6.2 Reporting Obligations, MLRO, and NOCLAR

6.2 Reporting Obligations, MLRO, and NOCLAR

Within the regulated accountancy sector, technical competence in detecting financial crime must be matched by rigorous compliance with statutory disclosure obligations. When an accounting professional encounters evidence or suspicion of financial crime, statutory reporting duties supersede conventional commercial loyalty and ordinary client confidentiality. The UK legislative regime under the Proceeds of Crime Act 2002 (POCA), together with the ethical Non-Compliance with Laws and Regulations (NOCLAR) framework, establishes mandatory reporting pathways backed by severe criminal penalties.

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The Role and Responsibilities of the MLRO

Under the Money Laundering Regulations 2017 (MLR 2017), a regulated firm must establish an appropriate internal reporting route and appoint a Nominated Officer, often called the Money Laundering Reporting Officer (MLRO). A regulated sole trader with no employees acts as the nominated officer personally.

Key Duties of the MLRO

• Internal Compliance Oversight: Establishing, updating, and supervising the firm's anti-money laundering policies, controls, and procedures (PCPs).
• Receiving Internal Disclosures: Acting as the single designated internal recipient for all suspicious activity reports submitted by partners, employees, and subcontracted staff.
• Evaluating Disclosures: Formally investigating internal reports by reviewing client files, accounting ledgers, transaction records, and external intelligence databases.
• External Reporting: Exercising independent professional judgment to determine whether knowledge or suspicion exists, and if so, submitting an external Suspicious Activity Report (SAR) to the National Crime Agency (NCA).

Internal Reporting Protocol for Accounting Technicians

Staff should follow the firm's designated internal route and report promptly to the nominated officer. POCA also recognises disclosure to the NCA/appropriate authority in relevant circumstances; the internal route is the normal way for an employee to discharge the duty while allowing the nominated officer to assess and, where necessary, submit the external SAR. Once an employee submits an internal report containing all relevant facts to the MLRO, their individual statutory disclosure obligation under POCA is fully discharged. The nominated officer then has a separate duty to evaluate the disclosure and submit an external SAR where the statutory test is met; the employee must still avoid tipping off and cooperate with lawful procedures.

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Suspicious Activity Reports (SARs) and DAML Requests

The National Crime Agency (NCA) operates the UK's Financial Intelligence Unit (FIU), analyzing SAR submissions and disseminating financial intelligence to law enforcement bodies.

Knowledge vs. Suspicion

Under POCA, reporting is triggered by either knowledge or suspicion:

• Knowledge: Firm factual evidence indicating that criminal property exists and an offence has occurred (e.g., an outright client admission or forged invoices).
• Suspicion: A subjective belief falling short of absolute proof, but grounded in an objective, plausible factual basis. In Da Silva [2006], the Court of Appeal established that suspicion requires "a possibility, which is more than fanciful, that the relevant facts exist." Mere vague discomfort is insufficient, but absolute certainty is not required.

Defence Against Money Laundering (DAML)

When an accountant is asked to process a transaction involving suspected criminal property—such as transferring sale proceeds, completing a business buyout, or distributing client escrow funds—executing that transaction would commit a principal money laundering offence under POCA.

To avoid criminal liability, the firm must request a Defence Against Money Laundering (DAML) (formerly known as seeking consent) from the NCA within its SAR submission:

1. Notice Period: The NCA has 7 working days (starting the day after submission) to review the DAML request. During this period, the firm must freeze the transaction and take no action with the funds.
2. Deemed Consent: If the NCA grants consent, or if 7 working days elapse without a refusal, the firm obtains statutory deemed consent and may execute the transaction.
3. Moratorium Period: If the NCA refuses DAML within 7 working days, a 31-calendar-day moratorium period commences immediately. This provides law enforcement time to gather evidence and secure a court-ordered asset freezing or restraint order. If the moratorium expires without a court order, the firm may proceed. The crown court can grant extensions of the moratorium in 31-day increments up to a statutory maximum of 186 days.

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Statutory Criminal Offences under POCA 2002

POCA creates two categories of offences: principal money laundering offences (applicable to all persons) and regulated sector offences (enforceable against professionals).

1. Principal Offences (Sections 327, 328, 329)

These apply universally across society. Maximum penalty: up to 14 years imprisonment and/or an unlimited fine.

• Section 327 (Concealing): Concealing, disguising, converting, or transferring criminal property, or removing it from the UK.
• Section 328 (Arrangements): Entering into or becoming concerned in an arrangement that the person knows or suspects facilitates the acquisition, retention, use, or control of criminal property by or on behalf of another person. Accounting technicians face direct exposure under Section 328 if they prepare financial accounts, set up company structures, or process payments knowing or suspecting illicit funds are involved.
• Section 329 (Acquisition, Use, and Possession): Acquiring, using, or possessing criminal property. (A statutory defense exists if property was acquired for adequate consideration, though professional fees paid from known criminal funds are not exempt).

