Money Laundering Regulations 2003 - Reasonable Grounds for Suspecting

The UK Proceeds of Crime Act 2002 requires a person in the regulated sector (which from 1 March 2004 includes most lawyers and all accountants and tax advisers) active in the UK to make a report, effectively to his Money Laundering Reporting Officer (MLRO), if, based on information or other matter which comes to him in the course of a business in the regulated sector, "he knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering" (Section 330). This requirement is subject to certain exceptions and to legal professional privilege, as described in the Section.

Where such a report is made as soon as is practicable after the information or other matter is received, then the report is not to be taken to breach any restriction on the disclosure of information (however imposed) and so the person making the report will not be liable to a claim for damages (or disciplinary action) for breach of confidence (Section 337).

Only persons in the regulated sector are required to make reports based merely on "reasonable grounds for knowing or suspecting that another person is engaged in money laundering".

But what are "reasonable grounds" for suspecting money laundering?

In parliament, during the passage of what was then the Proceeds of Crime Bill, the Home Office Minister said that he anticipated that guidance notes about the Act would be issued by the professional bodies for approval by the Treasury; and that these "are expected to include a definition of the term 'reasonable grounds' and examples of situations in which it would be appropriate to report".

Unfortunately no such guidance notes have been approved by H M Treasury since the Bill received the Royal Assent in July 2002, nor are any expected to be approved before 1 March, when the Money Laundering Regulations 2003 come into force. Guidance for banks and similar businesses in the 'old' regulated sector has been issued by the Joint Money Laundering Steering Group but this has not yet been approved by the Treasury. Very recently the Law Society has issued what it calls 'pilot guidance' which is available on the Law Society website at http://www.lawsoc.org.uk/ which should be consulted by solicitors but is not particularly relevant to accountants, estate agents and other newly regulated businesses.

In the meantime what other guidance is available?

Legal precedents

The concept of reasonable grounds for suspicion has been employed many times before in UK criminal law, for example a police officer is required to have "reasonable grounds" before exercising his power to stop and search someone.

The wording is also used elsewhere in the Proceeds of Crime Act. The most useful example perhaps is Section 289 which provides "if a customs officer or constable who is lawfully on any premises has reasonable grounds for suspecting that there is on the premises cash which is recoverable property or is intended by any person for use in unlawful conduct . . . he may search for cash there." The Section also gives similar powers to search a person or any article a person has with him. If the customs officer or constable finds such cash he may seize it under Section 294 and detain it under Section 295. The cash may then be forfeit under Section 298, so these provisions carry a potentially painful bite!

Fortunately for us Section 292 of the Act required the Secretary of State to issue a code of practice in connection with the search power conferred by Section 289. This code of practice has been published on the Home Office website and can be downloaded from http://www.homeoffice.gov.uk/crimpol/oic/proceeds/cop.html.

Code of practice

The code of practice includes a commentary on 'reasonable grounds for suspicion'.

The code of practice says:-

"Whether there are reasonable grounds for suspicion will depend on the circumstances in each case. There must be some objective basis for that suspicion based on facts, information and / or intelligence. . . . Reasonable suspicion can never be supported on the basis of personal factors alone without reliable supporting intelligence or information or some specific behaviour by the person concerned. For example, a person's race, age, appearance, or the fact that the person is known to have a previous conviction, cannot be used alone or in combination with each other as the reason for searching that person. Reasonable suspicion cannot be based on generalisations or stereotypical images of certain groups or categories of people being more likely to be involved in criminal activity. It should normally be linked to accurate and current intelligence or information."

It would appear from this that the use of the term "reasonable grounds" in Section 330 requires that there must be some factual basis, related to an individual, underlying the suspicion that the individual may be engaged in money...