Barriers to AML Compliance

The assignment analyzes the reasons behind the difficulties financial institutions encounter when attempting to comply with Anti-Money Laundering (AML) regulations. It delves into factors that hinder their ability to effectively follow instructions provided by clients and customers regarding AML compliance. The analysis draws upon academic sources and legal frameworks to shed light on this complex issue.

BANKING LAW

“Critically explain the law underlying the submission of a suspicious activity report
and analyse how a bank might avoid liability for breaching obligations owed to
customers in complying with the United Kingdom’s anti-money laundering regime”
Banking law particularly includes various rules and federal regulations which
are designed for financial institutions. The individuals working in the area of
regulation are responsible to handle customer disputes, complaints made against bank,
handling complex litigation between national and international institutions, their
investors, the government as well as other parties. There have been seen large number
of regulations which are to be strictly complied by law. Including this, the area of
banking law also covers different transactions held between financial institutions such
as banks and its customers.1The issue of money laundering has been increased
globally which has facilitated international banks to manage their cross-border anti-
money laundering efforts so as to carry out an effective identification of individuals
involved in money laundering or entities financing terrorism.
Financial banks are needed to disclose information about whom money
laundering disclosures have been made. The financial institutions also need to offer
information about the customers who could expose banks to be liable for losses held
to them just due to banks' money laundering disclosures. For this purpose,
organizations generally designs SAR (Suspicious Activity Report), financial
institutions is further known as a piece of evidence which sirens for enforcing law for
some client/customer’s activity that are in some way suspicious and could cause to
money laundering or terrorist financing (Money Laundering Regulation Compliance;
Risks and Costs. 2016). The unit herewith defines the law underlying the submission
of a suspicious activity report while putting a particular consideration to Money
Laundering Regulations. Here, a specific focus is given to United Kingdom’s anti-
money laundering regime and the situations where bank might avoid liability for
breaching obligations owed to customers,which are specifically explained with real
case examples.
1Lovett, William, and Michael Malloy. Banking and Financial Institutions Law in a Nutshell, 8th. West
Academic, [2014].

Law underlying the submission of a suspicious activity report
Before considering the laws, it is important to know about the suspicious
transaction or activity. As defined by HM Revenue & Customs, there are many
reasons for which a corporate entity and its employees might become suspicious about
a transaction or activity. Often, the activities become suspicious because, these are
unusual for business, nonetheless, a customer possibly has tried to make extreme large
cash payment2.Within banking business, it is often seen that customers transact
frequently, but, when the large amount is transacted by regular customers who do not
usually transact in such limit may be considered as a suspicious activity occurred in
the business.Some customers behave strangely; even they makeunusual requests what
do not have any sense, it turns employees to suspect them. The most important for
banks is to carefully look into all unusual transactions so as to view, if there is
anything suspicious about an activity (GOV.UK, 2016)
The report for suspicious transaction or activity can be made by anyone in the
organization; however, they need to be aware of the ‘nominated officer’. Then, the
nominated officer becomes responsible to choose whether a report or disclosurethe
incident to the National Crime Agency (NCA). For this, they have to make a
Suspicious Activity Report. The nominated officers in the banks have the right to
suspend the transaction in case, the activity is suspected under money laundering or
terrorist financing. However, in the practical scenario, it becomes unsafe to suspend
the transaction, than nominated people must make the report as soon as possible later
the business activity is completed3. Furthermore, NCA collects and examines
Suspicious Activity Reports, and use such to identify the proceeds of crime, and if, it
counters money laundering and terrorism, then the case information is passed to law
enforcement agencies.
2 GOV.UK, 2016. Money Laundering Regulations: report suspicious activities. [Online]. Available
through: < https://www.gov.uk/guidance/money-laundering-regulations-report-suspicious-
activities>. [Accessed on 19th July 2016].
3 Money Laundering Regulation Compliance; Risks and Costs. 2016. Available through:
<https://www.slaughterandmay.com/media/559043/an_introduction_to_the_uk_anti_-
_money_laundering_regime.pdf>. [Accessed on 19th July 2016].

