Internal movement of funds
7.35 As we outlined in our Consultation Paper, a bank may need to move funds internally with the aim of preserving suspected criminal property. Under the current law, there is a risk of a money laundering offence being committed by such an internal transaction unless an authorised disclosure is made.
Consultation response
7.36 Of the 26 consultees that responded to this question, 22 were in favour of including this situation in guidance on reasonable excuse. Only four consultees disagreed with our proposal. There was agreement across law enforcement agencies, the regulated sector and those with supervisory responsibilities that an authorised disclosure should not be required but a required disclosure should still be lodged with the UKFIU. The NCA added one further clarification, that the funds must remain in the UK.
7.37 Of the small number of consultees who disagreed with this proposal, the Proceeds of Crime Lawyers Association («POCLA») suggested reconsideration of the broader question of prohibited conduct in sections 327 to 329 of POCA. Some consultees misunderstood the limited nature of the proposal and were mistakenly concerned that criminal property was being dissipated.
Analysis
7.38 Our data analysis exercise confirmed that internal movements of funds are resulting in authorised disclosures; 1.5% of our sample. While this is a small number it is not insignificant. The breadth of the prohibited conduct set out in sections 327 to 329 is intended to capture any movement of criminal property. However, as we have recommended a legislative amendment in recommendation 13 coupled with guidance on its operation in recommendation 14, we make no further recommendations on this point.
Duplicate reporting obligations
7.39 Reporters may have obligations to report criminal activity in addition to those contained in POCA. One example of this is suspected fraudulent transactions where a report would also be made to Action Fraud, which is the reporting mechanism for the National Fraud Intelligence Bureau within the City of London Police. Stakeholders identified this duplication as a problem, and some were unclear about the appropriate reporting routes.
7.40 However, not all reports to law enforcement agencies provide the same opportunities to intervene in criminal activity. An authorised disclosure has the effect of pausing a transaction which means criminal property does not move until the UKFIU or a relevant law enforcement agency have been able to consider the matter. We acknowledged in our Consultation Paper that that there may well be circumstances in which an authorised disclosure is the preferred mechanism for notifying law enforcement agencies as to fraud.
7.41 We provisionally proposed that statutory guidance on reasonable excuse should include advice on the appropriate reporting routes in different types of cases.
Consultation response
7.42 Twenty-five out of 35 consultees who responded to this question believed that there was insufficient intelligence value in disclosures to justify making duplicate reports; 71% overall. However, in analysing where the differences arise it seems that there are differing views on the appropriate reporting route.
7.43 In summary, consultees made the following general points in favour of eliminating duplicate reporting through guidance on reasonable excuse:
(1) it is costly and time consuming;
(2) if a fraud loss is significant the reporting institution will be actively working with an appropriate police service providing information for the investigation; and
(3) this issue is already covered in the Legal Affinity Group («LAG») guidance to the legal sector. As this is already happening it raises concerns that different sectors are adopting different approaches.
7.44 For those who disagreed with the proposal or simply expressed concerns that required further consideration, the following issues were raised:
(1) there should continue to be a central repository for reports and clarity about that unequivocal requirement;
(2) the implication of allowing reporters to choose to disclose to different agencies might result in unexpected challenges in the form of an increased volume for those agencies;
(3) there would have to be appropriate mechanisms and gateways between the different law enforcement agencies, to ensure that the information was shared appropriately; and
(4) it would require a detailed assessment of what data is collected by whom for what purpose, as well as the legal basis for pooling or sharing information.
Analysis
7.45 Most importantly, while there is a broad consensus that duplicate reporting should be reduced and guidance in principle is a sensible solution, it is unclear following our consultation what the best approach might be to achieve this. There is still uncertainty amongst consultees as to what the most appropriate reporting route is in any given circumstances. For example, while a fraud might be reported to Action Fraud, if it relates to a vulnerable person, an authorised disclosure may trigger a faster response.
7.46 Moreover, it is unclear whether there are sufficient arrangements in place to ensure that information can be shared between law enforcement agencies. As we observed in chapter 1, there is ongoing work in relation to information technology solutions which would need to inform any final recommendations for reform.
7.47 Any guidance on reporting routes will require further dialogue between the relevant law enforcement agencies and the UKFIU to determine the most appropriate place to lodge a disclosure. It will also require further consideration of IT systems, the existing arrangements for sharing information between law enforcement agencies and a thorough and detailed examination of the different types of reports that might be included. Given that there are several outstanding issues to resolve, we recommend that the Advisory Board should undertake further work to explore whether guidance on this issue would be beneficial.
Recommendation 12.
7.48 We recommend that the Advisory Board should explore including appropriate reporting routes within statutory guidance to assist reporters on complying with their obligations.