1.1 In 2017, the Law Commission agreed with the Home Office to review and make recommendations for reform of particular aspects of the anti-money laundering regime in Part 7 of the Proceeds of Crime Act 2002 («POCA») and of the counter-terrorist financing regime in Part 3 of the Terrorism Act 2000 («TA»). This followed a discussion of ideas for inclusion in the Law Commission's Thirteenth Programme of Law Reform.
1.2 The primary purpose of the review is to improve the prevention, detection and prosecution of money laundering and terrorism financing in the United Kingdom («UK»). However, our review is limited in scope. Our aim is to address systemic problems in the suspicious activity reporting process, in particular the «consent regime», to ensure that it is proportionate and efficient.
1.3 We agreed the following Terms of Reference with the Home Office:
(1) The review will cover the reporting of suspicious activity in order to seek a defence against money laundering or terrorist financing offences in relation to both regimes.
(2) Specifically, the review will focus on the consent provisions in sections 327 to 329 and sections 335, 336 and 338 of the Proceeds of Crime Act 2002, and in sections 21 to 21ZC of the Terrorism Act 2000.
(3) The review will also consider the interaction of the consent provisions with the disclosure offences in sections 330 to 333A of the Proceeds of Crime Act 2002 and sections 19, 21A and 21D of the Terrorism Act 2000.
(4) To achieve that purpose, the review will analyse the functions of, and benefits and problems arising from, the consent regime, including:
(a) the defence provided by the consent regime to the money laundering and terrorist financing offences;
(b) the ability of law enforcement to suspend suspicious transactions and thus investigate money laundering and restrain assets;
(c) the ability of law enforcement to investigate, and prosecutors to secure convictions, as a consequence of the wide scope of the money laundering and terrorist financing offences;
(d) the abuse of the automatic defence to money laundering and terrorist financing offences provided by the consent provisions;
(e) the underlying causes of the defensive over-reporting of suspicious transactions under the consent and disclosure provisions;
(f) the burden placed by the consent provisions and disclosure provisions on entities under duties to report suspicious activity; and
(g) the impact of the suspension of transactions under the consent provisions on reporting entities and entities that are the subject of reporting.
(5) The review will then produce reform options that address these issues. In doing so, the review will take into consideration the Fourth Anti-Money Laundering Directive and the recommendations of the Financial Action Task Force, as well as the effect of new legislation or directives, such as the Criminal Finances Act 2017, the Fifth Anti-Money Laundering Directive, the Payment Services Directive 2, and the General Data Protection Regulation.
(6) The review will also gather ideas for wider reform which may go beyond the focussed Terms of Reference noted above. These will be intended to provide a basis for future development of the anti-money laundering and counter-terrorist financing regimes.
1.4 Before we provide a general overview of our recommendations and the structure of the report, we begin with a brief explanation of what money laundering is. We also explain how the disclosure of information about individuals and businesses by the private sector is linked to preventing and detecting the flow of criminal funds in the UK.