Воскресенье, 04 августа 2019

4. Analysis

4.40 First, it is important to consider whether the perception of some consultees that technical SARs cause large volumes of reports is in fact correct. Secondly, it is valuable to examine whether intelligence value can be weighed with any accuracy based on the type of offences reported. Finally, we need to consider some of the objections to moving to a «serious crimes» approach - the difficulty of identifying the predicate offence, the practical and principled challenges in coherently distinguishing between offences which ought to lead to a report and those that potentially do not, and the risks of a «two-tier» approach.


4.41 Our examination of SARs demonstrated that where the reporter was able to identify a predicate offence, the overwhelming majority of SARs met the threshold for a serious crime based on the minimum requirements of 4AMLD (punishable by way of a maximum penalty of more than one year's imprisonment). In our sample, 97.5% met the penalty threshold of a serious crime.

4.42 Based on this analysis, where a predicate offence can be identified, it is likely that in most cases across the regulated sector reporters would still need to submit a SAR because the offence is «serious», using the baseline definition in 4AMLD. This is in part, as highlighted by the Government response, because many crimes, and especially fraud, encompass a «broad spectrum of offending from minor to very serious crime.» We did not identify a large volume of non-serious crimes in our examination of SARs. It must be conceded that a third of our sample failed to identify the predicate offence at all. As we discuss below, where uncertainty remains it is likely that those SARs would need to be filed in any case.

4.43 We assume then that reporting suspicion based on non-serious crimes is not a significant cause of the volume of SARs. If this is correct, the broader question to consider is whether requiring SARs for this type of offending is proportionate. One of the issues with the SAR regime today is that it has become a vehicle for reporting suspicions that a crime has been committed rather than reporting suspicions of a specific activity, namely money laundering. This will inevitably drive up the volume of disclosures.

Intelligence value

4.44 In order to consider proportionality, the intelligence value of «technical» SARs needs to be weighed against the burden of making these reports. Consultees within the legal sector cited specific examples concerning «technical» breaches such as the failure of an otherwise legitimate business to obtain necessary software licences. There may be instances where the existing regime obliges an individual to submit a «technical» SAR that is unlikely to lead to investigation of a serious offence or to contribute meaningfully to the broader «intelligence picture» about serious and organised crime.

4.45 However, that is not to suggest those SARs will never be of use to law enforcement or that the obligation to report should not ever apply in those circumstances. As we note above, law enforcement agencies favoured retaining the current approach, and argued that they were best placed to decide whether a SAR had intelligence value or not. «Technical» SARs, if referred to the appropriate investigative authority or prosecutor, may be especially useful. A logical corollary of the greater ability to identify the underlying offending is that it will often be the case that the strength and basis of the suspicion is stronger, or that there is actual knowledge (and evidence) of offending.

4.46 It is difficult, therefore, to judge whether the all-crimes approach places disproportionate obligations on some reporters. It does seem, however, that law enforcement and specific sectors might together be able to identify certain offences and types of offending that provide particular value in the way of intelligence. We return to this in our conclusions to the chapter.

Identifying the predicate offence

4.47 Identifying the underlying offence which generated the proceeds of crime is difficult. On the information available to some industries in the regulated sector, it may not be possible. Efforts to identify an offence may require the application of legal knowledge or expertise or necessitate a more thorough investigation. Both of these would place a burden on all reporters and will have a disproportionate impact on smaller businesses and individuals who do not work in the legal sector or have no knowledge of criminal law. If a «serious crimes» approach were to be adopted, someone who identified suspected criminal property but did not know what crime it may have derived from would either need to make further enquiries, seek advice regarding whether they had an obligation to submit a SAR, or continue to submit a SAR due to the uncertainty. At best it makes no material difference in these cases, at worst it may add to the reporting burden.

4.48 This could lead to irregular and inconsistent reporting. Smaller commercial organisations without the resources or technical knowledge to identify technical breaches may choose not to expend time and resources in identifying predicate offences. Reporters outside the legal sector may not be in a position to do so at all. However, it is conceded that in principle the existence of a list of offences which did not require a disclosure could benefit those in the legal sector and reduce what is perceived to be a disproportionate burden.

Drafting a list

Serious offences

4.49 If we assume that there would be some benefit to removing reports which are considered not to generate intelligence of value to law enforcement agencies because the predicate offence is insufficiently serious, it is necessary to consider how a list of appropriately serious offences might be devised. Additionally, it is necessary to consider how such a list could be kept up to date following the introduction of new criminal offences or changes in money laundering trends and behaviour.

