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The Economic Crime and Corporate Transparency Act 2023 (ECCT Act) has introduced two further exceptions to the need to submit a Defence against Money Laundering (DAML), significantly reducing the administrative burden for financial institutions.
When a financial institution identifies that it is holding the proceeds of crime, it will need to submit a DAML to the National Crime Agency (NCA) to avoid committing money laundering itself. This process is not only time-consuming and costly for financial institutions, but they also have to tread the tightrope of waiting for up to seven days without tipping off their customer before processing the transaction.
On 5 January 2023, the threshold amount for a DAML for operation of an account was raised from £250 to £1,000. This meant that a financial institution could make mortgage payments less than £1,000 without submitting a DAML to the NCA. This did not apply to other actions such as terminating a customer relationship or dealing with mixed funds. Fortunately, the ECCT Act has addressed these concerns.
Under section 182 of the ECCT Act, where a financial institution suspects it is holding the proceeds of crime, provided they have complied with their customer due diligence requirements and the funds are less than £1,000, it can pay away the funds for the purposes of exiting the customer without the need for a DAML. This exception came into force on 26 October 2023.
Section 183 of the ECCT Act enables financial institutions to ring-fence funds they believe are criminal property and transact with legitimate funds without having to file a DAML. For example, where an individual receives a legitimate monthly salary from their employer and have £2,000 from this salary in their bank account. The individual then receives a further £8,000 which the financial institution suspects is the proceeds of drug dealing. The account now contains £10,000. Using the new exemption, the financial institution can allow the customer access to up to £2,000 of their funds without submitting a DAML, as long as a minimum of £8,000 (the value of the suspected criminal funds) is maintained. If the customer wanted to withdraw £2,500, taking the balance to £7,500, a DAML would be required on the £500 that would take the balance below £8,000. This exception is effective from 15 January 2024.
In all three scenarios the financial institution will still need to submit a suspicious activity report (SAR) to the NCA. However no longer be burdened with the additional requirement of filing a DAML. It is crucial for financial institutions to update their anti-money laundering processes to ensure the proper utilisation of these exceptions. Our dedicated Economic Crime Compliance team is available to provide assistance around these exemptions or with reviewing wider economic crime policies.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.
15 January 2024
Insights 27 OCTOBER 2023