These exemptions will reduce the burden on firms within the regulated sector1 by expanding the situations in which they can deal with suspected criminal property without having to submit a Defence Against Money Laundering (DAML) to the National Crime Agency (NCA) - although in both instances the firm must still report its suspicions of money laundering to the NCA.
Exemption 1 – Exiting business relationships
Section 182 ECCTA amends POCA so that, even if a firm has knowledge or suspicion of criminal property, it can transfer money or other property to a customer in order to exit the business relationship without requiring submission of a DAML. Previously, the firm would have had to request and obtain a DAML before it could take action, which may have required it to wait for up to seven days (sometimes longer) without tipping off the customer.
The provision only applies if the money or value of the property paid away is less than £1,000 and the necessary customer due diligence, in accordance with the firm’s obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, has been conducted. This may seem like a low threshold, but it will simplify a large proportion of account closures.
Exemption 2 - Mixed property
Section 183 ECCTA amends POCA so that firms are able to transfer money or other property from a customer’s account in circumstances where the firm knows or suspects that some, but not all, of that money or property is criminal property and cannot identify the parts that are criminal - provided that the amount remaining in the account equals or exceeds the amount to which the firm’s knowledge or suspicion relates. Previously, firms had to obtain a DAML before making payments from an account which contained a mix of clean funds and suspected criminal property. The exemption effectively operates to ringfence funds which are known or suspected to be criminal.
The Explanatory Notes to the Economic Crime and Corporate Transparency Bill provide the following example: an individual receives a legitimate monthly salary from their employer and has £2,000 from this salary in their bank account. The individual then makes what the bank suspects to be a fraudulent loan application and receives a further £3,000. The account now contains £5,000. Using the exemption, the bank can allow the customer access to up to £2,000 of their funds without submitting a DAML, as long as a minimum of £3,000 (the value of the suspected criminal/dirty funds) is maintained by the bank. If the customer wanted to withdraw £2,500, taking the balance to £2,500, a DAML would be required on the £500 that would take the balance below £3,000.
Although the exemption sounds straightforward on paper, in practice there may be operational difficulties in ensuring compliance.
Note that this exemption comes into force on 15 January 2024.
UK government guidance
On 10 January 2024, the UK government issued guidance on these exemptions, which provide the following clarification:
“The exemptions can be used for the same account or customer, but not within the same transaction because the mixed-property exemption will require the firm to retain at least the value of assets to which the suspicion or ground for suspicion relates and the exit and pay away exemption can only be used when the relationship is being terminated. The mixed-property exemption will operate in parallel to the threshold exemption for transactions below the amount specified in section 339A [of POCA]”.
Next steps
The changes will reduce nugatory regulatory burdens on firms and help them focus their resources on higher value activity, while removing disproportionate delays and inconvenience to customers. Regulated firms should review their anti-money laundering systems and controls to factor in these changes, and to train relevant staff accordingly.
References
1 Some regulated firms may be excluded from the exemptions by statutory instrument.
