The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

The obligations on regulated firms to report suspected money laundering are well known. In an ideal world, the scope of those obligations would be clear and unambiguous. 

Regulatory focus on financial crime and increased sophistication in detection techniques available has increased the burden – not least in trying to unravel that uncertainty. 

The Home Office describes the UK regime as "one of the toughest in the world". However, it suffers from ambiguity leading to inconsistent and precautionary reporting to avoid the potential consequences of getting it wrong overburdening compliance teams and the UK Financial Intelligence Unit.  The reporting regime is currently the subject of a broad reform programme to achieve higher quality SAR / DAML submissions under a new digital SARs service.

However, the wider landscape of uncertainty includes recent decisions by the English courts, overturning precents, sometimes decades' long, on when and what firms should be reporting. 

In the year since the controversial Court of Appeal decision in World Uyghur Congress v NCA confusion persists.  That decision held that the proceeds of crime continue to be the proceeds of crime even if they have passed through the hands of an innocent purchaser for good value.  Previously it was industry and NCA understanding that 'adequate consideration' for such proceeds acted as a 'circuit-breaker' cleansing the property of is criminal status. 

This creates a new paradigm where financial services firms are faced with a much wider set of circumstances in which the freezing and reporting of potentially tainted funds in international supply chains might apply.  Higher scrutiny of transaction monitoring and ongoing due diligence in cross-border financing and trading activity are required. 

The Supreme Court's decision in El-Khouri the Supreme Court also overturned accepted practice. In an extradition case focused considering whether an offence committed outside the UK could be an an offence under UK law, it was alleged that an offence under section 329 POCA (i.e., acquiring, using, or possessing criminal property) was capable of being committed outside the UK. 

Section 340(11)(d) POCA defines money laundering as an act which "would constitute [a money laundering offence] if committed in the United Kingdom".  Overturning more than a decade of accepted practice, the Supreme Court held that s.340 "merely defines" money laundering.  It does not create an offence or extend the territorial scope of POCA: it only catches money laundering in the UK (including offences committed abroad) not 'mere' money laundering committed abroad.

Consequently, where there is no UK nexus there is no obligation to report money laundering committed abroad – even where the UK firm knows money laundering is happening.

Together the two court decisions can result in some unusual scenarios. A UK firm aware of actual off-shore money laundering has no obligation to report - but if those funds are later introduced there could be an obligation to freeze and report given World Uyghur Council.  Where a Firm becomes aware of a historic offshoring from the UK there is no obligation to report, even if it is now aware of the location of the non-UK money laundering.

This places financial institutions in an unenviable position – and requires a much more rigorous approach to record-keeping and review to avoid breaching the rules and facing unwelcome regulatory investigations.