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Anti-money laundering Part 7: MLRO and SOCA

The role of the MLRO and reporting to SOCA.

Section 7 The MLRO and reporting to SOCA

Key points
  • The role of the MLRO carries significant responsibility and should be undertaken by a senior person within the business who has sufficient authority to take independent decisions, and who is properly equipped with sufficient knowledge, and resources, to undertake the role.
  • The key role is that of receiving internal reports, and making SARs to SOCA as applicable, but MLROs may undertake other functions relating to the businesses' systems and controls in relation to its anti-money laundering activities.
  • Businesses should make provision for delegates or deputies to cover any absence of the appointed MLRO and should ensure all relevant employees are aware of the reporting channels laid down by the business.
  • It is for businesses to determine the format of internal reports.
  • A relevant professional adviser who suspects or has reasonable grounds for knowing or suspecting that another person is engaged in money laundering is exempted from making a money laundering report where his knowledge or suspicion comes to him in privileged circumstances (the privilege reporting exemption).

The role

7.1. The role of the Money Laundering Reporting Officer (MLRO) carries significant responsibility and should be undertaken by an appropriately experienced individual. Although there is no prescribed level of seniority, one of the principals of an accounting firm, or similar in other businesses, is likely to be suitable, or another senior and skilled person with sufficient authority to enable decisions to be taken independently. MLROs are required to:
  • consider internal reports of money laundering;
  • decide if there are sufficient grounds for suspicion to pass those reports on to SOCA in the form of a SAR, and, if so, to make that SAR; and
  • act as the key liaison point with SOCA and law enforcement agencies including dealing with consent and disclosure issues.

    MLROs may also take responsibility for:

  • training within the business;
  • advising on how to proceed with work once an internal report and/or SAR has been made in order to guard against risks of tipping off or prejudicing an investigation; and
  • the design and implementation of internal anti-money laundering systems and procedures.
If this role is not undertaken by the MLRO, these responsibilities should be taken on by another sufficiently senior and skilled person within the business. This person should work closely with the MLRO.
7.2. The functions of an MLRO can be delegated, although this does not relieve that MLRO of his responsibility, and businesses should have contingency arrangements for discharging the duties of an MLRO during periods of absence or unavailability. It is recommended that businesses appoint an alternate or deputy MLRO for these situations and ensure that the reporting channels are well known to all relevant employees.
7.3. Like all individuals, MLROs can commit the money laundering offences as well as the related offences of failure to disclose, tipping off, and prejudicing an investigation.

Assessing internal reports

7.4. When first approached by a colleague with an internal report, there are two matters for immediate consideration. Rapid consideration is needed by the MLRO as to whether an application for consent is required (see section 8). In addition, the MLRO should first establish by discussion and review whether or not the privilege reporting exemption may apply, as this exemption significantly affects not only whether a SAR must be made under the legislation, but also whether it may be made. The privilege reporting exemption is limited to relevant professional adviser s, and will not be available other than to members of well established professional bodies such as those listed in Schedule 3 to the 2007 Regulations and who meet the requirements set out in s.330(14), POCA. Further Guidance on the privilege reporting exemption is given in sections 7.26 to 7.46 below.
7.5. Once the MLRO receives an internal report, he must assess it and determine whether it meets the criteria laid down in s.331, POCA ie:
  • does he know, suspect or have reasonable grounds to know or suspect that another person is engaged in money laundering; and
  • did the information or other matter giving rise to the knowledge or suspicion come to him in a disclosure made under s.330, POCA ; and
  • does he know the name of the other person or the whereabouts of any laundered property from the s.330 disclosure; or
  • can he identify the other person or the whereabouts of any laundered property from information or other matter contained in the s.330 disclosure; or
  • does he believe, or is it reasonable for him to believe, that the information or other matter contained in the s.330 disclosure will or may assist in identifying the other person or the whereabouts of any laundered property.
7.6. In each case the MLRO should ensure the report contains all the relevant information known to the individual(s) making the report and records all necessary aspects as follows:
  • who is making the report
  • the date of the report
  • who is suspected or information that may assist in ascertaining the identity of the suspect (which may simply be details of the victim and the fact that the victim knows the identity but this is not information to which the business is privy in the ordinary course of its work)
  • who is otherwise involved in or associated with the matter and in what way
  • what the facts are
  • what is suspected and why
  • information regarding the whereabouts of any criminal property or information that may assist in ascertaining it (which may simply be the details of the victim who has further information but this is not information to which the business is privy in the ordinary course of its work)
  • what involvement does the business have with the issue in order that requirements for consent, the need for consideration of tipping off issues, basis of continuance of work and any other necessary guidance for engagement staff may be considered.
7.8. The MLRO may also wish to make reasonable enquiries of other individuals and systems within the business. Such enquiries may either have the effect of confirming the knowledge or suspicion, or reasonable grounds for such, or may provide additional material which enables the cause of suspicion to be eliminated at which point the matter may be closed without a SAR being issued.
7.9. In conducting his assessment, the MLRO may well wish to consider the criteria set out in section 6 [determining whether to report]. If the MLRO considers the information or other matter he has received in an internal report meets these criteria then a SAR to SOCA will be required unless either the privilege reporting exemption has been applied on the reporter seeking advice from the MLRO and not overridden by the crime/fraud exception or, on analysis of the internal report received, the MLRO determines that the overseas conduct exemption applies (sections 2.4 and 2.5).

