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Video: Submitting a defence against money laundering

Transcript

Claire Wilson (CW): I’m Claire Wilson. I lead on the anti-money laundering and counter terrorism financing strategy for the Gambling Commission. I worked for the Commission for 11 years and prior to that I worked in the gambling industry for 15 years.

This video is being jointly made with our partners at the National Crime Agency. Our hope is to make available to you, a collection of videos that signposts of good anti-money laundering guidance and share with you some practical tips to help you with your SAR reporting and AML training.

The Commission recognises that operators submit good quality SARs and we want to maintain that quality and improvement where we can.

The video box set will be released throughout September 2018 and each video will have specific themes.

In each video we will share with your answers to questions raised at the Gambling Commission anti-money laundering forums and more recently in surveys has been introduced on the Gambling Commission website.

The main focus of this video about making good quality defence against money laundering SARs. Defence against money laundering SARs tend to be called DAMLs.

I am pleased to introduce Tony Fitzpatrick from the National Crime Agency who last year was the DAML team leader and has first-hand experience in dealing with a wide variety of DAML type SARs.

Tony Fitzpatrick (TF): Yeah, hello everybody. My name is Tony Fitzpatrick and I work for the National Crime Agency.

Just one key caveat I’d ask you to keep in view, anything said in this video is meant to be helpful and it’s based on sharing experiences of what is seen in the SARs and described by some experienced Money Laundering Reporting Officers or Anti Money Laundering consultants.

Any comments made during this video should not be treated as legal advice. If in doubt, the key recommendation I’ll give you is that seek independent legal advice.

CW: Thanks Tony. Let’s start with some definitions. So, what is a DAML?

TF: A defence against money laundering (a DAML) can be requested from the NCA where a reporter has a suspicion that property they intend to deal with is in some way criminal and that by dealing with it, they put themselves at risk for committing one principle money laundering offences under the Proceeds of Crime Act 2002.

The NCA is empowered by the United Kingdom legislation to provide defences under section 335 of the Proceeds of Crime Act, so a person by submitting a DAML to the NCA can receive appropriate consent.

It is common for these to be called a grant letter within the NCA. It means that the NCA, based on information provided, has been able to make a decision and grant a person a defence against money laundering offence.

It must be remembered it is only a defence to money laundering and a defence for the prudent acts described by the DAML reporter. It does not give a carte blanche defence to any other crimes, for example corruption, bribery, fraud, etc. The appropriate consent is granted by the NCA is only for money laundering.

CW: Thanks Tony. So, what are the money laundering offences this defence is for?

TF: The elements and the details for each for each offence is fully defined in sections 327 to 329 of the Proceeds of Crime Act, but in summary the money laundering offences relate to most of the activities you could be involved with when dealing with criminal property, and this includes a number of things.

It could be to do with concealing, disguising, converting, transferring, or remoting criminal property from England and Wales, or from Scotland, or from Northern Ireland.

It could include arranging when someone’s involved in an arrangement to assist in money laundering.

It also includes becoming concerned in an arrangement in which someone knowingly suspects or facilitates the acquisition, retention, use, or control of criminal property by or on behalf of a person.

And finally, it also includes acquiring, using, or possessing criminal property.

CW: Thanks Tony. So, if someone decides to put in a DAML to the NCA what happens to the DAML once it’s submitted?

TF: Well Claire, a considerable amount of effort is put in by the NCA and every single DAML is read and analysed. A sophisticated triage system is used and in simple terms, the DAML team will prioritise a DAML using phrases or codes, for example it might relate to a vulnerable person, in some cases it could involve child abuse or human trafficking, where risks are present for a number of victims. It might be a DAML in relation to millions of pounds in the country to a place where we may never get it back.

The DAML team will check to ensure that a DAML matches the required criteria. Without the correct criteria the DAML officer is not able to make a decision. The DAML officer will also consult and can share the information with a number of law enforcement agencies including the police and HMRC.

The DAML officer must therefore ensure that the sufficient information about the subject of the DAML is present, for example that it includes full names, date of birth, addresses, occupation, etc. That’s why it’s very important to get into a DAML because the DAML is cross-checked against a number of databases.

In law enforcement they call this washing the data, by washing the data against a range of databases they search for matches against intelligence in other law enforcement databases. This DAML might actually be a crucial piece of information for an existing investigation or may provoke a new investigation.

So, for this reason the NCA may request additional information from the reporter in order to make an informed decision. This will usually happen via email.

So, the point I’m trying to make is that DAML does not into a black hole. It goes through a number of processes requiring a lot of analysis for cross matching, both by the NCA and law enforcement.

