Case Study 11.2: The Defence SAR — When You Need to Act Before You Can Report

The Situation

Organization: A UK regulated law firm (fictional: Hargreaves & Partners LLP) in the property conveyancing sector Challenge: A client has instructed the firm to complete a property purchase using funds that the conveyancing partner suspects are proceeds of crime Legal context: Under UK law, regulated sector professionals (including solicitors) have the same SAR filing obligations as financial institutions under POCA 2002

Background: The Conveyancing Problem

Hargreaves & Partners LLP is a mid-size law firm with a significant residential conveyancing practice. In UK property transactions, solicitors routinely hold client funds in their client accounts — receiving the buyer's purchase funds, conducting the transaction, and disbursing the proceeds.

In October 2022, Margaret Yates, a conveyancing partner at Hargreaves, received new instructions from an existing client: Mr. Obi Nwosu (fictional) wished to purchase a £480,000 residential property in London. Mr. Nwosu had used Hargreaves for a previous property purchase in 2019.

The due diligence process began in the ordinary way. Margaret requested proof of funds for the purchase price. Mr. Nwosu provided bank statements showing approximately £510,000 in a UK bank account.

As Margaret reviewed the bank statements, something caught her attention. In the two months before the statements were provided, the account had received 14 wire transfers from a series of companies with Eastern European-sounding names, ranging from £25,000 to £45,000 each, totaling approximately £480,000. Prior to those wire transfers, the account balance had been approximately £30,000.

Mr. Nwosu had previously described himself as a "business consultant." The rapid aggregation of £480,000 from fourteen international counterparties over two months, arriving immediately before a major property purchase, was not immediately explained by "business consultancy."

The Legal Dilemma

Margaret consulted the firm's Money Laundering Reporting Officer (MLRO), a partner named David Chen.

David's analysis:

The objective facts: 1. Fourteen international wire transfers, totaling approximately £480,000, had landed in the client's UK account in the preceding two months 2. The sources of those transfers were not identifiable corporate entities that David could verify through any readily available public source 3. The timing coincided precisely with the property purchase instructions 4. No plausible legitimate explanation had been offered by the client

The legal question: Did David know or suspect that the £480,000 represented proceeds of crime?

David's judgment: he was not certain. He did not "know" — he had no evidence of specific criminal activity. But he did "suspect" — the pattern was sufficiently unusual, the unexplained international funding was inconsistent with the client's stated business purpose, and the timing was too precise to be coincidental.

Under POCA 2002, an MLRO who suspects but proceeds to complete the transaction (receiving the client's funds into the firm's client account and applying them to the property purchase) would be committing a money laundering offence — "becoming concerned in an arrangement" that facilitates money laundering.

The options: 1. Decline the instructions immediately — avoid the compliance risk entirely 2. Seek additional information from the client before deciding 3. File a "Defence SAR" (appropriate consent request) with the NCA, seeking permission to proceed if consent is granted

The Defence SAR Mechanism

David chose Option 3 — file a Defence SAR and wait for NCA consent.

Under POCA 2002, a regulated firm can seek an "appropriate consent" from the NCA before proceeding with a transaction it suspects involves money laundering. This mechanism:

• Protects the firm: If consent is granted (or if 7 working days pass without refusal), the firm can proceed without committing a money laundering offence
• Creates a 7-working-day window: The NCA has 7 working days to refuse consent (the "moratorium period"). If no refusal is issued within 7 days, the firm can proceed.
• Can be extended: If the NCA refuses consent, it can extend the moratorium for a further 31 days to allow law enforcement to take action.

David drafted and filed a Defence SAR on October 14. The narrative described: - The identity of the client and the proposed transaction - The funds: 14 wire transfers from unverified international counterparties totaling £480,000 over two months - The suspicion: pattern inconsistent with stated client business; timing coincidental with property purchase - The specific consent sought: permission to receive and apply the client's funds to complete the property purchase

The firm's obligation: not to tip off Mr. Nwosu that a SAR had been filed.

