CMS Expert Guide To Mandatory Reporting Of Criminal Offences For Companies And Their Responsible Persons in the United Kingdom

Money Laundering

Under the Proceeds of Crime Act 2002 and associated regulations, persons in the regulated sector ¹  (e.g. solicitors, accountants, auditors, financial institutions, tax advisers, estate agencies, casino operators, cryptoasset exchange providers or custodian wallet providers) commit an offence if:

1. they know, suspect, or have reasonable grounds for knowing or suspecting that another person is engaged in money laundering ² ,
2. that information has come to them in the course of their business in the regulated sector, and
3. they fail to make an authorised disclosure to their nominated officer or directly to the appropriate authority ³ . 

It is a defence for a person to show they had a reasonable excuse for not making the required disclosure, or where a person is a professional legal adviser and the information which gives him/her grounds to suspect money laundering came to him/her is legally privileged.

The maximum penalty is a custodial sentence of 5 years and/or a fine ⁴ .

Terrorist Financing

Persons in the regulated sector who believe or suspect that another person has committed any of the following offences must report that belief or suspicion to the police ⁵ :

1. Fund-raising for terrorism ⁶ ,
2. Use and possession of money/other property for terrorism ⁷ ,
3. Entering into/becoming concerned in funding arrangements for terrorism ⁸ ,
4. Insurance payments made in response to terrorist demands ⁹ ,
5. Money laundering for terrorist property ¹⁰ .

The same duty applies to those whose belief or suspicion arises from them carrying out their trade, profession or business or in the course of their employment.

An offence is committed if a person does not disclose their belief or suspicion and the information on which it is based as soon as is reasonably practicable.  The offence is punishable by a maximum of 5 years imprisonment or a fine or both ¹¹ .

Sanctions  - Financial and Trade

UK financial sanctions apply to all persons within the territory and territorial sea of the UK and to all UK persons ¹²  (including legal persons established under UK law) wherever they are in the world.

Relevant firms are required to inform the Office of Financial Sanctions Implementation (OFSI) as soon as practicable if they know or reasonably suspect a person is a designated person or has breached a prohibition or failed to comply with an obligation under the UK sanctions regulations, where that information is received in the course of carrying on their business.  Failure to do so is a criminal offence under the relevant sanctions regime ¹³ . 

Sanctions offences can be dealt with by way of criminal prosecution or (civil) monetary penalty.

In determining whether to pursue a criminal prosecution or civil penalty, OFSI will consider whether the breach was self-disclosed fully and promptly, the level of co-operation with any enquiry and action being taken to improve future compliance. 

The maximum penalty for a criminal offence is 7 years’ imprisonment.  In England and Wales, a Deferred Prosecution Agreement may be an option for disposal of a criminal prosecution.  For (civil) monetary penalties, the maximum value may range from 50% of the total breach up to £1 million, whichever is greater.

Similarly, providers of financial or legal services, or a money service business, may be prosecuted or subject to civil penalty if they fail to report suspected breaches of trade sanctions to the Office of Trade Sanctions Implementation (OTSI) ¹⁴ .

Miscellaneous Offences

There are certain additional specific criminal offences which must be reported. These are less likely to be relevant to the day to day business of a corporate entity. They include obligations on drivers to report road traffic accidents causing serious harm, and separate obligations on health and education professionals, and the providers of certain activities, concerning the welfare of children and vulnerable adults.

Scotland only – Duty to Report Serious organised crime

In Scotland, if a person has knowledge or suspicion that another person has participated in or directed serious organised crime and that information has come to them in the course of their trade, profession, business or employment [or as a result of their close personal relationship with that other person], they must report this to the police ¹⁵ .  Failure to do so is an offence punishable by 5 years imprisonment or a fine or both.  Serious organised crime is broadly defined; two or more people acting together to commit an indictable offence with the intention of obtaining a material benefit for any person.  [Material Benefit covers a right or interest of any description in any property, whether heritable or moveable, corporeal or incorporeal ¹⁶ .  Such a broad definition could include most forms of financial or regulatory crime provided the perpetrator is not acting alone [and the other person knows or suspects, or ought to have known or suspected that the doing of that thing will enable or further the commission of serious organised crime].

Money laundering and Terrorist Financing

Knowledge or suspicion of money laundering and terrorist financing offences should be reported to the National Crime Agency (NCA).  For money laundering, this should be reported by the company’s nominated officers.  For terrorist financing suspicions, the duty to report rests with the person who has the suspicion unless their employer has a disclosure procedure and the person has followed that disclosure procedure.  This is all done through the Suspicious Activity Reporting (SAR) regime ¹⁷ .

Sanctions

The duty to report belongs to the “relevant institution” as a legal entity.  Regulations do not specify who must submit such reports, but in practice the nominated officer will often take on this role. Disclosure of suspected breach of financial sanctions is made to OFSI and of trade sanctions is made to OTSI.