4.50 Consultees highlighted the difficulties inherent in devising an exhaustive list of offences. We are sympathetic to this view. There are approximately 10,000 criminal offences in England and Wales (alone) which would need to be considered and analysed. It would be a huge undertaking to consider each of those offences capable of generating criminal property to arrive at an agreed list of offences for which an authorised disclosure would not be required. Although a useful proxy for the purposes of this discussion, the existing serious crime lists in Schedule 2 to POCA and Schedule 1 to the Serious Crime Act 2007 were devised for different, and at least in the case of POCA, narrower policy ends.

4.51 A list might lead to unnecessary complexity, and, if not maintained, arbitrary outcomes. For example, in the context of sentencing, Schedule 15 to the Criminal Justice Act 2003 lists specified violent, sexual and terrorism offences. Schedule 15, for sentencing purposes, lists the specified offences that can attract extended sentences of imprisonment or detention under sections 226A and 226B of the 2003 Act and sentences of imprisonment or detention for life under sections 225 and 226. Currently, this list runs to 174 paragraphs and has been amended numerous times.

4.52 Any list would require continual updating and amendment. If a list was contained in primary legislation it would be much harder to respond to the introduction of new offences or other issues which emerge in practice. Secondary legislation or guidance might provide a more flexible solution. However, many of the challenges of keeping this list updated would remain, whatever the format.

De-scoped offences

4.53 We could instead seek to identify purely regulatory or technical offences which do not merit a disclosure. The Law Society of England and Wales recommended this as an alternative, similar to, but distinct from option (2) above. They proposed creating a «de-scoped» list in lieu of attempting to devise a list of serious offences or a threshold of seriousness. In their view, a list of offences for which reports were not required could be developed to target those minor and regulatory offences legal (or other) stakeholders had identified, in consultation with law enforcement, as disproportionate to their public policy value as intelligence.

4.54 Where a reporter's suspicion related to an offence contained in the de-scoped list he or she would have a reasonable excuse for failing to submit a SAR. In the event a reporter was unable to identify the underlying offending, the obligation to report would remain. This proposal was supported by Norton Rose Fulbright and (though not in terms) by Linklaters.

4.55 We are not ultimately persuaded that the creation and maintenance a list of non-reportable crimes would be significantly less onerous than maintaining one for crimes that must be reported. For example, during the consultation for this report our attention has been drawn to criminal sanctions that flow from a diverse range of statutory provisions, such as:

(1) failure to obtain sufficient software licences in breach of the Copyright Designs and Patents Act 1988;

(2) failure to obtain a Tree Preservation Order contrary to the Town and Country Planning Act 1990 and associated regulations; and

(3) failure to obtain an asbestos-related environmental licence contrary to the Health and Safety at Work etc Act 1974.

4.56 There are, of course, many more such offences and consultees recognised that devising a list would require significant further consultation. Seeking to distinguish which offence might necessitate a SAR could lead to problems. A listing approach might be required to avoid the difficulties inherent in trying to carve out a particular category of offences, such as regulatory offences. A line of authority relating to determining the «benefit» for confiscation proceedings under Part 2 of POCA demonstrates that close consideration of the offence-making provision in each instance would be necessary. In R v McDowell the Court of Appeal observed:

It is not sufficient to treat 'regulatory' offences as creating a single category of offence to which POCA is uniformly applied. We respectfully agree with the conclusion of the court in Sumal that the question whether benefit has been obtained from criminal conduct must first depend upon an analysis of the terms of the statute that creates the offence and, by that means, upon an identification of the criminal conduct admitted or proved... There is a narrow but critical distinction to be made between an offence that prohibits and makes criminal the very activity admitted by the offender or proved against him (as in del Basso) and an offence comprised in the failure to obtain a licence to carry out an activity otherwise lawful (as in Sumal).

4.57 Moreover, offences which may on their face appear to be «technical» or minor could have significant impact. For example, crimes regulating illegal disposal of waste include a simple failure to obtain a relevant permit. However, the impact on public health and safety from even such a «regulatory» offence might be grave. Operating a business without a licence could leave members of the public exposed to unsafe practices without any regulatory oversight or scrutiny. Substantial profits can be made from breaching a regulation.

4.58 Finally, even the most serious criminals do commit purely regulatory offences. While an offence itself might be perceived as trivial, the identity of the offender and the operation of any business may provide crucial intelligence for an investigation.

4.59 Therefore, while a reporter might anticipate that a disclosure will be of little intelligence value due to the nature of the offence, the relevant law enforcement agency would be best placed to decide whether that is in fact the case. Seeking to draft a list of non-reportable offences may present real and insurmountable difficulties and ignore the complex factual issues that may arise in practice.