The Moratorium Period

The seven working days that followed were operationally challenging.

Mr. Nwosu had an exchange of contracts deadline — October 21. The Defence SAR was filed October 14. Seven working days from October 14 landed on October 24 (accounting for weekends) — three days after the exchange deadline.

David's advice to Margaret: "We cannot exchange contracts before October 24. We cannot tell the client why. We need to find a way to delay without disclosing."

Margaret called the client's estate agent with a manufactured administrative reason for the delay. The estate agent was frustrated but agreed to a short extension.

On October 21 — the original exchange deadline, and day 5 of the moratorium — the NCA refused consent. The refusal was communicated to the firm via the NCA's online portal. The moratorium was extended for 31 additional days.

The 31-Day Extension

During the 31-day extension: - The firm could not proceed with the transaction - The firm could not tell the client why - Law enforcement was presumably investigating

This created an ongoing operational problem. The client was pressing for a completion date. Margaret had now extended the delay with two additional administrative explanations, which were wearing thin. After 18 days of the 31-day extension, Mr. Nwosu threatened to withdraw from the transaction and sue Hargreaves for delays.

David consulted with specialist POCA counsel. The advice: the firm had full POCA immunity (the Defence SAR protected them from criminal liability for the delay); however, civil liability to the client was a separate question. The counsel's view: the civil liability risk was low because the delay was legally mandated — though they could not disclose this to the client.

On day 22 of the 31-day extension period, the firm received a law enforcement production order — a court order requiring Hargreaves to preserve and produce information related to Mr. Nwosu's account and the proposed transaction. This confirmed that law enforcement was actively investigating.

Three days later, Mr. Nwosu was arrested on suspicion of fraud and money laundering.

Post-Arrest Proceedings

Following the arrest: - The property purchase was never completed — the funds in Mr. Nwosu's account were subject to a restraint order - Hargreaves returned the instructions to the client (who was now represented by criminal defence counsel) - David filed a full narrative SAR within 30 days of the defence SAR — providing a complete account of the investigation, the funds, and the transaction

Hargreaves' costs in the matter — the partner time spent managing the defence SAR process, the legal consultations, the administrative work of maintaining the transaction delay without disclosing the reason — were estimated at approximately £8,500.

David's reflection in the firm's post-matter file: "The Defence SAR mechanism worked as intended. We suspected; we reported; we waited; the authorities acted. What it doesn't do is make the intervening 22 days comfortable. We had to manage a frustrated client, an impatient estate agent, and an extension we couldn't explain, all while maintaining confidentiality about the SAR. This is not a comfortable experience. It is the right legal outcome, but nobody at the firm would describe it as an easy process."

Discussion Questions

1. David's decision to file a Defence SAR rather than simply declining the instructions (Option 1) was driven partly by the desire to give law enforcement a window to investigate. Is this an appropriate reason for choosing the Defence SAR route? Or should the primary consideration be protecting the firm from liability — with law enforcement investigation as a beneficial side effect?

2. The "tipping off" prohibition required Hargreaves to delay the transaction without telling the client why. The firm used "administrative" explanations for the delay. Is this ethically acceptable? Where is the line between maintaining SAR confidentiality and actively deceiving the client?

3. The 31-day extension created civil litigation risk for the firm — the client threatened to sue. What legal protections does POCA provide to regulated sector firms that delay transactions while subject to a defence SAR moratorium? Are these protections adequate?

4. Regulated sector professionals (lawyers, accountants, estate agents) have SAR filing obligations under POCA 2002, but their obligations are less well-known than banks'. What are the practical and cultural barriers to SAR compliance in the professional services sector, and how could regulators or professional bodies address them?

5. The firm estimated its Defence SAR costs at approximately £8,500 in partner time. This represents a significant operational cost for a transaction that never completed. How should professional services firms build this cost into their compliance program budgeting — and what structures (technology, process, training) could reduce the cost of managing future Defence SARs?