Learning Outcomes
After studying this article, you will be able to identify and explain the main money laundering offences under the Proceeds of Crime Act 2002 (POCA 2002), distinguish between direct and non-direct involvement offences, understand the key reporting obligations for solicitors, and apply the main statutory defences. You will also be able to recognise practical scenarios where these rules apply and avoid common pitfalls in SQE1 questions.
SQE1 Syllabus
For SQE1, you are required to understand the legal and practical framework for money laundering and anti-money laundering compliance. In your revision, focus on:
- The definition and stages of money laundering.
- The main direct involvement offences under POCA 2002 (ss 327, 328, 329).
- Non-direct involvement offences, including failure to disclose and tipping off.
- The regulated sector and the reporting obligations for solicitors.
- The main statutory defences to money laundering offences.
- The role of the Money Laundering Reporting Officer (MLRO) and the National Crime Agency (NCA).
- Practical application of anti-money laundering regulations in legal practice.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- Which section of POCA 2002 makes it an offence to conceal, disguise, convert, transfer, or remove criminal property?
- What is the difference between a direct involvement offence and a non-direct involvement offence under POCA 2002?
- What must a solicitor do if they suspect a client is involved in money laundering?
- Name one statutory defence to a money laundering offence under POCA 2002.
- What is the role of the MLRO in a law firm?
Introduction
Money laundering is the process by which criminals attempt to make the proceeds of crime appear legitimate. The Proceeds of Crime Act 2002 (POCA 2002) sets out a comprehensive legal framework to combat money laundering in England and Wales. Solicitors and law firms are subject to strict anti-money laundering (AML) obligations, including reporting duties and compliance with the Money Laundering Regulations 2017. For SQE1, it is essential to distinguish between direct and non-direct involvement offences under POCA 2002, understand the reporting regime, and know the available defences.
The Stages of Money Laundering
Money laundering typically involves three stages:
- Placement – Introducing criminal funds into the financial system.
- Layering – Moving funds through complex transactions to obscure their origin.
- Reintroduction – Reintroducing the funds into the legitimate economy.
Key Term: money laundering
Money laundering is the process of concealing, disguising, or legitimising the proceeds of crime to make them appear lawful.
Direct Involvement Offences under POCA 2002
POCA 2002 creates several offences for those directly handling or assisting criminal property. These are often referred to as "primary" or "direct involvement" offences.
Section 327: Concealing, Disguising, Converting, Transferring, or Removing Criminal Property
Section 327 makes it an offence to conceal, disguise, convert, transfer, or remove criminal property from the UK. The offence applies where a person knows or suspects that the property is the proceeds of crime.
Key Term: criminal property
Criminal property is any property that constitutes or represents a benefit from criminal conduct, and the person knows or suspects this.
Section 328: Arrangements
Section 328 criminalises entering into or becoming concerned in an arrangement which the person knows or suspects facilitates the acquisition, retention, use, or control of criminal property by or on behalf of another person. This is a broad offence and can catch a wide range of professional activities.
Section 329: Acquisition, Use, or Possession
Section 329 makes it an offence to acquire, use, or have possession of criminal property, knowing or suspecting its criminal origin.
Key Term: direct involvement offence
A direct involvement offence is one where a person is actively engaged in handling, moving, or assisting criminal property, knowing or suspecting its criminal origin.
Worked Example 1.1
A solicitor is instructed to transfer £200,000 for a client to purchase a property. The client insists on paying in cash and cannot provide a satisfactory explanation for the source of funds. The solicitor suspects the money may be proceeds of crime but proceeds with the transaction.
Answer: The solicitor risks committing a direct involvement offence under s 327 (concealing or transferring criminal property) and s 329 (acquisition/use/possession), as they have handled funds they suspect are criminal property.
Non-Direct Involvement Offences under POCA 2002
POCA 2002 also creates offences for failures to act when there is knowledge or suspicion of money laundering. These are known as "non-direct involvement" or "secondary" offences.
Section 330: Failure to Disclose (Regulated Sector)
Section 330 makes it an offence for a person working in the regulated sector (including most solicitors) to fail to disclose to the MLRO or NCA if they know, suspect, or have reasonable grounds to know or suspect that another person is engaged in money laundering, and the information came to them in the course of their business.
Key Term: non-direct involvement offence
A non-direct involvement offence is one where a person fails to report knowledge or suspicion of money laundering, or otherwise enables money laundering by omission.
Section 331: Failure to Disclose by Nominated Officers
Section 331 applies to nominated officers (such as the MLRO) who fail to make a disclosure to the NCA after receiving a report from within the firm and having reasonable grounds to suspect money laundering.
Section 333A: Tipping Off
Section 333A makes it an offence to disclose to any person that a suspicious activity report (SAR) has been made, or that an investigation is underway, if that disclosure is likely to prejudice the investigation.
Key Term: tipping off
Tipping off is the offence of informing a person that they are under investigation for money laundering, or that a report has been made, where this could prejudice the investigation.
