Suspicious minds – What’s the definition of suspicion in AML?
The AML legislation imposes a positive duty on lawyers, in certain circumstances, to report any suspicion that their client is engaged in money laundering. Given that such a duty is, on the face of it, in conflict with fundamental obligations on solicitors to act in the best interests of their clients and keep what they say confidential, one would be forgiven for thinking that the law would provide a clear definition and guidance as to the meaning of suspicion. “Suspicion” in AML is a key concept in the proceeds of crime legislation in establishing the mental element required not only to prove there has been a failure to report offence, but also to prove the commission of the substantive money laundering offences. Given the severity of the consequences of a conviction under the money laundering legislation, it is crucial that those in practice understand what suspicion means.
You may be surprised to learn that, despite its significance, “suspicion” is not defined anywhere within the proceeds of crime legislation, nor within the recommendations of the Financial Action Task Force, not in any of the Money Laundering Directives from the European Union. Instead, it has been left for the courts to interpret and define the concept.
How have the courts interpreted “suspicion”? The courts have made clear that in criminal law, ordinary words should be given their ordinary meaning and their definition is not a question of law.
So far so good. But considering the dictionary definition of the word does not give a straightforward answer. Different dictionaries each give slightly different definitions. The word “suspicion” does not describe one state of mind. It actually covers a range of states of mind ranging from a mere inkling to believing something is highly probable or even true.
Which definition of “suspicion” has the courts adopted? Many judges have grappled with the question and there have been several cases over the years, many of which make interesting reading. The leading case is that of R v Da Silva where Longmore LJ said the essential element was that “the [person that suspects] must think that there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice. But the statute does not require the suspicion to be “clear” or “firmly grounded and targeted on specific facts”, or based upon “reasonable grounds”.
This case makes it clear that suspicion is a relatively low threshold and is subjective – while it has to be genuinely held, it doesn’t have to be reasonably held. Although the courts have declined to introduce a reasonableness test, or set a standard for the strength of suspicion needed, the statement that it needs to be more than fanciful suggests that the suspicion does need to have some basis in fact. One of the difficulties is what is the boundary between unease and suspicion – it’s not an easy concept to define.
Reasonable grounds for Suspicion
The eagle eyed amongst you will notice that the failure to report offence in S 330 of the Proceeds of Crime Act applies not only if a person knows or suspects, but if a person has “reasonable grounds” for knowing or suspecting that another is engaged in money laundering. Does this mean that a person can be guilty of the failure to report offence even without any mental element, in other words that it is a strict liability offence? The recent case of R v Sally Lane & John Letts (AB & CD) [2018] UKSC 36 sheds some light on this. This case was concerned with the suspicion of one of the principal offences under the Terrorism Act and asked the question of whether the phrase “reasonable cause to suspect” in s17(b) of the Terrorism Act 2000 has the same meaning as “reasonable suspicion” – in other words did the Prosecution have to establish actual subjective suspicion. The Supreme Court concluded that there was no requirement for proof of actual suspicion – so as long as the Prosecution could establish there were reasonable grounds to suspect, it did not also have to establish actual suspicion. Applying this to the money laundering regime and the failure to report offence if the Prosecution can show that the person was aware of facts which, when considered objectively, would provide reasonable grounds for knowledge or suspicion, that would be enough to establish guilt even if the person didn’t have actual knowledge. The requirement to prove what was actually known to the person rather than what they ought to have known shows that the offence cannot be committed by negligence alone, but recklessness rather than intention would be enough to establish the mental element.
Suspicion of What?
In the context of the reporting offences, fee earners are generally encouraged to report to the MLRO any suspicions they have, even if just a vague feeling of unease or something they can’t put their finger on, and I don’t think anyone would want to discourage that. But if you are the MLRO considering making an external report, something more concrete is needed, namely that you suspect that money laundering (or terrorist financing) is taking place. And for money laundering there must be criminal property.
In the 2008 case of R v Anwoir the court held that money laundering could be proved in two ways:
by showing that property derives from conduct of a specific kind and that that conduct is unlawful, orby evidence of the circumstances in which the property is handled, which are such as to give rise to the irresistible inference that it can only be derived from crime.
In essence the relevant threshold will be reached if either you know or suspect a specific type of criminal conduct has taken place such as fraud or tax evasion and that it has generated criminal property. This is likely to be the case if you have received information, either from the client themselves, or a third party, or a law enforcement agency, or if it has been reported in the media. Alternatively, you may not have received any information but if there are a series of warning signs which can’t be satisfactorily explained and taken together give the irresistible inference that the funds must be criminal.
What are some of the warning signs?
The following are the type of things that may give rise to a suspicion that a person is engaged in money laundering:
- Transactions which have no apparent purpose and which make no obvious economic sense
- Transactions outside the ordinary range of services normally requested by the client
- A client who refuses to provide information without reasonable explanation
- A client who uses a business relationship for a single transaction or for a very short period of time
- Routing of funds through third party accounts without reason
- Use of offshore accounts, companies or structures in circumstances where the client’s needs do not support such economic requirements
- Attempts to launder proceeds through a cash intensive business (as criminals often do) where the cash-flows appear too large or the profit margins too high
- Unusual settlement requests, for example where unusually large sums of cash are offered or cash is being sent by persons who are not clients of the firm or where the source of funds or the way in which settlement is to take place is unusual
- Using the firm for banking services only, e.g. receipts of funds into client account, all or some of which prove not to be needed for any subsequent transaction, followed by a request by the client for onward transmission of the funds through the banking system to a third party
- Formation of companies without any apparent commercial or other purpose
- Property Transactions – fictitious buyers, payment of deposit direct to seller, sales at undervalue
This is not a complete list and my suggestion would be to familiarise yourself with the Law Society guidance in relation to this.
In June 2019, following a consultation which began in 2018, the Law Commission published its review and recommendations in respect of the SARs regime. That report acknowledged that suspicion is a complex and knotty concept, that the test is often misunderstood and not properly applied by reports, and that this has resulted in high volume poor quality SRAs, many of which are made for defensive reasons rather than because of genuinely held suspicion. However, having analysed responses to the Consultation, the Law Commission declined to recommend providing a statutory definition of suspicion. It did recommend that the Secretary of State be required to publish guidance on suspicion and that there be a prescribed form for the making of SARs (the format to be left to an advisory group). It stopped short of recommending the raising of the reporting threshold to require reporting only where there are reasonable grounds to suspect money laundering. It did however recommend that an Advisory Board should undertake a review as to whether to increase the threshold after carrying out further research on the quality of disclosures under the current regime.
Conclusion
In conclusion, it looks as though the current position, whilst arguably less than ideal, is set to remain for a while longer. In these circumstances, our best advice is to ensure that firstly, when considering whether you are obliged to make a report, you make a full note of the factors and the information you have considered and your reasoning in arriving at your conclusion as to whether you suspect or not, and secondly, that your grounds for suspicion and identification of the criminal property are clearly set out in any external SAR.
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