The main purpose of submitting SAR is to provide valuable information on
potential criminality and to gain a legal protection for UK financial institutions and
other organizations form the risk of laundering the proceeds of crime. The corporate
entity especially SAR are compiled with any potential obligations which lays under
the Proceeds of Crime Act. A Suspicious Activity Report is to be submitted just after
knowing or suspecting an individual who is engaged in money laundering or dealing
in criminal property. Nonetheless, it is important for all the users of SARs to adhere
the detailed guidelines related to protect the confidentiality of SARs. As soon as a
Suspicious Activity Report is received, it must be kept secure in database where a
limited access to suitable law enforcement and government agency staff. The financial
institute must take care that client/customer should not be aware about SAR which
leads to an investigation being prejudiced4.
The Suspicious Activity Report can be submitted via online, fax as well as can
be post or courier. However, Banks and other financial bodies could not proceed
without having any consent from the National Crime Agency, in case an activity
increases uncertainties of money laundering or terrorist financing. After the
submission of SAR, the NCA usually respond within 7 days of receiving a submitted
Suspicious Activity Report. Nonetheless, if no reply from the side of NCA is there
then organizations can proceed with the transaction or activity and this will not be an
offence as their consent is automatically assumed in law if no decision received from
NCA.it might be possible that, NCA sends decision for not to proceed within 7 days
then further 31 calendar days to take action. Some points are to be considered while
submitting SAR repot, whereas, SAR online form is to be used. The benefits of using
SAR online is that it facilitates a secure transmission and promptresponse with a
reference number the major benefits for NCA, is that it decreases processing time and
responding fact to the SAR submitted. In case, it found difficulty in responding online
then it becomes mandatory to use hard-copy reporting for which NCA standard forms
is to be accessed to ensure that it does not take a long processing time and reduces
errors in interpretation. The supporting documents must not be send with report if
they are not asked by NCA. All the information asked in standard form must be filled
4 Murray, Kenneth. "Dismantling organised crime groups through enforcement of the POCA
money laundering offences." Journal of Money Laundering Control 13, no. 1 [2010]: 7-14.

so that Suspicious Activity Report can be decided by NCA in an effective manner and
corrective actions can be taken.
Analyse how a bank might avoid liability for breaching obligations owed to customers
in complying with the United Kingdom’s anti-money laundering regime
Banks and financial institutions are obliged to follow the guidelines included
in Proceeds of Crime Act 2002 (POCA) which are further necessary to be aware of
the regulatory aspects of the sector so as to report information or suspicion of money
laundering in a standard manner. A financial institute or a bank which is concerned
for possibly committing a money laundering offence can make a report to National
Crime Agency (NCA). However, the institutions are obliged to make confidentiality
into transaction made by client and customers, but in case they have any doubt then
the transactions of customers are not justifiable and then they become liable to the
government to make a Suspicious Activity Report to NCA5. The guidelines of
Proceeds of Crime Act 2002 (POCA) facilitates financial institutions to deal with the
customers who are making suspicious transactions with their banks, it reduces the
chances of financial crime such as money launderings. The occurrence of these
activities narrow down the liability for breaching obligations of bank owed to
customers to make confidentiality in the activities6.
According to an illustration, in case a bank is suspicious about particular
transaction made by the customers then they must carry out the transaction to
National Crime Agency (NCA) for resolving the issue. In case an organization,
specifically a financial institute submits a SAR for seeking for a consent to proceed on
a suspicious activity; it is evident that it is protected from committing a money
laundering offence under the act of POCA. However, many of the time during
suspicious transactions, the banks face difficulties related to dealing with customers
when SAR is made to NCA. The employees of a banks are often in a confusion as
how to deal with its client in the intervening period at the time when response of
5 Hamin, Zaiton, Wan Rosalili Wan Rosli, Normah Omar, and
AwangArmadajayaPengiranAwang Mahmud. "Configuring criminal proceeds in money
laundering cases in the UK." Journal of Money Laundering Control 17, no. 4 [2014]: 374-384.
6 Steiner, James E. "More is better: The analytic case for a robust suspicious activity reports
program." Homeland Security Affairs 6, no. 3 [2010].