Worked Example 1.2
A junior solicitor receives information suggesting a client is laundering money. The solicitor does not report this to the MLRO or NCA, believing there is not enough evidence.
Answer: The solicitor may be liable under s 330 for failure to disclose, as the test is whether there were reasonable grounds for suspicion, not just actual knowledge.
The Regulated Sector and Reporting Duties
Solicitors and most law firms are part of the "regulated sector" for anti-money laundering purposes. This brings additional duties, including:
- Conducting customer due diligence (CDD) on clients.
- Appointing a Money Laundering Reporting Officer (MLRO).
- Training staff to recognise and report suspicious activity.
- Making internal reports to the MLRO and, where appropriate, external reports to the NCA.
Key Term: regulated sector
The regulated sector includes businesses and professionals (such as solicitors) subject to anti-money laundering laws and reporting obligations.
Reporting Suspicious Activity
If a solicitor knows or suspects that a client is engaged in money laundering, they must make a disclosure (SAR) to the MLRO or directly to the NCA as soon as practicable. The MLRO will then decide whether to report to the NCA.
Worked Example 1.3
A solicitor is acting for a client in a business purchase. The client asks for funds to be routed through several offshore accounts for "tax reasons." The solicitor becomes suspicious and makes a report to the MLRO, who then files a SAR with the NCA.
Answer: The solicitor has complied with their reporting duty. They must not proceed with the transaction until consent is received from the NCA, or the statutory time period has elapsed.
Defences to Money Laundering Offences
POCA 2002 provides several statutory defences to money laundering offences.
Authorised Disclosure Defence
A person is not guilty of a money laundering offence if, before carrying out the prohibited act, they make an authorised disclosure to the MLRO or NCA and obtain consent (sometimes called "appropriate consent" or "defence against money laundering" (DAML)). If consent is refused, the person must not proceed.
Key Term: authorised disclosure
An authorised disclosure is a report made to the MLRO or NCA before (or, in limited cases, after) a prohibited act, seeking consent to proceed.
Reasonable Excuse Defence
A person may have a defence if they intended to make an authorised disclosure but had a reasonable excuse for not doing so. What amounts to a reasonable excuse is not defined in POCA 2002 and is interpreted narrowly.
Adequate Consideration Defence (Section 329)
For s 329 offences (acquisition, use, or possession), there is a defence if the person acquired, used, or possessed the property for "adequate consideration" (i.e., paid fair market value and did not know or suspect the property was criminal property).
Key Term: adequate consideration
Adequate consideration means paying fair value for property, without knowledge or suspicion that it is criminal property.Key Term: MLRO (Money Laundering Reporting Officer)
The MLRO is the nominated officer in a firm responsible for receiving internal reports of suspicious activity and making external reports to the NCA.
Overseas Conduct Defence
There is a defence if the criminal conduct occurred abroad and was lawful in the country where it took place, and would not be an offence punishable by 12 months or more in the UK.
The Money Laundering Regulations 2017
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) impose further obligations on law firms, including:
- Firm-wide risk assessments.
- Written AML policies and procedures.
- Ongoing staff training.
- Customer due diligence (CDD) and enhanced due diligence (EDD) for high-risk clients.
- Record keeping for at least five years.
Worked Example 1.4
A law firm is instructed to act in a property purchase. The client is a politically exposed person (PEP) from a high-risk jurisdiction. The firm applies enhanced due diligence, obtains extra information, and monitors the transaction closely.
Answer: The firm has complied with its obligations under MLR 2017 by applying EDD to a high-risk client.
Summary
| Offence Type | Section(s) | Description | Who is Liable? | Defence(s) |
|---|---|---|---|---|
| Direct involvement | 327, 328, 329 | Handling, moving, or assisting criminal property | Anyone | Authorised disclosure, adequate consideration, overseas conduct, reasonable excuse |
| Non-direct involvement | 330, 331, 333A | Failure to disclose, tipping off, prejudicing investigation | Regulated sector (solicitors, MLROs) | Authorised disclosure, reasonable excuse, legal privilege, training defence (for s 330) |
Key Point Checklist
This article has covered the following key knowledge points:
- The main money laundering offences under POCA 2002 are ss 327 (concealing etc), 328 (arrangements), and 329 (acquisition/use/possession).
- Direct involvement offences require active handling or assisting criminal property with knowledge or suspicion.
- Non-direct involvement offences include failure to disclose and tipping off, and apply mainly to those in the regulated sector.
- Solicitors must report suspicions of money laundering to the MLRO or NCA as soon as practicable.
- Statutory defences include authorised disclosure, reasonable excuse, adequate consideration (for s 329), and overseas conduct.
- The MLRO is responsible for receiving internal reports and making SARs to the NCA.
- The Money Laundering Regulations 2017 require law firms to have AML policies, conduct CDD, and keep records.
Key Terms and Concepts
- money laundering
- criminal property
- direct involvement offence
- non-direct involvement offence
- tipping off
- regulated sector
- authorised disclosure
- adequate consideration
- MLRO (Money Laundering Reporting Officer)