The Reporting Record

7.10. It is vital for the control of legal risk that adequate records of internal reports are maintained, usually by the MLRO. These would normally be details of all internal reports made including details of the MLRO's handling of the matter, his requests for further information, assessments of the information received, decisions as to whether to conclude immediately or to wait for further developments or information, whether to make a SAR or not and on what grounds, any advice given to engagement teams as regards continuation of work and any consent requests made.
7.11. Details of internal reports submitted as SARs should also be retained. For efficiency, and ease of reference for the MLRO, it is recommended that some form of index of reports is kept and internal reference numbers given. The records may be simple, or sophisticated, depending on the size of the business and the volume of reporting, but all need to contain broadly the same information and be supported by appropriate working papers. These records are important as they may subsequently be required to justify and defend the actions of an individual or MLRO. There is no prescribed form specified in POCA or elsewhere for internal reports to an MLRO.

Making external reports

7.12. Once an MLRO has concluded a report is required, it should be prepared and submitted promptly to SOCA.
7.13. The requirement set out in POCA as to timing of reports is that a report should be made 'as soon as is practicable' after the information required is received. In practical terms, the interval between receiving an internal report and making a SAR will vary quite widely. Some matters may be disposed of very rapidly where all the information required to make a SAR is received with the first contact, and where this occurs a quick turnaround should be achieved. It is particularly important to work rapidly in matters where consent is required, or where ' money laundering in action' is suspected, ie, another is engaged in current criminal activity which may provide law enforcement with opportunities to intervene. In other cases, where not all the required information is immediately to hand, or where there is material uncertainty as to whether the matter is reportable or not, the MLRO may reasonably chose to await further expected developments, and/or seek further information before making a reporting decision.
7.14. MLROs can use a variety of manners and methods of submission, to make reports such as:
  • SAR on-line, using internet transfer
  • Moneyweb, using extranet transfer
  • Secure (encrypted email) using electronic file transfer by email
  • Bulk reports in electronic form using CD etc for transfer
  • Hard copy SOCA forms (obtainable on the internet or by post on request to SOCA) to be typed and submitted by post or fax.
The manners most likely to be of relevance to those providing defined services are SAR on-line, Moneyweb and the hard copy forms, the other two manners and methods are normally only used by retail banks and others submitting very large quantities of reports. We recommend that individuals and businesses have regard to guidance on how to make reports published from time to time by SOCA. Details of SOCA's preferred reporting methods are available from their web site at www.soca.gov.uk.
7.15. Each of the manners contain compulsory fields which require information, where known, to be provided in accordance with the required disclosure provisions. These fields relate to the identity of the reporter, the details of subjects (to the extent known but at least one must be named whether as victim or suspect and the identity information known provided in the correct specified fields), and in the free text box (variously called 'reason for disclosure' or 'reason for suspicion') the whereabouts of the laundered property, where known, and the description of the reason for suspicion or knowledge.
7.16. Please note that currently there are no prescribed forms which MLROs must use. An offence for failing to use the prescribed manner and form for making a SAR is contained in s.339(1A), POCA but this section is not effective unless or until an order by the Secretary of State. We are not aware of any plans to prescribe manner and form in the immediate future.
7.17. In preparing SARs, MLROs should seek to present information in a way that is clear and succinct. In particular:
  • the full name of the reporting business must be provided and the internal reference for the report should be provided in each case;
  • identification information held by the business (name, address, date of birth, registration numbers etc) must be presented in the appropriate subject fields, and not simply incorporated into the 'reason for suspicion' text;
  • where it assists in explaining the matter being reported, it may be appropriate to include a number of subjects in the report, providing such identification information as is known in the manner above for each of them;
