ECCTA and the compliance landscape
Best known for introducing reforms such as the new Failure to Prevent Fraud offence and expanding the identification principle, the Economic Crime and Corporate Transparency Act 2023 (ECCTA) has also introduced several important changes that affect suspicious activity reports (SARs) in the UK.
In fact, ECCTA indirectly increases the strategic importance of SARs as a risk management tool for large organisations, as they could be more likely to submit SARs, including defence against money laundering (DAML) SARs, to demonstrate proactive compliance and they have reasonable procedures in place, to avoid being liable for failure to prevent fraud.
What is a DAML SAR?
DAML SARs are a specific type of SAR submitted to the UK’s National Crime Agency (NCA) which includes a request by the reporter to seek a defence against money laundering. They are submitted when a person or organisation, usually in the regulated sector like banks, law firms, or accountants, suspects that a transaction involves criminal property (including, but not limited to, money), and that proceeding with it could amount to a money laundering offence under the Proceeds of Crime Act 2002 (POCA).
Money Laundering offences under POCA
Money laundering involves dealing with criminal property whether by hiding it, helping someone else use it, or simply possessing it while knowing or suspecting its unlawful origin. POCA defines the three core money laundering offences as: concealing or transferring criminal property (s.327), facilitating its use by others (s.328), and acquiring or possessing it (s.329). These laws aim to disrupt the flow of ‘dirty’ money and hold individuals accountable for knowingly handling the proceeds of crime.
A key defence to these offences, if an organisation has concerns about the potential source of the funds, is making a disclosure to the NCA through a DAML SAR before proceeding with a transaction. In making a disclosure, the reporter is disclosing their suspicion and at the same time seeking consent from the NCA to proceed with a proposed act, if the reporter and their organisation decides to do so. If the reporting entity decides to proceed after consent is given, or the notice period lapses, a legal defence against money laundering exists.
New “Pay Away” exemptions
To cut compliance red tape and permit overstretched police resources to focus on higher risk threats, ECCTA has introduced two key DAML exemptions. These are known as the new ‘pay away’ exemptions to the main money laundering offences.
Providing the required due diligence is performed under the Money Laundering Regulations 2017, firms in the regulated sector can now return up to £1,000 when ending a client relationship, even if they suspect the funds may be criminal property, without submitting a DAML SAR. A separate threshold exemption up to the same amount already exists for financial institutions in relation to account operations such as mortgage payments.
The second exemption is that firms can also release the ‘clean’ portion of mixed funds, again with no DAML needed. It should be noted, while a DAML may not be required, obligations to submit a standard SAR (i.e. without a DAML request) are unchanged.
Implications for compliance teams
These exemptions will enable compliance teams to focus on more serious threats overall, make offboarding risky clients easier with less risk of tipping off, and improve effective resource utilisation at the NCA. However, firms will still have to document decisions carefully and remain alert to the risk of criminals restructuring transactions to exploit these thresholds.
How can we help?
If your organisation needs guidance on applying the new ECCTA rules or assistance with strengthening your AML procedures, our team is here to help you.