Pecuniary advantage

4.60 If we exclude the possibility of a list, we might consider amending the definition of criminal property to, in effect, exclude those offences where no property is obtained and the only benefit is a pecuniary advantage. However, this is likely to have unintended consequences. For example, it might exclude objectively serious tax evasion offences. It may also include environmental crimes, such as the evasion of landfill tax and illegal waste crime dangerous to public health, such as burning or burying hazardous waste.

4.61 If the concept of pecuniary advantage were used to decide whether or not a report was warranted this could also be challenging. In theory, attempts could be made to define a fixed set of cases by working through the thousands of legislative provisions where an offence might generate a pecuniary advantage. However, in practice it would prove to be impossible to generate a precise set of examples of offences where only a pecuniary advantage was generated without any impact. There are too many qualitative judgements to be made in such an exercise. Some offences may appear to be technical on their face, however their commission could be related or linked to more serious criminality.

Financial value

4.62 Likewise, relying on the financial value of the criminal property to attempt to draw distinctions is problematic. The value of criminal property does not necessarily correlate with the seriousness of the crime. For example, value would not be the most important consideration where there is a vulnerable victim. A value based threshold also fails to address potential cases of terrorist financing which may present as minor or low-level offending. In responses to our consultation there was also significant opposition to a proposed differentiation based on the financial value of a suspicious transaction. It would also conflict with our EU obligations and international standards.

Maximum penalty

4.63 We are also sceptical about measuring seriousness by reference to the maximum penalty available for an offence. First, because identifying the penalty so as to know the category of offence would be more onerous for reporters. Secondly, a number of objectively serious offences, including those that create corporate commercial liability would be excluded if a custodial threshold was adopted. For this reason the CPS, despite favouring «all-crimes» generally, suggested «indictable offences» might be a preferable alternative to the proposed approaches.

4.64 In our view it is also not practical for a distinction to be drawn in the reporting obligation on grounds such as seriousness within offence type or whether a suspect, in the specific case, would receive a custodial sentence. This would require the regulated sector to engage in not only an investigation, but also an assessment of prosecutorial outcomes.

Two-tiered approach

4.65 In our Consultation Paper we outlined concerns about a «two-tiered» approach to criminality. For example, adopting a serious crimes approach may diminish the importance of environmental or other regulatory or corporate crimes. It is particularly difficult to justify this in principle. Moreover, there is an absence of any consensus regarding a practical alternative among consultees, notwithstanding that an «all¬crimes» approach may be burdensome for stakeholders seeking to finalise significant commercial transactions.

4.66 There is an intuitive appeal in distinguishing between «real» and «technical» money laundering when comparing the laundering of proceeds from the most serious offending (for example sex and drug trafficking offences) with the failure to comply with a regulatory obligation. However, there is little justification in principle for operating such a distinction when Parliament has designated a matter as criminal. Parliament, having determined that the latter is not merely a civil matter, can recognise distinctions as to the seriousness of the offence in the form of the maximum available penalties. For example, in del Basso the appellants created and ran a ‘park-and-ride' business on land in contravention of planning restrictions. Subsequently, they pleaded guilty to an offence contrary to section 179 of the Town and Country Planning Act 1990 of failing to comply with an enforcement notice. The court held that the business was an illegal operation whose benefits were represented by its turnover. Sir Brian Leveson (President of the Queen's Bench Division), delivering the judgment of the court, approved the following passage in the judgment of His Honour Judge Michael Baker QC in the Crown Court:

... Those who choose to run operations in disregard of planning enforcement requirements are at risk of having the gross receipts of their illegal businesses confiscated. This may greatly exceed their personal profits. In this respect they are in the same position as thieves, fraudsters and drug dealers.

4.67 Given that our empirical research illustrates the most serious offending will always be captured by the anti-money laundering regime, the more relevant comparison is between regulatory breaches and other less serious offending. Once the potentially significant financial benefits from regulatory non-compliance are acknowledged, the question arises whether it is fair to develop a de-scoped list that focusses solely on regulatory offences and not all less serious offending. For the reasons outlined above, we doubt there is a satisfying way of doing both. We also doubt that the differential treatment of some (likely to be) white collar offending as compared to other non- serious offending can be justified.

4.68 In the absence of evidence that a clear policy advantage can be secured in the form of significantly fewer SARs of limited intelligence value being submitted, it is difficult to justify a pragmatic departure from treating all criminal conduct similarly.

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