National Crime agency is being awaited on Suspicious Activity Report, but, it is also
mandatory to bear 'tipping off' provisions included in POCA in the mind.
Furthermore, major difficulties are faced in balancing the legal and regulatory
obligations under POCA and the liability of banks with its customers which is
bounded through a contractual obligation towards customer. This is major reason
with which the financial institutions have been challenged in the courts. The case of
Shah v/s HSBC Private Bank (UK) Limited is a biggest example where bank was
found under a challenging situation of balancing regulatory obligations under POCA
and its contractual obligation towards customer7. The evidence of case represented
that the HSBC bank was claimed for damages after submitting a SAR. The customers
whose transactional request was cited under suspicious act, has faced losses due to
delaying in consent which is being obtained from the NCA. According to the case, Mr
and Mrs Shah were the customers of Zimbabwean based HSBC Private Bank (UK)
Limited. By HSBC banks, the finds in customer’ account were suspected under a
criminal activity, therefore, SAR is submitted in SOCA's (Serious Organised Crime
Agency). In this regard, HSBC sought SOCA’s consent to requests for transferring
amount on four occasions, however, the bank delayed in clearing payments just
because of pending consent from SOCA. In regard to the norms of bank, the
minimum duration among date of the transfer instruction and the payment being made
was 5 days and on the other hand, longest duration for the same was 13 days. The
cited bank has delayed by saying that the transaction made of Mr Shah was overdue
because it is complied with UK statutory obligations on bank. Sudden rumour was
spread that a case was made of Mr Shah because he is suspected of money laundering
in United Kingdom. Soon his investments were seized by Zimbabwean authorities
under suspecting him for money laundering and fraud which further caused him losses
of over US $300 million8. Therefore, a claim was made by Mr and Mrs Shah to HSBC
Bank reveal that the cited bank has breach of contract by failing to process their
7 Zoutendijk, Andries Johannes. "Organised crime threat assessments: a critical review." Crime,
Law and Social Change 54, no. 1 [2010]: 63-86.
8 Smith, H., 2016. Shah v HSBC: High Court clarifies bank's duties to customers when making
SARs. [Online]. Available through: <
http://www.herbertsmithfreehills.com//media/HS/L22%20May%20201281314.pdf>. [Accessed
on 19th July 2016].

payment instructions. The bank was claimed for failing to provide detailed
information and documentary evidence about the reasons for dealing in payments.
From the overall case, it was questioned that whether bank was obliged to wait for
response from SOCA's or it may proceed with transferring amount. As per the
evidence of case, there is a clear deficiency in the legislation because front line
employees of banks have to face criticism, in case they can take an action by
considering as a personal liability under POCA. However, to the reference of herewith
case, the Serious Crime Act 2015 (the SCA) come into force in 2015 under s.37.By
the force of such act, numerous amendments were made to POCA, A serious
amendment was done in s. 338 of POCA (Authorised Disclosures) by including s.
338(4A), according to which, some changes have been made in authorised disclosure
of bank accounts by the authorised persons9.
According to the recent amendment, authorised disclosure is made while
considering a good faith, than in this case no civil liability will come into force, in
respect of disclosing the information to that person on whose behalf authorised
disclosure is carried out. The amendments into POCA have been made after facing the
issue in Shah and HSBC case which are important in dealing with the problems that
restrict the ability of customers to make civil claims against financial institutions
because of such institute comply with Proceeds of Crime Act 2002. Further, it is
specifically noted that this new “tipping off’ provisions made under POCA effects the
liability of banks towards customers but financial institution are also obliged to be in
the good faith at all times while dealing with suspicious activities. The new provisions
held in the scenario bound financial institutions to develop awareness to the need of
adopting stringent processes around SARs while complying with the contractual
liability with customers10. Including this, the legal immunity in regard to suspicious
activities, the financial institutions should demonstrate that their actions are complied
9 Bergström, Maria, Karin Svedberg Helgesson, and Ulrika Mörth. "A New Role for For‐Profit
Actors? The Case of Anti‐Money Laundering and Risk Management." JCMS: Journal of
Common Market Studies 49, no. 5 [2011]: 1043-1064.
10 Money Laundering Regulation Compliance; Risks and Costs. 2016. Available through:
<https://www.slaughterandmay.com/media/559043/an_introduction_to_the_uk_anti_-
_money_laundering_regime.pdf>. [Accessed on 19th July 2016].