So, to summarise when a DAML comes in, it is received and checked to confirm it matches DAML criteria. It is coded so that urgent DAMLs can be fast-tracked and then checked so that they can be washed against law enforcement databases.

CW: Thanks Tony. What is the DAML criteria, what sort of information is normally required by the NCA in order to make an informed decision on these DAML requests?

TF: Currently there is three main criteria requirements for DAML to go swiftly through the process. A DAML needs to show clearly why you suspect it is money laundering you’re dealing with.

It needs a clear description of the property that you know, suspect, or believe to be criminal property.

It needs a clear description of the prohibited act for which you seek a defence. By prohibited act, the NCA means the proposed activity that you the reporter, is seeking a defence to undertake.

To be explicit, you must put these three things, these three criteria, into your DAMLs. It’s crucial because the NCA officer dealing with them are not able to interpret, assume or imply or infer anything in disclosures. It has to be written there in black and white for them to read and to make their assessment.

If a DAML SAR is particularly deficient in any of the above criteria, any of the criteria I’ve mentioned, it will be closed without further notice.

In some cases, for minor omissions the NCA will make contact usually by email to ask you to clarify your information. A response to such clarification requests for information is usually required within 48 hours. If a response is not received within the stated timeframe that case may be closed down.

CW: Thank you Tony. We are often asked what constitutes suspicion. So, what is the threshold for suspicion?

TF: Well the first point I’d like to make is that it’s always a matter for a reporter to decide if they have sufficient suspicion to make a SAR. Some SAR reporters seek independent legal advice on a case-by-case basis relating to actual threshold for their suspicion.

It must be made clear that the National Crime Agency are unable to provide any advice as to when a reporter should submit a SAR or DAML beyond what the Proceeds of Crime Act and the Money Laundering Regulations dictate.

Unfortunately, suspicion is not defined in legislation. Some reporters reflect upon the stated case R v Da Silva. Here the appeal court give a good definition of suspicion of money laundering and they said it was a possibility, which is more than fanciful.

They stated a vague feeling of unease would not be enough for raising suspicion. It also suggested that there does not have to be any substantial evidence.

Some reporters interpret this as meaning there is no requirement for a physical evidence such as DNA or fingerprints, or direct witness testimony. The circumstances can speak for themselves and a number of unusual facts or behaviours could add up to form reasonable suspicion.

Some SAR reporters feel the threshold for suspicion under the Proceeds of Crime Act is genuinely considered to be low.

Some commentators suggest the test of reasonable grounds is an objective test, so the test in simple terms is would an average person seeing these circumstances suspect money laundering is taking place? If yes, they might conclude a SAR is therefore required.

I am aware one court case when a court indicated the threshold had been passed. It’s a stated case R v Griffiths and Pattison in 2006 and this is where a conveyer solicitor was found guilty of failing to make a SAR under section 330. The prosecution argued that a conveyer solicitor closed his eyes to the obvious. The solicitor was convicted and sentenced to 15 months imprisonment.

What he had done was that he had significantly undervalued the purchase of a property. He purchased a purchased a property valued at more than £150,000 and he bought it for £43,000. In other words, he bought it for a third of the actual real value.

At the appeal court, they said that all professionals involved in financial transactions had an absolute obligation to observe scrupulously legislation and they will face the inevitable penalty if they don’t follow those regulations and legislation to the book. So, this case in 2006 makes it clear that there are big risks to reporters if they do not submit SARs or DAMLs.

CW: Thanks for that explanation Tony. So, what is meant by the term criminal property?

TF: Criminal property – this is any property which derives from a criminal act if the alleged offender knows or suspects that it constitutes or represents such a benefit. Criminal property must already be in existence at the time of your disclosure in order for a DAML to be considered.

CW: Ok so, what is meant by the term prohibited act?

TF: Claire, the prohibited act is the most poorly understood elements required by the National Crime Agency to make an informed decision. When discussing a prohibited act, the NCA refers to the proposed activity that you, the reporter, are seeking a defence to undertake. The NCA cannot ordinarily consider prohibited acts which are to the future and specified.

CW: Ok so, what is meant by the term prohibited act?

TF: Claire, the prohibited act is the most poorly understood elements required by the National Crime Agency to make an informed decision. When discussing a prohibited act, the NCA refers to the proposed activity that you, the reporter, are seeking a defence to undertake. The NCA cannot ordinarily consider prohibited acts which are to the future and specified.

This is shown as an example from the following phrase, initially stated your DAML:

“I seek a defence to transfer the closing balance of £5,000 of the customer’s casino accounts to the bank accounts of high street, bank account number, sort code, etc.”

