Law Commission – Anti-Money Laundering: The SARs Regime
Response to consultation
Credit unions range in size from professional institutions with tens of thousands of members and tens of millions of pounds in assets to very small community organisations with a few hundred members and entirely led by volunteers. Most credit unions operate a simple savings and loans model; however a small minority do offer current account services, ISAs, and mortgages. At the end of September 2016, only 30 credit unions reported that they were offering a ‘transactional accounts’ to their members.
Credit unions are also restricted by legislation to admitting members who fall within their ‘common bond’. This means that credit unions can only form business relationships with those who are: resident or employed within a specified geographical area, employed by a particular employer or industry, or have membership of another bona fide organisation. As a result, credit unions make poor vehicles for money laundering and consequently only represent a miniscule fraction of Suspicious Activity Reports (SARs) submitted to the National Crime Agency (NCA).
However, many credit unions have a mission to serve the financially excluded in line with their statutory objects to promote thrift and provide financial education. The average credit union member is more likely to be vulnerable the effects to having their accounts frozen compared to the deposit-taking sector at large. So whilst credit union’s activity is not as voluminous as in other sectors, AML legislation can still have a profound impact on a credit union’s mission and membership.
Consultation Question 1
We agree with the provisional approach proposed by the Law Commission. Adding a distinction between serious crimes and other crimes would add additional complexity to an already imprecise threshold for reporting. As pointed out in the consultation this would force reporting officers with limited information to attempt to both discern the underlying crime and rule out the possibility of derivation of the funds from more serious criminal activity whether wholly or in part.
We recognise that one of the strengths of reporting to a centralised body is that intelligence from less serious crimes may help secure convictions for more serious crimes.
Consultation Question 2
We believe that clarity should be provided to reporters but accept that this is possible without a specific legal definition.
Consultation Question 3
We agree with the Law Commission that guidance on the threshold of suspicion would be valuable to reporters and the statutory nature of this guidance would help consolidate the various approaches used in industry guidance today.
Consultation Question 4
We agree with the proposal.
Consultation Question 5
Consultation Question 6
We agree with the provisional proposal set out by the Law Commission and the rationale given. This should ideally reduce the number and increase the quality of SARs submitted to the benefit of the UK’s Anti-Money Laundering regime and law enforcement. We agree that a higher threshold would benefit reporters and decrease speculative and defensive reporting. In addition the public should also benefit by being less likely have their accounts frozen and from having a greater chance of attaining redress where they have suffered financial loss due to defensive reporting practices.
Consultation Question 7
We agree that statutory guidance on reasonable grounds would be beneficial.
Consultation Question 8
We agree with the Law Commission’s proposal.
Consultation Question 9
Consultation Question 10
Consultation Question 11
Consultation Question 12
We would be concerned that rolling guidance could lead to unintentional consequences. Issues may arise where guidance is updated too often leading to confusion amongst reporters. Reporters may also erroneously or deliberately fail to report based on out of date versions of the guidance.
Consultation Question 13
We agree. We do not see any reason for creating a de minimis threshold and agree that it would lead to criminals attempting to smurf the new threshold. In addition, it may create an avenue for low-value terrorist payments to slip through due to being misidentified as laundered funds.
Consultation Question 14
We believe that intention of the threshold is to strike a balance between preserving laundered assets to allow recovery by law enforcement and to protect the innocent from significant harm as a consequence of having their assets frozen. Ideally, a deposit-taker would be able to provide reasonable and legitimate living expenses whilst restraining the remaining funds to prevent dissipation. To account for the large bandwidth of the costs of living in the UK it would be preferable if deposit-takers had discretion to allow the payment of regular and unsuspicious bills such direct debits for rent, mortgages and utilities. This may have an additional benefit of delaying the criminal from discovering that their account has been frozen.
In the absence of such flexibility we believe that the amount should be increased to reflect the average monthly expenditure of an individual living in the UK.
Consultation Question 15
Consultation Questions 16 & 17
We agree in principal that it can be beneficial to reduce duplication and create guidance to help achieve this. However, this may undermine the co-ordinating role performed by the NCA in corresponding with the suitable law enforcement agencies.
Consultation Question 18
We provisionally propose that a short-form report should be prescribed, in accordance with section 339 of the Proceeds of Crime Act 2002, for disclosures where information is already in the public domain. Do consultees agree?
We believe that the issue of defining what sources of information are considered ‘public domain’ also applies to short-form reports and may lead to a breakdown of communication where one party is assumed to already possess a certain level of information.
Consultation Questions 19 & 20
We agree that firms should continue to report on property transactions and that consent is unlikely to be required in such cases.
Consultation Question 21
Consultation Question 22
Consultation Questions 23-26
Consultation Question 27
Consultation Question 28
Consultation Questions 29 & 30
We believe that the sharing of individual data based on ‘pre-suspicion’ is inappropriate. The consultation paper acknowledges that the low bar of suspicion is problematic leading to numerous low-value reports to the NCA. We are not aware of any evidence to suggest that these reports would significantly increase in value where they are made between private organisations to the extent that it would be worth lowering the threshold even further.
In addition banks may use multiple instances of unusual activity to justify de-banking individuals and businesses which would not actually provide enough grounds for the submission of a SAR. This poses considerable risks to individuals’ data freedoms and rights would not be justifiable on the basis of sharing speculative information. Based on available evidence it seems unlikely that such data sharing would be “necessary and proportionate and respect the essence of the individual’s fundamental rights and freedoms” as required for an Article 23 exemption.
Consultation Questions 31-33
Consultation Question 34
We believe that the current efforts to improve the consent regime should be concluded and reviewed before considering alternative regimes.
Consultation Questions 35-38
We appreciate the opportunity to respond to this consultation paper. We would be happy to discuss any of the points raised in further detail should you wish to.
The PDF version of this response is available to download on the right-hand side.
ABCUL – October 2018
 Transaction account means an account at a credit union that is regularly used by a member of that credit union for the receipt of funds from, and disbursement of funds to, third parties. PRA Rulebook, http://www.prarulebook.co.uk/rulebook/Glossary/FullDefinition/77790/
 Credit Unions Act 1979, s 1A
 Credit unions have four statutory objects:
a) The promotion of thrift among members of the society by the accumulation of their savings;
b) The creation of course of credit for the benefit of members of the society at a fair and reasonable rate of interest;
c) The use and control of the members’ savings for their mutual benefit; and
d) The training and education of the members in the wise use of money and in the arrangement of their financial affairs – Credit Unions Act 1979, s 1(3)