with the good faith. The banks must keep a valid argument for the reason for
whichsuspicious activity report is submitted. This should be in accordance with the
reasons for which suspicion is valid and has arisen. This will be key for financial
institutions to demonstrate that it has acted in good faith at all times. However, the
new provision does not limit the liability of banks towards their clients and customers,
even does not prevent a customer complaining. Additionally, it can be quoted that
customers or client have still right to bring a civil action against a financial institution.
However, for banking institutes and their employees, the new provision has came with
an additional form of protection in which they found failure to meet banking
contractual obligation. The case and new provision came with a proof that bank might
avoid liability for breaching obligations owed to customers in complying with the
United Kingdom’s anti-money laundering regime by following POCA’s new
guidelines11.
In summary, it can be said that banks often face difficulty in dealing with
practical issues which can be occurred in the circumstances where bank says money
laundering suspicions to a customer. It has been witnessed that banks run under the
risk of obligating money laundering offences under the Proceeds of Crime Act 2002
(POCA) it they fail to make a Suspicious Activity Report (SAR) towards a customer
who found suspicious in Serious Organised Crime Agency (SOCA)12. The fact is
further noted that after making a SAR to SOCA in regard to a bank account of
customer then it will not remain obliged to make a transaction in respect of the funds
until, the authorised agency do not give a consent to deal with such transactions. This
lead to a situation where banks found themselves under an unenviable position of
being unable to take actions against the customers or to act in accordance with the
instruction given by customers. This situation does not only harm the relations of
banks with their customer but also comes with a risk where customer might incur
11 Beekarry, Navin. "International Anti-Money Laundering and Combating the Financing of
Terrorism Regulatory Strategy: A Critical Analysis of Compliance Determinants in
International Law." Nw. J. Int'l L. & Bus. 31 [2011]: 137.
12 Money Laundering Regulation Compliance; Risks and Costs. 2016. Available through:
<https://www.slaughterandmay.com/media/559043/an_introduction_to_the_uk_anti_-
_money_laundering_regime.pdf>. [Accessed on 19th July 2016].

losses due to inability of banks for acting in accordance with the customer's
instructions13.
In a nutshell, financial are not under obligation to provide an explanation to
clients of customers in relation why they are being suspected and why their
transaction is not proceeded if their account transactions are found suspicious. The
“tipping off" provisions in POCA, entitled banks for not being able to disclose the
customers, for why these institutes are unable to act on instructions provided by the
clients/ customers.
13 Tsingou, Eleni. "Global financial governance and the developing anti-money laundering
regime: what lessons for international political economy?."International Politics 47, no. 6
[2010]: 617-637.

REFERENCES
Beekarry, Navin. "International Anti-Money Laundering and Combating the
Financing of Terrorism Regulatory Strategy: A Critical Analysis of
Compliance Determinants in International Law." Nw. J. Int'l L. & Bus. 31
[2011]: 137.
Bergström, Maria, Karin Svedberg Helgesson, and Ulrika Mörth. "A New Role for
For‐Profit Actors? The Case of Anti‐Money Laundering and Risk
Management." JCMS: Journal of Common Market Studies 49, no. 5 [2011]:
1043-1064.
GOV.UK, 2016. Money Laundering Regulations: report suspicious activities.
[Online]. Available through: < https://www.gov.uk/guidance/money-laundering-
regulations-report-suspicious-activities>. [Accessed on 19th July 2016].
Hamin, Zaiton, Wan Rosalili Wan Rosli, Normah Omar, and
AwangArmadajayaPengiranAwang Mahmud. "Configuring criminal proceeds
in money laundering cases in the UK." Journal of Money Laundering
Control 17, no. 4 [2014]: 374-384.
Lovett, William, and Michael Malloy. Banking and Financial Institutions Law in a
Nutshell, 8th. West Academic, [2014].
Malloy, Michael P. Banking Law and Regulation. Aspen Publishers Online, [2011].
Money Laundering Regulation Compliance; Risks and Costs. 2016. Available
through:
<https://www.slaughterandmay.com/media/559043/an_introduction_to_the_uk_a
nti_-_money_laundering_regime.pdf>. [Accessed on 19th July 2016].
Murray, Kenneth. "Dismantling organised crime groups through enforcement of the
POCA money laundering offences." Journal of Money Laundering Control 13,
no. 1 [2010]: 7-14.
Shehu, Abdullahi Y. "Promoting financial inclusion for effective anti-money
laundering and counter financing of terrorism (AML/CFT)." Crime, law and
social change 57, no. 3 [2012]: 305-323.
Smith, H., 2016. Shah v HSBC: High Court clarifies bank's duties to customers when
making SARs. [Online]. Available through: <
http://www.herbertsmithfreehills.com//media/HS/L22%20May
%20201281314.pdf>. [Accessed on 19th July 2016].
Steiner, James E. "More is better: The analytic case for a robust suspicious activity
reports program." Homeland Security Affairs 6, no. 3 [2010].
Tsingou, Eleni. "Global financial governance and the developing anti-money
laundering regime: what lessons for international political
economy?."International Politics 47, no. 6 [2010]: 617-637.
Zoutendijk, Andries Johannes. "Organised crime threat assessments: a critical
review." Crime, Law and Social Change 54, no. 1 [2010]: 63-86.