Here that’s clearly showing that could be that that’s a good example. Here the transfer of funds is actually prohibited act that should taken out by reporter.

In requesting details of the prohibited act, the NCA does not mean its suspected criminality being undertaken by the subject, sometimes that’s called the predicate offence, it doesn’t mean that. It doesn’t mean a particular section under POCA for which the reporter is seeking a defence.

You have got to say in words what is it you want to do, what is you actually want to do. A general statement such as “the prohibited act for which we seek a defence is money laundering” is what you need to put.

So, put in your DAMLs “we wish to carry out the following act” and then state exactly what it is you want to do. I’ll put some examples of in a slide and you’ll be able to see them explicitly.

CW: Thanks Tony, I think those examples make it clear what the NCA are looking for regarding the prohibited act, moving on to some other definitions now. What is meant by the notice period and the moratorium period?

TF: The Notice Period is the statutory seven working day period in which the NCA has time to make a decision. The day the disclosure is submitted is considered to be day 0. Should your request for a DAML be refused the NCA will notify you via phone call and email.

The moratorium period then begins with a day of a notification of refusal being issued between day 1 of the moratorium period.

The moratorium period extends to 31 calendar days following the notice of refusal. During this time law enforcement will be working to take positive enforcement action against a criminal property you have identified.

Please note there has been some recent changes in the Criminal Finance Act 2017 that also allow law enforcement to apply to a Crown Court for an extension to the moratorium period beyond 31 days.

I suggest you consult lawyers, independent legal advice, or industry specific advisors for guidance on how to manage the Criminal Finance Act 2017. You’ll be able to get full details on how to manage that situation from those advisors.

CW: Thanks Tony. So, the reporter gets a defence from the NCA, a grant letter, what does that mean? Does a DAML constitute clearance or permission so that the reporter can continue acting or to proceed in general?

TF: Claire, in capital letters no, a big no. It solely provides a defence to a principle money laundering offence should you decide to carry out the planned activity.

Other factors such as wider legal restorations, regulations, regulatory situations, and ethical obligations might also be considered when you decide whether or not you continue with that activity.

A DAML does not provide any form of clearance, permission or authority to undertake the specific activity, and it’s important, a DAML being granted does not oblige or mandate the reporter to proceed with the proposed activity or imply legitimacy of the funds in question.

It is not for the NCA to advise whether a reporter should continue acting for a client; this is a business decision for a reporter to make based on their own risk appetite.

CW: Thank you Tony, moving on now. Can a reporter seek a DAML for activity where they believe that a property will become criminal once the activity, they are requesting a defence for has actually taken place?

TF: Again no. Technically it’s criminal property at the time of DAML disclosure, so this would be seeking a defence to carry out criminal conduct. There is no provision to permit this under the Proceeds of Crime Act. Any such conduct would, by its nature, likely be criminal and a reporter should refuse to act.

This is made clear in a particular stated case R v Geary where it was confirmed that the criminal property must exist at the time of the disclosure in order for the NCA to make and consider a decision.

The NCA will therefore be unable to make a decision on cases where there is not, is not, currently existing criminal property for the purposes of Proceeds of Crime Act. In such cases I’d advise that the reporter should seek independent legal advice if they are unsure on this point of law.

CW: Ok, thank you Tony. Can reporters seek a DAML for an act they have already undertaken, or can they seek a DAML retrospectively?

TF: In general no. The NCA is only normally able to consider a decision on specified activity which is yet to occur. Retrospective defences are not normally given. The reporter should seek legal advice if they are unsure on part of law.

CW: Tony, should reporters submit a DAML to report a crime or to report about potential vulnerable people?

TF: I’ll be clear on this point Claire; you cannot report or register a crime by using a SAR. A SAR is reporting suspicions of money laundering and terrorist financing only. You have to report crimes alongside the SAR.

My advice in these circumstances would be to seek guidance for some of the reports we’ve got on our NCA website. There’s a good report there called “SARs activity report, glossary code and reporting routes”. It was published on 16th of January 2017. This can be found on the NCA website and gives you all the relevant information.

But to sort of paraphrase the guidance today if you suspect money laundering or terrorist financing you must submit a SAR to the NCA. If at the same time you think you are dealing with a life-threatening situation or a situation where you think would normally ring 999 then make the call and report that crime or incidence.

Contacting 999 or contacting the appropriate agency by other means has to be your first priority. If you are in any doubt, should I ring 999, think “what would an average person and what would an average person think necessary?”

