DAML: Defence Against Money Laundering

Defence Against Money Laundering (DAML) refers to a legal provision that allows individuals or institutions in certain jurisdictions, particularly the United Kingdom, to seek consent from competent authorities, typically the National Crime Agency (NCA), before proceeding with a transaction that might otherwise be considered an offense under anti-money laundering laws.

Obtaining a DAML effectively provides a defense against prosecution for money laundering, provided the transaction is carried out within the authorized scope and after due disclosure.

Explanation

The DAML framework is an essential component of the UK’s Suspicious Activity Reports (SARs) regime, governed under the Proceeds of Crime Act 2002 (POCA).

When a person or institution suspects that a transaction involves criminal property but still wishes to proceed with it, they must first submit a SAR to the NCA, requesting a DAML.

This allows law enforcement to assess whether the transaction should be delayed or allowed to proceed.

Without a DAML, moving forward with a transaction that one knows or suspects involves criminal property could amount to committing a money laundering offense.

Therefore, DAML serves as both a compliance mechanism and a protective measure, balancing financial activity with regulatory oversight.

Purpose & Importance

The DAML process ensures that financial institutions, accountants, solicitors, and other regulated entities can fulfill their legal obligations without impeding legitimate business.

It provides:

• Legal Protection: Prevents prosecution for money laundering when proper disclosure and consent procedures are followed.
• Regulatory Compliance: Demonstrates adherence to AML laws and reinforces the organization’s commitment to combating financial crime.
• Operational Continuity: Allows certain transactions to proceed lawfully even when suspicions exist, provided authorities approve.
• Intelligence Gathering: Enables law enforcement to collect valuable financial intelligence on suspicious activities and criminal networks.

The DAML Request Process

• Suspicion Identification: A reporting entity identifies a transaction that raises reasonable suspicion of money laundering or terrorist financing.
• Submission of a SAR: The institution submits a SAR to the NCA, clearly indicating that a DAML is being requested.
• Seven-Day Notice Period: The NCA has seven working days from receipt of the SAR to respond (known as the “notice period”). During this time, the transaction cannot proceed.
• Decision by NCA:
  • If the NCA grants the DAML, the institution can proceed with the transaction without liability.
  • If the NCA refuses, a 31-day moratorium period begins, during which law enforcement can take further action (e.g., investigation, asset restraint).
• Completion of Transaction: If the NCA does not respond within the initial seven-day period, consent is automatically deemed granted, and the transaction can proceed.

Key Legal Foundations

• Proceeds of Crime Act 2002 (POCA): Establishes the requirement to obtain a DAML before conducting potentially suspicious transactions.
• Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs): Reinforces reporting obligations for regulated entities.
• National Crime Agency (NCA): The competent authority responsible for reviewing and issuing DAML responses.

Who Can Request a DAML

DAML requests are typically submitted by entities operating within the regulated sector, including:

• Banks and other financial institutions
• Accountancy and auditing firms
• Legal professionals and solicitors
• Estate agents
• High-value dealers and trust or company service providers (TCSPs)

Unregulated entities may also report suspicions to the NCA voluntarily, though they are not legally required to do so.

Common Scenarios for DAML Requests

• Suspicious Customer Transactions: When a customer requests a transfer that appears to involve criminal property.
• Real Estate Transactions: When property funds may be derived from unlawful activity.
• Corporate Restructuring: If an ownership change involves a party under sanctions or investigation.
• Professional Services: When accountants or lawyers encounter questionable funds while managing client accounts.

Practical Implications for AML/CFT Compliance

The DAML process reinforces the importance of internal controls, record-keeping, and collaboration with law enforcement.

Institutions must:

• Maintain robust Suspicious Activity Reporting (SAR) systems.
• Train employees to recognize red flags and escalation procedures.
• Document all communications with the NCA and transaction outcomes.
• Avoid “tipping off” the client during the process, as this could constitute a criminal offense under AML laws.

Challenges Associated with DAML

While DAML provides valuable legal protection, it presents several operational and compliance challenges:

• Volume of SARs: A high number of reports can overwhelm both reporting entities and law enforcement.
• Response Delays: Extended moratorium periods can disrupt business operations.
• Ambiguity in Interpretation: Determining when to seek DAML can be complex, especially when dealing with low-probability suspicions.
• Confidentiality Risks: Maintaining secrecy during the DAML process is critical to avoid alerting potential criminals.

Recent Developments & Reforms

In recent years, the UK government and the NCA have reviewed the DAML regime to improve efficiency and intelligence quality.

Recommendations from the UK Law Commission include:

• Streamlining the SAR process to reduce unnecessary filings.
• Providing clearer guidance on what constitutes “suspicion.”
• Enhancing feedback mechanisms between law enforcement and reporting institutions.
• Increasing the use of technology and automation to process DAML requests.

Global Relevance

Although the DAML framework is primarily a UK legal construct, similar mechanisms exist in other jurisdictions under different names.

These allow financial institutions to disclose suspicious activities and seek authorization before proceeding, aligning with international AML/CFT best practices as promoted by the Financial Action Task Force (FATF).

Best Practices for Institutions

• Establish clear internal policies for when and how to request DAML.
• Conduct detailed documentation and maintain an audit trail of all SAR-related activities.
• Integrate automated reporting tools with compliance management systems.
• Provide ongoing staff training to recognize money laundering indicators.
• Foster communication with regulators and the NCA for up-to-date procedural guidance.

DAML & AML/CFT Objectives

Ultimately, the DAML framework enhances the effectiveness of the AML/CFT regime by promoting collaboration between the private sector and law enforcement.

It not only safeguards reporting entities from liability but also strengthens financial intelligence flows, an essential element in detecting, investigating, and preventing money laundering and terrorist financing.

Related Terms

• Suspicious Activity Report (SAR)
• Proceeds of Crime Act (POCA)
• National Crime Agency (NCA)
• Money Laundering Offense
• Moratorium Period
• AML Reporting Obligations

References

1. UK National Crime Agency (NCA) – Guidance on DAML and SARs
2. Proceeds of Crime Act 2002 (UK)
3. UK Law Commission – Review of the SARs Regime
4. Financial Conduct Authority (FCA) – AML and Financial Crime Guidance
5. Financial Action Task Force (FATF) – Recommendations and AML Standards

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