Insolvency Practitioners and DAML requests

Niall Hearty of Rahman Ravelli details the new fast-track procedure that allows insolvency practitioners to make urgent Defence Against Money Laundering requests

New guidance approved by the Home Office and the National Crime Agency (NCA) allows insolvency practitioners to obtain a fast-tracked safeguard measure if they are working on urgent appointments where they suspect criminal proceeds. 

A Defence Against Money Laundering (DAML) can be requested from the NCA where someone has a suspicion that property they intend to deal with is in some way criminal, and that by dealing with it they risk committing one of the principal money laundering offences under the Proceeds of Crime Act 2002 (POCA).

Instead of the usual seven working days it can take to obtain a DAML request, practitioners can now obtain consent to take an appointment in just 24 hours. If an insolvency practitioner needs to make urgent distributions or payments, a DAML request may be approved in under 48 hours. 

Under the new agreement, the NCA has devised a process whereby insolvency practitioners can contact the agency with a message that will allow for escalation and priority of their case.

The Institute of Chartered Accountants in England and Wales (ICAEW), which negotiated the new arrangement with the NCA, believes it is a big step forward for those dealing with urgent, risky insolvency work where there is the possibility of the proceeds of crime being present. 

The new arrangement will be used in situations where failure to take the appointment or make payments or distributions would risk widespread loss of employment for the staff and seriously prejudice the interests of legitimate creditors.

In complicated cases where numerous requests for money laundering defences are required, the NCA has said it will allow a blanket DAML request. This would cover all assets, expenses and liabilities of an entity and allow the insolvency practitioner to make any necessary payments or distributions during the insolvency period.  The request would have to make clear that it only referred to parties who do not appear connected to the wrongdoing. Practitioners needing to make such a request could be given 12 months to identify all parties that require payment. 

The Guidance

In publishing the guidance, the ICAEW makes it clear that the new arrangement only relates to DAML requests “on truly urgent insolvency matters where there is an intrinsic urgency for an insolvency practitioner to fulfil their duties towards creditors’’. It states that the new procedure does not represent an overall change to the statutory timescales that exist.

The ICAEW emphasises that if an insolvency practitioner is aware or suspects that the entity or individual they will be appointed over may be in possession of the proceeds of crime or terrorist property, a DAML request should be made before accepting the appointment, unless this is not possible because of the urgent need to preserve assets or other similar reasons. In such circumstances, a report and DAML request should be made as soon as possible, as on appointment the practitioner takes control of the assets for the benefit of the creditors, and if some of the assets comprise criminal Property, the practitioner could be committing an offence under S328 or S329 of the Proceeds of Crime Act 2002 (POCA).

Provision of a DAML

The ICAEW guidance also includes information relating to when the NCA can and cannot provide a DAML.

The main points are:

• The NCA cannot provide a defence under POCA for practitioners to identify or trace assets. This is due to the practitioner being the “reporter” and having no control of criminal property at this stage, which is necessary for the NCA to provide a defence.
• The NCA can provide a defence under POCA for practitioners to take control of the estate assets, realise those assets, accept and pay fees and expenses and distribute to creditors.
• The information that the NCA expects to see in a DAML request includes whether there is an existing law enforcement agency criminal investigation, whether the reporter already knows that one of the creditors will be the subject of a criminal investigation (or a company owned/run by them) or whether the practitioner has through their own investigations identified criminal conduct that has not already been reported to a law enforcement agency.

The NCA will also require the value of the criminal property / fees / expenses or an upper limit or the total value of the insolvency estate / officeholder’s expected fees / expenses if the reporter doesn’t know. The DAML request does not need to include details of all the parties to whom payments are to be made. But the reporter must confirm that the subject (the suspected wrongdoer) is not included in the proposed list of payment recipients. No associated entity linked to the subject should be included in the list.

• If the reporter intends to make a payment to the subject, then a separate DAML request should be made for this. As the NCA cannot partially grant or refuse a DAML request, if the subject was included in the overall DAML such a request is likely to be refused for all proposed payments.

Conclusion

The new arrangement is regarded by the ICAEW as a welcome and necessary measure. ICAEW director Sophie Wales called it “ a real step forward for urgent insolvency appointments where there are concerns of money laundering’’.