Analysis
7.21 In chapter 3, we set out the case for statutory guidance in principle. Such guidance would relate to persons carrying on business in the regulated sector about how to comply with their obligations under Part 7 of POCA. While those arguments are not repeated here, we identify points in favour of statutory guidance covering the reasonable excuse defence in POCA. In the next section we consider a number of specific instances in which a reasonable excuse defence might be relied upon and analyse consultees' responses.
Low value transactions
7.22 We observed in our Consultation Paper that money laundering offences can be committed in relation to criminal property of any value; there is no provision to exclude low value transactions. While banks («deposit taking bodies») enjoy a limited exemption for transactions under £250 and can apply for a higher threshold to be authorised, this exemption does not apply to any other reporter.
7.23 However, despite the initial attraction of removing such an administrative burden for all reporters, we highlighted a number of problems that would arise were a threshold created to prevent disclosures being made in low value cases:
(1) there are legal barriers to creating such a threshold. Article 33 of the Fourth Money Laundering Directive («4AMLD») requires reports «regardless of the amount involved» where the obliged entity knows, suspects or has reasonable grounds to suspect that funds are the proceeds of crime or are related to terrorist financing.
(2) in some situations, low value transactions can provide useful intelligence, for example if a vulnerable person was being defrauded of a relatively small sum, an authorised disclosure would be more likely to trigger a quick response from the police than a required disclosure.
(3) in terrorism cases, vital intelligence may be generated from small transactions which seem innocuous but have much greater significance. Reporters would not be in a position to distinguish what was potentially valuable from that which was of little consequence.
7.24 We provisionally concluded that introducing a minimum financial threshold would be undesirable for the reasons outlined above.
Consultation response
7.25 Of the 33 consultees who responded to this question, 27 agreed with our provision conclusion (81%). Six consultees disagreed (18%).
7.26 Many consultees echoed concerns regarding the possibility that criminals would adapt to and exploit any threshold that was imposed. The Law Society of Scotland specifically referenced practices of «structuring» and «smurfing» in which transactions are deliberately broken down into smaller ones beneath any financial threshold to pass undetected.
7.27 Northumbria University agreed and observed that introducing a minimum threshold could also be highly burdensome for the regulated sector, «requiring significant additional enquiry and attracting significant risk of error».
7.28 The National Crime Agency («NCA») and the Crown Prosecution Service («CPS») warned that a minimum threshold risked allowing criminality, especially terrorist financing, to go unreported. The NCA noted:
The risks of a threshold are that opportunities for law enforcement to act against criminal assets under the threshold, even where the offending is serious are lost. For example, we receive DAML SARs that relate to potential terrorist financing activity there is a strong risk we would miss some of these opportunities and the ability to safeguard individuals where the harm is significant even though the amount is below a threshold.
7.29 However, the NCA concluded that it would be beneficial for the UKFIU to set a threshold at their discretion for authorised disclosures only:
We do not support a minimum threshold for required disclosures. We would support a capability for the FIU to specify threshold or circumstances for authorised disclosures but with discretion for reporters to report under the threshold where they deem appropriate, e.g. vulnerable person, terrorist financing, etc.
7.30 We also asked consultees whether the current threshold amount should be raised. Of the 17 consultees who answered this question, only six were in favour and 10 were opposed. We observe at this point that there is a statutory mechanism in place to allow individual variation requests and this may be reflected in the responses.
Analysis
7.31 The weight of consultee responses was in favour of maintaining the status quo and not introducing a minimum threshold. The most compelling argument is perhaps that the value of criminal property generated by criminal activity does not necessarily correspond with how serious the crime is or the value of the intelligence gathered from a report. If the victim is vulnerable, defrauding them of a small amount of funds could have devastating consequences. Equally the nature of modern methods of terrorist financing means that small value transactions can have significant intelligence value.
7.32 The broad discretionary arrangement proposed by the NCA would introduce a new layer of complexity for reporters without providing clarity or certainty for reporters unless it could be more clearly defined. However, if guidance could be drafted overseen by an Advisory Board that we recommended, based on relevant factors identified by the NCA in collaboration with other law enforcement agencies and the regulated sector, this may provide reporters with greater clarity regarding the reasonable excuse defence. It may reduce low value authorised disclosures in non- serious and non-urgent cases while still retaining the intelligence in the form of a required disclosure. This recommendation could be considered by tan Advisory Board when drafting statutory guidance.
Recommendation 11.
7.33 We recommend that the existing regime in respect of low value transactions should be retained and conclude that introducing a minimum financial threshold would be undesirable.
7.34 We recommend that the Advisory, inboard, in drafting statutory guidance to assist those in the regulated sector in complying with their obligations under Part 7 of POCA, should consider addressing low value transactions.