  • for each subject their role, as far as it is known, in the matter should be made clear and the options of flagging each subject as suspect/victim/unknown used as appropriate;
  • where bank account/transaction details are available and relevant, these should be included in the appropriate fields;
  • the activity observed should be explained clearly in the reasons for suspicion field, without using jargon or terms which might not be readily understood by non-accountants and, as far as known, giving details of when events occurred;
  • features of the activity which are unusual or are considered to denote either a predicate offence to money laundering, or money laundering, should be highlighted as such;
  • such information held as to the whereabouts of any laundered property should be given;
  • the information given in the reasons for suspicion field should be succinct; and
  • the report should be submitted without any supporting documents and accordingly should be able to stand alone to explain the suspicion through provision of the information comprising the required disclosure.
7.18. If the MLRO so wishes, he may make use of the SAR Glossary of Terms provided by SOCA and incorporate the relevant terms in his report.
7.19. An important role for the MLRO on receipt of an internal report and on making a SAR is to advise engagement teams on how to continue their work and interact with the client to balance professional responsibilities, risk to the business and responsibilities under POCA. This area of work is examined in section 9.

Guarding confidentiality

7.20. If clients or third parties become aware that an individual or business has made a SAR , this can have adverse effects on client relationships and may ultimately endanger the security of staff members. Maintaining the confidentiality of SARs is important to SOCA 7 . Access to SAR information is now provided to end-users in law enforcement and similar agencies by SOCA only on condition that undertakings are taken as to compliance with Home Office guidance on preserving the confidentiality of SARs. (Home Office Circular 53 / 2005 'Money Laundering: The Confidentiality And Sensitivity Of Suspicious Activity Reports (SARs) And The Identity Of Those Who Make Them').
7.21. SOCA has provided a reporting line for concerns over breach of confidentiality by end-users of reports and details may be found on http://www.soca.gov.uk/about-soca/the-uk-financial-intelligence-unit/contacting-the-ukfiu.
7.22. Whilst it is reasonable for the regulated sector to expect SOCA to make strenuous efforts to protect the confidentiality of those who make SARs, reporters should also take such steps as are available to them to protect the confidentiality of individuals and businesses and the information reported.
7.23. In making reports, MLROs should disclose information relevant to the suspicion or knowledge of money laundering and information necessary to allow the reader to gain a proper understanding of the matters reported. It is recommended that reporters:
  • refrain from including other confidential information where this is not required for compliance with obligations under POCA.
  • show the name of the business, individual, or MLRO submitting the report only once in the source ID field but nowhere else in the report;
  • do not include names of personnel who made internal reports to the MLRO;
  • only include parties as subjects where this information is necessary for an understanding of the report, or to meet the standards of the required disclosure; and
  • highlight clearly in the reasons for suspicion/disclosure field any particular concern the reporter has about safety (in physical, reputational or other terms).
7.24. Whilst it is reasonable for an MLRO to answer questions from a SOCA officer or a law enforcement officer aimed simply at clarifying the content of a SAR, any further disclosure to SOCA or law enforcement or prosecuting agencies should normally only be undertaken in response to the exercise of a power to obtain information contained in relevant legislation, or in compliance with professional guidance on the balance of confidentiality and making disclosures in the public interest. This provides protection for the MLRO and the business against any allegation of breach of confidentiality.
7.25. A facility exists for any person to make voluntary disclosures to SOCA under s.34, SOCPA provided that:
  • the disclosure is made for the purposes of the exercise by SOCA of any of its functions (ss.2-4, SOCPA);
  • it is not a disclosure of personal data in contravention of the Data Protection Act 1998 where that personal data is not exempt from its provisions;
  • it is not a disclosure prohibited by Part 1, Regulation of Investigatory Powers Act 2000 (relating to unlawful interception of communications).
If a disclosure meets these requirements, the person making the disclosure does not breach any duty of confidentiality or other restriction on the disclosure of information, however imposed. We recommend a cautious approach to disclosure under this section, as it is important to be sure that all the required conditions are met.

