CPS updates its approach to prosecutions for failure to report money laundering

The Crown Prosecution Service ("CPS") published its revised Money Laundering Offences Legal Guidance for prosecutors (the "Guidance") on 2 June 2021. The main changes to the Guidance pertain to section 330 of the Proceeds of Crime Act 2002 ("POCA") which creates the offence of 'failure to disclose' when a person knows or suspects, or has reasonable grounds to knowing or suspecting, that another person is engaged in money laundering.

Going forward, the Guidance states that prosecutions under section 330 may be brought even where it cannot be proven that any underlying money laundering was "planned or undertaken".

Firms within the POCA regulated sector (as defined in Schedule 9 of POCA) should therefore take note of this change and the resulting increased risk of prosecution for failure to report under section 330. It should be noted that the effective date for the Guidance is the date of publication (i.e. 2 June 2021), so the new approach will not apply retrospectively.

A final point to note is that, oddly, at some point following the publication of the revised Guidance on 2 June 2021, it was amended (without explanation or announcement) to remove the new wording on s.330. Later, on around 18 June, the new section was added back in, in substantially identical form to the version published on 2 June.  The reasons for these changes are unknown and we can only assume that the Guidance should be treated as being in a final form. The revisions made after 2 June also include some minor amendments to correct references to 'defences' in respect of provisions of POCA which are more accurately described as limitations to the scope of the relevant offences (such as the adequate consideration 'defence' and the consent regime).

Background on POCA

The section 330 offence of 'failure to report' is found alongside other money laundering offences in Part 7 of POCA. In addition to the substantive money laundering offences (ss.327 to 329 of POCA) which can be committed by any persons (whether or not in the regulated sector) who deal in various ways with criminal property, the Act requires persons in the regulated sector to report knowledge, suspicion or reasonable grounds to suspect money laundering in certain circumstances.  Employees may report to their firm's nominated officer, and the nominated officer is in turn subject to external reporting obligations pursuant to ss.331 and 336.

As a result, under POCA, firms are required to file a suspicious activity report ("SAR") with the National Crime Agency ("NCA") in two circumstances:

1. to obtain a 'defence' if the firm itself would otherwise potentially commit a substantive offence of money laundering under ss.327 to 329 of POCA (referred to as a "DAML" or "consent"); and/or
2. under s.330 POCA where the firm "knows or suspects or has reasonable grounds for knowing or suspecting" that a person (e.g. a customer or counterparty) is involved in money laundering, and that knowledge or suspicion comes to the firm in the course of carrying on a regulated business.

The changes to the Guidance focus on when prosecutions can be brought in relation to the second circumstance (i.e. reporting under s.330 POCA). An offence under s.330 is punishable by a maximum penalty, on conviction on indictment, of five years' imprisonment and/or a fine.

Previous position

This new approach is the culmination of a longstanding debate stemming from former Attorney-General Lord Goldsmith QC's comments during a parliamentary debate on 25 March 2002 relating to the passage of the Proceeds of Crime Bill (now POCA). He stated that "the offence in Clause 330 of failing to report to the authorities is permitted only if the prosecution proves that money laundering was planned or undertaken". The CPS appears to have accepted this position until recently, as the previous version of the Guidance simply stated that "cases where this [s.330] offence is being considered should be referred to the Director's Strategic Policy Advisor at CPS Headquarters".

There have been very few prosecutions under s.330 POCA to date. Although precise figures are not available, the CPS's records indicate that there were 58 prosecution case files relating to cases commenced under s.330 POCA between April 2005 and September 2019, of which in only 14 cases were there convictions (which might relate to more than 14 defendants, but in respect of which the conviction might have been for a separate offence).

A new approach

The Guidance now states that prosecutors may bring charges "even though there is insufficient evidence to establish that money laundering was planned or has taken place".

The CPS explicitly states in the Guidance that Lord Goldsmith's statement should not be read as binding, on the basis that "there is nothing in the language of s.330(2) that required money laundering to be taking place". The CPS refers to the reasoning of the High Court of Justiciary in Scotland in Ahmad v HM Advocate [2009] HCJAC 60 which provides that the obligation to disclose arises regardless of having proof that money laundering actually took place. The court's reasoning in this case included that "as matter of language it is obvious that a person may suspect that something is taking place, albeit it later turns out that his suspicion is ill-founded" and that it would not make sense to require proof of money laundering since the obligation to disclose arises "as soon as practicable", which is likely to be before an investigation has occurred..

Suspicion limb vs knowledge limb

It should be noted however that the removal of the requirement for sufficient evidence of money laundering only applies to the "suspicion limb" (i.e. subjective suspicion or (objectively) reasonable grounds to suspect money laundering), as opposed to the "knowledge limb" of s. 330 POCA. The CPS distinguishes the approaches to these two limbs in its Guidance.

In relation to the "knowledge limb", the Guidance states that "evidence of planning or undertaking can support the prosecution in establishing the knowledge of the person that another is engaged in money laundering. Without such evidence of money laundering or planning, the prosecution will have to establish the suspect suspected or had reasonable grounds for suspecting money laundering".

Therefore, where money laundering cannot be proven, the prosecution will be brought under the "suspicion limb" of s. 330 POCA.

Other changes

In addition to the new approach to prosecutions under s.330, the Guidance replaces references to  "defences" with "express limitations" in relation to both the substantive money laundering offences (ss.327 to 329) and reporting offence (s.330).  This is a more accurate statement of the law, as confirmed in Hogan v DPP [2007] EWHC 978 (Admin) in relation to the so-called adequate consideration 'defence'.  The practical effect of the distinction relates to whether the burden of proof lies on the prosecution or the defence.

Interestingly, the CPS has also deleted wording which notes that prosecutions for the tipping off offence in s.333A are "not common" and should be referred to further guidance.  This might suggest that the CPS may be envisaging more tipping off prosecutions, although it is difficult to read too much into the change.

Conclusion

The CPS has suggested that, although it is already possible to prosecute under s. 330, this new approach removes the "historical barriers" to making use of this piece of law. Going forward, it is assumed that there may be more prosecutions brought for failure to report, although the CPS notes that it does not envisage a "significant increase". Both the Serious Fraud Office and the National Economic Crime Centre have welcomed the changes to the Guidance.

In terms of practical significance, this change in guidance is unlikely to require or give rise to any alteration to firms' internal reporting procedures. The main impact is simply an increased risk associated with a failure to report. However, regulated firms, who are subject to an obligation to provide training to employees in relation to their money laundering reporting obligations could potentially consider this change in training to emphasise the risk to employees of failing to report suspicions.