Civil Liability Protection For Those Making Suspicious Activity Reports (SARs)

From 1 June 2015, UK-based businesses will have greater freedom to report suspicions of money-laundering without risking liability to customers, due to an amendment being introduced to UK money-laundering law.

The Proceeds of Crime Act 2002 (POCA) criminalises money-laundering in the UK. A regulated business, or a person working in such a business, commits an offence if they merely know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering, and they fail to make a disclosure1. This is a higher standard than that imposed on un-regulated persons, who have to have some direct involvement in the money-laundering before they can be liable2.

The standard response to the risk of money-laundering offences being committed has been for anyone with suspicions about money-laundering to make a disclosure to the authorities (known as a suspicious activity report, or SAR). However, this carried with it some risks, especially if the person making the SAR had fiduciary or other duties to the person to whom the SAR related. If, in fact, there was no money laundering, but the authorities delayed approval of a transaction or took some other measure which harmed the interests of the customer, then, in theory, the reporting party might be liable to its customer in civil law.

The Serious Crime Act 2015 will reduce this risk when an amendment it makes to s. 338 of POCA comes into force on 1 June 2015.

What changes

The amendment provides statutory protection from civil liability to those who make a SAR in good faith and delay a customer's transaction while awaiting consent from the National Crime Agency (NCA). The amendment gives greater legal certainty to banks and others who are required to make authorised disclosures (consent SARs). While most consent SARs are made by businesses in the regulated sector3, any business may need NCA consent for a transaction to avoid liability under the principle money-laundering offences in ss. 327 - 329 POCA. This amendment incorporates into English law the obligation set out in Article 26 of the Third Anti-Money Laundering Directive to protect those making disclosures in good faith from "liability of any kind". The amendment removes the risk that legal immunity would not apply as the SAR was not based on a genuine suspicion. Why the change was needed

The long-running case of Shah v HSBC4 established that a term should be implied into contracts, so that persons who...