The privilege reporting exemption

7.26. With effect from 21 February 2006, a relevant professional adviser who suspects or has reasonable grounds for knowing or suspecting that another person is engaged in money laundering is exempted from making a money laundering report where his knowledge or suspicion comes to him in privileged circumstances (the privilege reporting exemption). In such circumstances, provided that the information is not given to him with the intention (by his client or another person) of furthering a criminal purpose ('the crime/fraud exception' - see sections 7.42 to 7.46 below), s.330(6) affords the adviser a complete defence against a charge of failure to disclose (ie, to make a SAR). By implication, the exemption also means that in these circumstances a business should not make a SAR, as they are expected to be bound by the same standards of behaviour as is the case for legal professional advisers subject to legal professional privilege.
7.27. Discussions with the MLRO to seek advice about making a report under s.330, POCA shall not be taken to be an internal report when it was not intended as such, eg, if the person initiating the discussion believes the matter falls within the privilege reporting exemption and contacts the MLRO to confirm this. On receipt of such an approach, it is recommended the MLRO still collects the information which would otherwise be included in the required disclosure to enable careful consideration with the reporter of whether or not the matter falls within the privilege reporting exemption and, if it does, whether this is overridden by the crime/fraud exception. It is recommended that the MLRO documents the decision reached in this regard and the reasons for reaching that decision.
7.28. A relevant professional adviser is defined in the legislation as:
  • an accountant, auditor or tax adviser who is a member of a professional body which is established for accountants, auditors or tax advisers (as the case may be); and which makes provision for:
    • testing the competence of those seeking admission to membership of such a body as a condition for such admission; and
    • imposing and maintaining professional and ethical standards for its members, as well as imposing sanctions for non-compliance with those standards.
    The privilege reporting exemption also extends to persons in partnership with (or equivalent), or employed by, the relevant professional adviser to provide them with assistance or support. The information must come to these partners or employees in connection with this assistance or support and to the relevant professional adviser in privileged circumstances.
    7.29. The legislation does not list which professional bodies meet the criteria listed in s.330(14), but the CCAB member bodies meet those criteria and, accordingly, individuals who are members of a CCAB member body, those in partnership with such individuals in businesses regulated by the CCAB and the employees of such businesses and individuals are within the scope of the exemptions. If businesses or individuals are in any doubt as to whether these provisions apply to them, it is recommended that they seek legal advice.
    7.30. However, the amendments referred to above affect only the duty to make money laundering reports and related disclosures under POCA. They do not in any way extend legal professional privilege to advice given by relevant professional advisers in any other circumstances. However, businesses and individuals need to be aware, when responding to requests for further information (sections 9.11 to 9.17), documents subject to a client's privilege are not disclosable.
    7.31. If a relevant professional adviser considers that the information or other matter on which his knowledge or suspicion is based came to him in privileged circumstances, he is obliged to apply the privilege reporting exemption in s.330(6), POCA (unless the crime/fraud exception applies) and so has no discretion to make a money laundering report. This means that the relevant professional adviser could find himself in a situation where he might wish to make a report but is prevented from doing so. In such circumstances, he should consider whether he may continue to act, but in carrying out his decision will need to bear in mind the provisions of POCA relating to prejudicing an investigation (s.342, POCA).
    7.32. Whether or not the privilege reporting exemption applies needs to be considered carefully, including a consideration as to whether the relevant professional adviser was working in privileged circumstances when the particular information or other matter came to him. This is an important consideration, as a relevant professional adviser may be providing a variety of services to a client, not all of which may create privileged circumstances for this purpose. Accordingly, it is strongly recommended that a careful record is maintained of the provenance of information considered when a decision is made on the applicability or otherwise of the privilege reporting exemption.
    7.33. Set out below is a description of the two types of privileged circumstances and some examples of work which may fall within or outside of them.