2. Failure to Disclose (Section 330 and 331)

• Applies specifically to individuals operating within the regulated sector. Maximum penalty: up to 5 years imprisonment and/or an unlimited fine.
• The Objective Standard: An offence is committed if an individual knows, suspects, or has reasonable grounds for knowing or suspecting that another person is engaged in money laundering, the information came to them in the regulated sector, and they fail to disclose it to the MLRO or NCA as soon as practicable.
• An accountant can be convicted even without subjective knowledge if an objectively reasonable professional reviewing the same information would have suspected money laundering.

3. Tipping Off (Section 333A)

• Maximum penalty: up to 2 years imprisonment and/or an unlimited fine.
• It is a crime to disclose to the client or any third party that an internal disclosure or an external SAR has been filed, or that a money laundering investigation is contemplated or underway, where that disclosure is likely to prejudice any investigation.
• Telling a client "The bank froze your transfer because we had to submit a SAR to the NCA" constitutes tipping off.

4. Prejudicing an Investigation (Section 342)

• Maximum penalty: up to 5 years imprisonment.
• Knowing or suspecting that an investigation into money laundering is underway or imminent, and making disclosures likely to prejudice it, or falsifying, concealing, destroying, or disposing of relevant documents.

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Summary of POCA Offences, Penalties, and Defences

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Non-Compliance with Laws and Regulations (NOCLAR)

Accountants often encounter wrongdoing beyond money laundering, such as environmental violations, workplace safety breaches, corruption, or tax fraud. The Non-Compliance with Laws and Regulations (NOCLAR) framework—embedded in the international IESBA Code and adopted by the AAT Code of Professional Ethics—governs the accountant's professional responsibilities.

Scope of NOCLAR

NOCLAR applies to acts of omission or commission committed by a client, employer, management, or employees contrary to prevailing laws and regulations.

• Included: Laws governing financial reporting, fraud, corruption, bribery, money laundering, tax liabilities, environmental protection, and public health and safety.
• Excluded: Matters that are clearly inconsequential or personal misconduct unrelated to the entity's commercial affairs.

NOCLAR Protocol: Escalation and Overriding Confidentiality

When encountering actual or suspected non-compliance:

1. Understand the Matter: Obtain an understanding of the legal breach, its circumstances, and its potential impact on stakeholders.
2. Escalate Internally: Raise the matter with immediate management. If management fails to act, escalate to those charged with governance (such as the board of directors or the audit committee) to enable them to remediate the breach.
3. Evaluate Governance Response: If management and governance fail to take appropriate action, determine whether further action is needed in the public interest.
4. External Disclosure Overriding Confidentiality: External disclosure is appropriate only when it is required or permitted by law or the professional Code after considering the circumstances and, where appropriate, taking confidential legal or professional advice. A general belief that disclosure is in the public interest does not create an unlimited exception to confidentiality.

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Corporate Criminal Legislation: Bribery Act 2010 and Criminal Finances Act 2017

In addition to individual liability, accounting technicians must advise commercial clients on corporate criminal liability regimes:

Bribery Act 2010

The Bribery Act 2010 establishes four criminal offences:

• Section 1: Offering, promising, or giving a bribe.
• Section 2: Requesting, agreeing to receive, or accepting a bribe.
• Section 6: Bribing a foreign public official to obtain or retain business. Small "facilitation payments" (routine grease payments) are illegal bribes under UK law.
• Section 7 (Corporate Offence): A commercial organisation commits a strict liability corporate offence if an associated person (employee, agent, intermediary, subsidiary) bribes another person intending to obtain or retain business for the organisation.
• Adequate Procedures Defence: A company can escape Section 7 liability only by proving it had in place adequate procedures to prevent bribery, structured around six statutory principles: proportionate procedures, top-level commitment, risk assessment, due diligence, communication and training, and monitoring and review. Penalties include unlimited corporate fines and up to 10 years imprisonment for individuals.

Criminal Finances Act 2017

The Criminal Finances Act 2017 introduced corporate criminal offences for the failure to prevent the criminal facilitation of tax evasion:

• Section 45 & 46: A commercial organisation commits a strict liability offence if a person associated with it criminally facilitates tax evasion (either UK domestic tax evasion or foreign tax evasion).
• Statutory Defence: The organisation must prove it had in place reasonable prevention procedures to stop associated persons from facilitating tax evasion. Sanctions include unlimited corporate fines and mandatory confiscation orders.