The UK's Home Secretary, Theresa May (pictured), has changed the Government's approach to money-laundering by including it in the same category as terrorism - as a threat to the very substance of the country.

The Government has not fully explained why the laundering of the proceeds of burglary, forgery and other humdrum crimes might suddenly add up to a national threat after so many years of not doing so. The National Security Strategy (NSS) and Strategic Defence and Security Review (SDSR) of November 2015 have nonetheless identified serious and organised crime as a 'tier two' national security threat. In its recently released 'Action Plan' for money-laundering and terrorist finance (the latter phenomenon is a 'tier one' threat) the Government justifies this by stating that serious and organised crime costs the UK at least £24 billion annually, causes loss of life and deprives people of their security and prosperity.

A journey into Fantasyland?

Taken to its logical conclusion, this suggests that bee stings ought to become a national security threat because they kill many people in the UK (at least as many as terrorism); that fraud (which costs the UK £73 billion per annum – three times as much as the figure for serious and organised crime) ought to follow suit; and that people ought not to be allowed to go out on the roads or gamble because that, too, would hurt national security. Compliance officers are likely to draw the conclusion that the phrase 'national security' has, in HM Government's eyes at least, lost its meaning.

Action to be taken

The 'Action Plan,' meanwhile, promises sweeping reform for the current suspicious transaction reporting (STR) regime, especially as regards 'consent STRs' whereby reporting institutions await the permission of the National Crime Agency to go ahead with suspicious transactions. It says: "The consent regime is inefficient and we will consider whether it should be removed. We envisage that it could be replaced with an intelligence-led approach, supported by information sharing through the Joint Money Laundering Intelligence Taskforce. The statutory money laundering defence provided by the current consent regime [s335 Proceeds of Crime Act 2002, which exempts the money-laundering reporting officer from a money-laundering charge if he has obtained NCA consent for a transaction] would also be removed, although the POCA would be amended to ensure that reporters who fulfill their legal and regulatory obligations would not be criminalised. The Government would create powers to enable reporters to be granted immunity for taking specified courses of action (e.g. maintaining a customer relationship when to terminate it would alert the subject to the existence of a law enforcement investigation). The Government would also legislate to provide a power for the NCA to oblige reporters to provide further information on a SAR where there is a need to do so."

Libel laws in retreat

The stifling libel laws of the UK are something of an international scandal, with many foreign high-net-worth individuals (especially Russian oligarchs) with a tenuous connection to the UK indulging in "international libel tourism" to use them. The Government has also used them to lay the groundwork for a form of press censorship in the Crime and Courts Act 2013, ss34-42 of which allow courts to levy exemplary damages on "publishers of news-related material" who do not sign up to be regulated by "an approved regulator." Those sections also say that under most circumstances "the court must award costs against the defendant," which means that publications that win their cases will still have to pay their opponents' bills even when those opponents' claims were groundless.

There is, however, one area and one only in which HM Government is thinking of drawing these formidable libel laws back. So far, banks and asset managers have not been able to set up formal mechanisms for sharing their observations about the financial suspiciousness of high-net-worth individuals for fear that these well-resourced people might find out that they are being libelled and take legal action to clear their good names. This is now likely to change, with the Government thinking of legislating to permit the reporting sector to share information, under a legal 'safe harbour,' about people who might be laundering money or financing terrorism in their eyes. It intends to "work with the reporting sector" to solve problems that surround "confidentiality and protection" and learn from the experiences of law enforcement agencies and banks in using the powers provided in s314 USA PATRIOT Act 2001 in this regard. The aim is to enable firms to understand the risks they face and to submit STRs (HM Government always calls these by the American name of 'suspicious activity reports' or SARs, even though European Union law and POCA do not call for the reporting of any activity that has nothing to do with transactions) of higher quality as a result.

Too much compliance, too little risk management

The report states that "too much resource at present is focused on dealing with regulatory compliance and too little is focused on tackling financial crime risk." The British Bankers’ Association estimates that its members are collectively spending at least £5 billion annually on 'core' financial crime compliance, including the recruitment of staff, and the Government thinks that this is being mis-spent to a substantial degree. It wants to cut 'red tape' and see an end to unnecessary 'tick-box compliance.' In the interests of consistency, the Government believes that it could work with supervisors (which in the UK are many and varied, including the Financial Conduct Authority and HM Revenue & Customs) to develop a risk assessment methodology for all that is nonetheless sector-specific and helps all concerned identify risks and assess them "in a comparable way."

The Government is also looking at "whether the advantages associated with professional body supervision, including in-depth knowledge of the risks and latest developments in their sectors, outweigh the disadvantages of having supervisory and industry advocacy roles combined." This obscure phrase appears to denote disquiet on the part of the Government about bodies such as the Solicitors' Regulation Authority, which is really a subsection of the Law Society, the UK's 'closed shop' for solicitors which also has a duty to promote the legal profession.

The Government's suggestions for reform are vague, despite its insistence that they are going to be radical. One question in the consultative part of the document, however, asks: "How could inconsistencies between the Joint Money-Laundering Steering Group guidance and the FCA’s Financial Crime Guide best be resolved? Should the two be merged? Or should one be discontinued and if so, which one and why?" This could be readers' one and only chance to dispense with the FCA's opinions about AML “good and bad practice” for good and all.