UK threshold [£250.00] variations when seeking a defence( DAML) against money laundering

The use of threshold variations when seeking a defence against money laundering

In November 2019, the National Crime Agency (NCA) published its annual Suspicious Activity Reports (SAR) Report for 2018/2019 (the Annual Report).

• https://www.nationalcrimeagency.gov.uk/who-we-are/publications/390-sars-annual-report-2019/file

The Annual Report focused on

• The continued year-on-year uplift in the overall number of SARs, particularly on a significant 52.72% increase in requests for a Defence Against Money Laundering (DAML) SARS.

Eversheds-Sutherland reviewed the key figures at the time of publication, as set out below:   

• Eversheds-Sutherland  - https://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/Corporate_Crime/NCA_s_Annual_SARs_report
• 478,437 SARs received between April 2018 and March 2019 (3.13% increase on the 2017-18 figure of 463,938]
• 34,543 DAML requests (52.72% increase on the previous year’s 22,619) DAML requests, of which 1,372 were refused.
• £131,667,477 denied to criminals due to DAML requests (refused and granted) – up 153.66% on the previous year’s £51,907,067.

‘THRESHOLD AMOUNT’.

One statistic, however, appears to have escaped media attention:

• The number of requests for a variation in the ‘threshold amount’.

What is the threshold amount?

1. Those operating in the regulated sector must report knowledge or suspicion of money laundering to the NCA.
   • Employees must escalate concerns relating to potential money laundering to the Firm’s Money Laundering Reporting Officer (MLRO), who in turn will review the customer activity and externalise a SAR to the NCA where required.
   • Where necessary, the MLRO will request consent from the NCA, in the form of a DAML, in order to proceed with a transaction or activity.
   • The NCA has seven working days in which to refuse consent.
   • If no refusal is received, the firm will have a defence against a possible later charge of laundering the proceeds of crime in respect of that specific transaction or activity.
2. Firms must remain vigilant for any additional transactions by, or instructions from, any customer or account in respect of which a SAR has been made, and should submit further SARs and/or DAMLs to the NCA as appropriate wherever the suspicion remains.
3. However, Section 339A of the Proceeds of Crime Act 2002 (POCA), provides that a deposit -taking body
   • Is permitted to process individual transactions or activity on an account where there is a suspicion of money laundering, so long as those transactions DO NOT EXCEED £250, without the need to request a DAML.
   • The £250 is known as the ‘threshold’ amount and is available only to deposit-taking bodies.
   • A “deposit-taking body” is, by definition, a business which engages in the activity of accepting deposits so has wide coverage and therefore includes most financial institutions.

Threshold Variations

1. These ‘threshold amount’ transactions under £250 often fall into the category of so-called ‘lifestyle’ payments such as regular household bills.
2. The Secretary of State has the power to vary the threshold amount of £250, but it has not been increased since 2002 when the legislation was enacted, meaning that many bills of this sort will exceed the threshold amount.
3. Payments to mortgage, insurance and utility companies, and other general household expenses may well be higher than the threshold amount and would ordinarily need to receive individual consents.
4. However, deposit-taking bodies may also opt for a  ‘threshold variation’ request to avoid the need for multiple requests consent relating to regular payments.
5. POCA makes specific provision for deposit taking institutions to apply to increase the threshold amount.
6. Under section 339A(4) the deposit taker can apply to the NCA to agree a higher threshold amount on the account for regular payments.
7. This application can be made either as part of the initial SAR seeking consent for ongoing payments or at a later stage as part of ongoing management of the account following the SAR.  
8. The application should set out the ‘lifestyle’ payments to be made,  including the maximum amount for each transaction and account details for origin and destination.

Threshold variations: current figures

1. The Annual Report records that just 234 threshold variation requests were received in the reporting period 2018/2019, down from 283 in the previous year.
2. It is surprising that there seem to have been so few applications, particularly given the very high overall numbers of DAMLs, which outnumber variation requests by more than 100 to 1.
3. The Annual Report contains little additional context.
4. It would be helpful to know how many of these applications were granted/refused; the average and highest amounts sought by way of variation; the types of transactions successfully varied; the number of different deposit takers using this provision; and, how long the NCA took on average to deal with these threshold variation requests.
5. However, the NCA is exempt from the Freedom of Information (FOI) provisions and therefore cannot respond to FOI requests for additional data of the type set out above. 
6. The lack of available information is compounded by the absence of any explanatory note for section 339A which was published as an amendment rather than contemporaneously to POCA itself. 
7. Unfortunately, it follows that, unless the NCA chooses to publish additional data regarding these applications in future reports, deposit takers remain somewhat in the dark as to the factors that determine whether a threshold variation application will be successful.  
8. The current lack of provision for ring-fencing of tainted funds means that many firms face significant concerns about how to deal with relatively small regular transactions to recognised entities. So, notwithstanding the lack of precedent or guidance for threshold variations, they are a useful solution for helping to manage accounts where ongoing transactions require consent under POCA..
9. This is particularly so where the potential money laundering activity that has been identified is historic, and the concern arises from a firm’s inability to distinguish between intermingled funds.
10. Deposit-taking bodies should therefore consider whether a threshold variation request may be an appropriate solution to enable a relationship to continue in circumstances where it might otherwise need to be terminated. The case study below shows an example of the type of relationship where an application might be valuable.

Threshold variations: key considerations for deposit-taking bodies

1. A threshold variation request is separate and distinct from a request for a DAML.
2. Importantly, there are no statutory timescales for dealing with requests for a threshold variation which are dealt with by the NCA’s DAML team, and are processed alongside, but do not take priority over, requests for a DAML. In order to facilitate a threshold request, and to ensure it reaches the right destination, reporters should tick the ‘consent’ box on the SAR, but make sure the report contains the word ‘threshold’ in the ‘reason for suspicion’ section.
3. Where making a SAR which incorporates a threshold variation request, the SAR should be submitted in the normal way with the usual information, but should also include the following information:

• The threshold amount sought;
• The account it relates to; and
• Details of the frequency, nature and value of the activity to which the threshold will relate.

4. Where a threshold is already in place and a deposit-taking body wishes to seek a variation to the amounts and/or accounts to which it refers, then the reasons for the variation should be set out in an additional SAR and submitted to the NCA.
5. Deposit taking bodies will need to continue to be mindful of the need to avoid tipping off and therefore careful thought should be applied to how to manage the customer’s expectations during the period whilst the threshold application is considered.
6. This is particularly pertinent given the lack of statutory timescales for receiving a response.
7. In practice, most deposit-takers will find these applications are dealt with relatively swiftly, and usually within the seven-day period that applies to DAML requests

Source

https://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/Financial-services-and-dispute-investigation/threshold_variations_under_POCA