    Legal advice

    7.34. For the privileged circumstances set out in s.330(10)(a) and (b), POCA to apply, the following conditions need to exist:
    • there needs to be a confidential communication (written or oral) between the relevant professional adviser and his client, or a representative of the client, in which the client seeks or the relevant professional adviser gives legal advice;
    • that communication must take place within the confines of a professional relationship between them, including an initial meeting which does not progress to a business relationship; and
    • the communication must relate to legal advice (ie, advice concerning the rights, liabilities and obligations or remedies of the client under the law).

    Litigation

    7.35. For the privileged circumstance set out in s.330(10)(c), POCA to apply, the following conditions need to exist:
    • there must be a confidential communication (written or oral) between the relevant professional adviser and the client or third party;
    • the confidential communication must be made for the dominant purpose (ie, the overriding purpose) of being used in connection with actual, pending or contemplated litigation.
    Defining contemplated litigation is difficult. In summary, it is usually necessary to be able to identify some act that gives rise to a cause of action in relation to which some threat of legal action has either been clearly intimated or is more than reasonably likely to follow. The party seeking to claim the benefit of litigation privilege must show that he was aware of circumstances that rendered litigation between himself and a particular person or class of persons a real likelihood rather than a mere possibility.

    Examples of privileged circumstances

    7.36. Examples where relevant professional advisers might frequently fall within privileged circumstances as regards legal advice privilege include, where this advice is delivered as part of the provision of a defined service:
    • advice on taxation matters, where the tax adviser is giving advice on the interpretation or application of any element of tax law and in the process is assisting a client to understand his tax position;
    • advice on the legal aspects of a take-over bid, for example on points under the Companies Act legislation;
    • advice on duties of directors under the Companies Act;
    • advice to directors on legal issues relating to the Insolvency Act 1986, eg, on the legal aspects of wrongful trading; and
    • advice on employment law.
    7.37. Examples where relevant professional adviser s might fall within privileged circumstances as regards litigation privilege include:
    • assisting a client by taking witness statements from him or from third parties in respect of litigation;
    • representing a client, as permitted, at a tax tribunal; and
    • when instructed as an expert witness by a solicitor on behalf of a client in respect of litigation.
    7.38. It should be noted that conducting audit work does not of itself give rise to privileged circumstances for this purpose, as the relevant professional adviser is neither providing legal advice, nor is he instructed in respect of litigation. Nor do routine book-keeping, accounts preparation or tax compliance assignments, though privileged circumstances may arise if the client requests or the adviser gives, legal advice on an informal basis, during the course of such an assignment.
    7.39. It is recommended that the reasons for the conclusion reached as to whether the privilege reporting exemption applies are carefully documented. If the relevant professional adviser decides it does apply, he must act in accordance with the privilege reporting exemption unless the crime/fraud exception applies. If in doubt, it is recommended that businesses and individuals seek professional or legal advice.