Scotland only – Serious Organised Crime

The duty to report is a personal one, resting with the person who has the suspicion, rather than their employer.  Disclosure must be made to a police constable.

As outlined above, the risks of failing to report a knowledge, belief or suspicion of a criminal offence of money laundering, terrorist financing, sanctions offences or other relevant offences are prosecution for that failure .  This will inherently include the reputational and legal risks from such a prosecution.

“Failure to prevent” offences

There is a category of offending in the UK in respect of which it is generally advisable to report to the authorities, if discovered.  Whilst no criminal liability arises from not reporting such offending, “failure to prevent” offences could be triggered if the suspected offending is not reported and is later discovered/investigated by the authorities.

A body corporate can be prosecuted for failing to prevent the following offences if committed by an associated person;

1. Bribery ¹⁸
2. Tax Evasion ¹⁹
3. Fraud ²⁰

[In respect of the last category, failure to prevent fraud, the offence can only be committed by “large organisations”]

A defence is available if the organisation is able to show that it had in place adequate/reasonable procedures to prevent the predicate offence being committed by associated persons.  Government guidance is available in respect of each of the three regimes about procedures/processes that relevant bodies can put in place to prevent persons associated with them from committing relevant offences ^{21   22   23} .

Self-Reporting / Deferred Prosecution Agreements – Bribery and Fraud – England, Wales & Northern Ireland

There is a presumption in favour of being invited to enter into Deferred Prosecution Agreement (“DPA”) negotiations if an organisation promptly reports suspected bribery or fraud and co-operates fully with the SFO. ²⁴  

Notably, the SFO now states that a knowing failure to make a prompt self-report is a public-interest factor in favour of prosecution and can forfeit DPA eligibility unless the person later offers exemplary co-operation. ²⁵

Self-Reporting – Scotland

Bribery and fraud can be reported in Scotland under a separate self-report scheme ²⁶ .  Under the Scottish self-report scheme, the Crown may refer the matter for civil settlement rather than prosecution or deferred prosecution.

Failure to prevent Tax evasion

Where an organisation has failed to prevent an associated person from criminally facilitating UK tax evasion, this should be reported to HMRC ²⁷ .  In England, Wales and Northern Ireland, there would be a presumption in favour of the DPA route if a self-report is submitted.  In Scotland, the self-report scheme also does not extend to the failure to prevent tax evasion offence.

Cartel offences

There is no duty to report participation in a criminal cartel, but it may be in the best interests of a business which has participated in a cartel to self-report – such businesses may receive total or partial immunity from financial penalties and criminal prosecution if certain conditions are met.  Provided an investigation has not already begun by the Competition and Market Authority (“CMA”), the first cartel member to report and provide evidence of the cartel will be granted total immunity.  Thereafter the level of leniency available depends on whether the CMA has begun an investigation or whether another business has already reported the cartel activity ²⁸ .

Bribery, tax evasion and fraud

There is always a risk, however small, that the SFO/CPS will decide that a deferred prosecution agreement (or in Scotland, the self-report scheme) is not appropriate in the circumstances, or that sufficient co-operation has not been given.

Cartel offences

The risk arises that a business is not the first to report the criminal cartel and therefore is not entitled to benefit from full leniency.

Criminal exposure is not confined to the principal offenders. Anyone who aids, abets, counsels or procures the commission of an offence may be investigated and prosecuted alongside them.

The Serious Crime Act 2007 goes further: any act that is capable of encouraging or assisting a crime, carried out with intent that the crime be committed, constitutes an offence in its own right, and the maximum sentence mirrors that of the anticipated offence. ²⁹

A separate liability arises where a person, knowing or believing that an indictable offence has been committed, accepts or agrees to accept ”consideration” for remaining silent. That conduct is an offence and is punishable by up to two years’ imprisonment or an unlimited fine. ³⁰

Positive action designed to impede an offender’s arrest or prosecution (for example, supplying misleading information) may constitute “assisting an offender”. ³¹   The maximum penalty can reach ten years’ imprisonment, depending on the gravity of the original offence; mere non-reporting is not enough—there must be an affirmative act.

More serious still is perverting the course of justice at common law, which covers conduct such as destroying evidence or intimidating witnesses. This offence is indictable only and carries a maximum sentence of life imprisonment. ³²

Deliberately hindering a constable in the execution of duty (for example, by giving false particulars) constitutes the summary offence of wilful obstruction, punishable by up to one month’s imprisonment or a level-3 fine. ³³  In rare cases, refusing, without lawful excuse, to assist a constable when personally called upon can also be prosecuted at common law.

Where a business self-reports, there is no guarantee that the individuals involved will not be investigated for their role in the criminal conduct.  If an individual has been found to have aided, abetted, counselled or procured the commission of an offence by the company, they could find themselves prosecuted for their involvement.

For cartel offences, only where the business is the first to report their involvement in the cartel and no investigation has begun would individuals at the business who were directly involved in the cartel be immune from prosecution.