If the answer is, they would probably ring 999, then ring 999 or the appropriate agency. Keep a record of the officer or person you spoke to and then record that in your SAR.

There are some good examples of this in the guidance document on the NCA website, again it is called “SARs activity report, glossary code and reporting routes”. It was made on the 16th of January 2017.

CW: Thanks Tony. So, can reporters decide to withdraw a DAML request?

TF: Yes, they can, only within the notice period where the funds subject to disclosure remain under the control of the reporter and prior to any decision being communicated by the NCA. For instance, if the planned activity is no longer to go ahead. However, the SAR itself will not be removed from the system.

If a reporter no longer wishes the NCA to consider it’s request for a DAML then a request can be made but it must be made in writing and it must be put in email, and the email address is daml@nca.xgsi.gov.uk. So, you must put it in writing, and you must put it in an email. The NCA will retain the information and it might be used for intelligence purposes.

CW: Thanks Tony. Next question we have; can reports discuss the submission of their SAR with anyone?

TF: Simply put you should not discuss the fact of making a SAR with anyone if that risks prejudice of any investigation.

Once a SAR has been submitted, all reporters should be mindful of the offences under the Proceeds of Crime Act and they all relate to a phrase called “tipping off”, and they are section 333a and section 342. It’s all about whether or not you are going to prejudice an investigation.

There are however some exceptions to this rule. I suggest you get legal advice on this matter and if you look under section 33b or section 33c or 33d, the Proceeds of Crime Act you will see what those exceptions are, but I must stress I’d always advice seek independent legal advice on point.

CW: Ok. So, a reporter receives a DAML from the NC, can they proceed?

TF: It’s a matter of each reporter to determine whether or not they should proceed, taking into account what I mentioned earlier on regarding the ethical, legal, and regulatory obligations, as well as other commercial considerations.

You should consider your next steps carefully and should not take the NCA’s granted letter as a ‘permission to proceed’. You have a defence to specific offences in Proceeds of Crime Act but not to any other criminal offences, for example you’ve got no defence to anything in relation to fraud, or in relation to bribery, or in relation to the Money Laundering Regulations 2017.

CW: Thanks Tony. So, moving on, a DAML has been refused; what should the reporter do now?

TF: Well that’s when the moratorium kicks in. The Moratorium Period now starts and during this period, a bit similar to the Notice Period, you should not carry out the act that is the subject of your DAML request.

It is likely that you will be contacted by a law enforcement investigation team who may wish to obtain further information to inform any action they may take.

Please keep the NCA informed if refusal to provide a DAML causes serious issues, such as any threat of litigation or any significant financial loss, or any significant threat to life.

CW: I see, ok thank you Tony. From an administration point of view and getting correct information to the right people, obviously it is important to get a refusal DAML to the right person as soon as possible.

I guess the reporters correct contact details are imperative, how can reporters update their contact details?

TF: That’s a very good point Claire, and I must stress it’s very important that the NCA has an up-to-date contact list for the firms disclosing SARs. If a simple contact update is required, then contact SAR Online team and they will be able to assist.

A full change in Money Laundering Reporting Officer details will require the reporter to re-register via the SAR Online, so if it is a significant change, you must re-register via SAR Online.

Again, a link on how you can do this can be found on the NCA website.

CW: Thanks for that Tony. So, can reports talk to police or other law enforcement regarding their DAML disclosures?

TF: That’s a good question and we get that asked quite a lot. The NCA may refer your SAR or DAML to the police or other law enforcement bodies as part of the natural DAML process.

Such law enforcement agencies may contact you for further information or discuss the circumstances of your disclosure in more detail.

If you are contacted by the police or other law enforcement we recommend that firstly you verify they are and that you make sure they are the people that you can talk to, for instance you might consider ringing them back via the force or agency switchboard.

SAR intelligence can only be shared with certain accredited individuals within law enforcement, normally financial investigators, or financial intelligence officers and so the individuals contacting you should hold one of those accreditations.

You should not assume that all law enforcement officers should be privy to your SAR information.

CW: Ok so to sum up Tony, where can the viewers of this video get written guidance on DAMLs?

TF: Well there’s lots of information on the NCA website, and if you go to the NCA website there’s a lot of documents you can use with hyperlinks and useful contact numbers.

One important document that I’d recommend that you read is a document called the “DAML FAQ” which we published in May 2018. If you google “DAML FAQ” it will take you straight to that document.

In relation to making DAMLs that’s very, very good but I’ll leave some contact numbers and some signposts of useful websites in a slide at the end of this presentation.

CW: Ok thanks Tony. So, to conclude, thank you very much for watching this video today about how to submit DAML SARs.

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