    Recording and discussion with the MLRO

    7.40. Even where the client service team believe that the privilege reporting exemption applies, businesses should consider whether all matters involving knowledge or suspicion of money laundering should still be referred to the MLRO for advice or to another appropriate person (see section 7.41 of this Guidance). Discussion of a matter with the MLRO, where the purpose of the discussion is the obtaining of advice about making a disclosure under s.330, does not alter the applicability of the privilege reporting exemption. Given the complexity of these matters, and the need for considered and consistent treatment with adequate documentation of decisions made, a referral to and discussion with the MLRO is likely to be beneficial and is recommended. The MLRO may decide, with the reporter, to seek further appropriate advice.
    7.41. Likewise reporters within a business are entitled to seek advice from an appropriate specialist (either a person within the business who would fall into the category specified in s.330(7B) or an external adviser who himself is able to apply the privilege reporting exemption ) without altering the applicability of the privilege reporting exemption.

    The Crime/Fraud Exception

    7.42. Before determining whether the privilege reporting exemption must be applied, consideration needs to be given to whether the exemption is lost through application of the crime/fraud exception. This exception, as set out in s.330(11), POCA, overrides the privilege reporting exemption which:

    'does not apply to information or other matter which is communicated or given with the intention of furthering a criminal purpose'.

    This means that communications that would otherwise qualify under one or other of the above two types of privilege are not covered by the privilege reporting exemption where the communication was intended to facilitate or to guide someone (usually the client but possibly a third party) in the commission, or furtherance, of any crime or fraud. An example of this might be where tax advice was sought ostensibly to enable the affairs of a tax evader to be regularised but in reality was sought to aid continued evasion by improving the evader's understanding of the relevant issues.

    7.43. The crime/fraud exception also applies where communication takes place between a client and his adviser in circumstances where the client is the innocent tool of a third party's criminal or fraudulent purpose. An example of this might be where a money launderer gives money to a family member, who is unaware of the source of that money, to purchase a property, for which purpose he communicates with his adviser.
    7.44. The crime/fraud exception does not apply where the adviser is approached to advise on the consequences of a crime or fraud or similar conduct that has already taken place and where the client has no intention, in seeking advice, to further that crime or fraud. This means that a person who is concerned that he may be guilty of tax evasion can approach a tax adviser for legal advice in this regard without fear of the exception being invoked. This remains the case even if the potential client declines a client relationship having received the advice, and the adviser does not know whether the person will proceed to rectify his affairs. However, if the person behaves in a way that makes the adviser suspicious that he intends to use the advice to further his evasion, then a money laundering report could be required.
    7.45. The crime/fraud exception is a difficult area and the Courts will not usually allow the exception to be invoked unless there is reasonably compelling circumstantial evidence available that demonstrates that the communications have in some way been intended to further the crime or the fraud. A mere speculation may not be sufficient as a basis to invoke it. It is strongly recommended that professional or legal advice is sought in all cases of doubt.
    7.46. In summary, the following issues need to be considered before deciding whether to apply the privilege reporting exemption:
    • Are those who received the information or other matter which gave rise to knowledge or suspicion of money laundering relevant professional adviser s (s.330(14) and s.330(6)(b))?
    • Was the relevant professional adviser acting in privileged circumstances (s.330(10))?
    • Was the information or other matter which gave rise to knowledge or suspicion of money laundering actually received in privileged circumstances (s.330(10)) and not in some other communication or situation?
    • Was the information or other matter received or communicated with the intention of furthering a criminal purpose (ie, does the crime/fraud exception apply (s.330(10))?
    If the answers to (a), (b), and (c) are yes, and the answer to (d) is no, the privilege reporting exemption must be applied. If the answer to (a), (b), and (c) are yes and the answer to (d) is yes, the crime fraud exception applies and a money laundering report must be made. Further advice should be sought from the relevant professional body or a lawyer in cases of doubt. This issue may be vital in balancing legal and professional requirements for confidentiality and for serving the public interest and the interests of clients. If doubts cannot be resolved through internal discussion, through access to normal sources of professional advice, businesses are strongly recommended to seek advice from a professional legal adviser with experience of these matters.