects money laundering, a suspicious activity report (SAR) should be made to their employer's money laundering reporting officer and potentially to the National Crime Agency (NCA), the UK's financial intelligence unit, under the Proceeds of Crime Act 2002. Section 337 of this requires those acting in the regulated sector to make a disclosure if by virtue of their profession, business or employment they know or suspect, or have reasonable grounds for suspecting, that a person is engaged in money laundering, whether it is their client or not.

If you are in the know, this requirement is self-explanatory, and subjective. The main difficulty the professional faces is determining what is "suspect" and what are "reasonable grounds". What one person may deem suspicious another may find perfectly normal; it is difficult to gauge the threshold of suspicion, and you could be at risk of offending your upstanding client or worse, tipping off a money launderer. At the same time, failure to act could constitute a criminal offence.

Unhelpfully, suspicion for the purposes of making a disclosure under the 2002 Act is both subjective and objective. This means on the one hand that it does not matter whether there are reasonable grounds for the suspicion provided that it is genuinely held, as shown in David Lonsdale v National Westminster Bank Plc [2018] EWHC 1843 (QB). On the other hand, a disclosure is also required if an honest and reasonable person doing business in the regulated sector should have formed a suspicion.

"Suspicion for the purposes of making a disclosure under the 2002 Act is – unhelpfully – subjective and objective"

With this in mind, one could be led to conclude that a disclosure should be made whether the professional believes they have smelt a rat or thinks they ought to have done so in their position. However, there must be a degree of satisfaction that at least extends beyond speculation and a "possibility, which is more than fanciful", as reported in R v Da Silva [2006] EWCA Crim 1654, while also bearing in mind that a "vague feeling of unease would not suffice", as Shah and another v HSBC Private Bank (UK) Ltd [2010] EWCA Civ 31 found.

If you resolve the moral dilemma of the reporting duty under section 330 of the 2002 Act, are you now no longer able to act or continue to act for your client unless you have received consent? Following an SAR submission, a defence against money laundering (DAML) can be requested from the NCA. However, the agency also makes clear that such a defence does not constitute clearance or permission to continue acting or proceed in general. The professional is left to make an informed decision, bearing in mind their legal and regulatory responsibilities.

If a DAML is refused, a moratorium period commences during which the NCA should keep the matter under review, provided that consent is granted if there is no longer a good reason to withhold it. However, as there is no duty on the NCA to act swiftly, the professional may face further difficulties in not disclosing an investigation to a suspect client and committing a tipping-off offence, as outlined in section 333A of the 2002 Act. Even where a DAML is granted, if there are further suspicious developments during a transaction then you should think carefully about the need for subsequent SARs.

It is clear that there is no hard and fast rule for suspecting or reporting money laundering, but a professional should consider taking their own advice and acting with caution.

Nadia Kohli is a senior associate at Streathers  nkohli@streathers.co.uk

Related competencies include: Ethics, Rules of Conduct and professionalism

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