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1.
Introduction
2. What Is Money Laundering?
3. The Main Money Laundering Offences
4. Is Your Firm Directly Affected?
5. Penalties
6. What Regulated Firms Need To Do
7. Conclusion
1.
Introduction
| The anti-money laundering rules apply to virtually
everybody either directly as regulated businesses or indirectly
as customers or clients of those businesses. Regulated businesses
included financial and investment firms for some time, and
others, including accountants, lawyers, estate agents and
the sellers of high value goods, such as car dealers, were
brought within the regime for the first time on 1 March 2004.
The purpose of this special report is to explain the key rules
and the considerable potential impact of them on both regulated
businesses and their customers.
The main effect of the rules is that anyone in a regulated
business has to report all known or suspected money laundering
to the National Criminal Intelligence Service (NCIS) - or
themselves face serious criminal charges.
Customers of firms in the regulated sector should expect to
encounter various new formalities connected with money laundering.
They also need to be aware of the regulated firms' obligations
under the rules to report any suspicions of money laundering
to NCIS.
The principal rules are contained in The Proceeds of Crime
Act 2000 and the subsequent Money Laundering Regulations 2003,
as well as the Terrorism Act 2000. Financial and investment
firms are covered by the rules of the Financial Services Authority
(FSA).
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2.
What Is Money Laundering?
The expression 'money laundering' seems to have
been invented in the 1920s to cover the process of converting
the profits from illegal activities - dirty or black
money - into apparently legally derived profits. It
involves laundering or washing the money through legitimate
businesses or activities to make it 'clean'. More recently,
money laundering has been popularly associated with illegal
drugs. But the legislation is in fact very much wider.
Money laundering has to do with the way individuals deal with
criminal property, which is widely defined to include any
benefit that a person knows - or even suspects -
represents the proceeds or benefits of any criminal conduct.
The property could belong to the money launderer or it might
belong to someone else.
The benefit could be in the form of money or some other property;
the individual might have benefited directly, e.g. by receiving
some cash from a fraud, or indirectly through another person
who had actually received the benefit. The criminal property
might have been shared or exclusively enjoyed by one person.
Criminal property covers the benefits from all crimes. That
means not just robbery, drug dealing, fraud, murder or child
pornography; it also includes a number of what might be described
as white-collar crimes, including benefits from:
- Tax evasion.
- Bribery and corruption - including both the receipt
of the bribe and the profits from a contract earned as a
result of bribery.
- The operation of an illegal cartel or other price
fixing.
- Criminal failure to comply with a regulatory requirement
that leads to cost savings or profits e.g. cost savings
by cutting corners on health and safety.
A crime could have been committed anywhere in the world - as
long as it would have counted as an offence in the UK. So, for
example, evading Italian tax would qualify.
There is no minimum value to an offence for the purposes of
money laundering - stealing £5 from the petty cash would
count as criminal conduct. |
3.
The Main Money Laundering Offences
The main money laundering offences are: money laundering
itself, the failure to disclose any knowledge of money laundering,
tipping off, prejudicing an investigation, and a failure to
introduce correct systems and procedures. The penalties are
heavy.
Money laundering
Concealing
A person commits an offence if they conceal, disguise, convert
or transfer criminal property. It is a criminal offence to move
criminal property outside the UK, but it is also an offence
to move it out of England and Wales, from Scotland or from Northern
Ireland.
Making arrangements
A person commits an offence if they become involved in any arrangement
that they knew - or suspected - would facilitate
another person to acquire, retain, use or control criminal property.
Acquisition, use and possession
A person commits this offence if they acquire, use
or possess property that they know - or suspect - is criminal
property.
Terrorism funds
Money laundering also covers similar activities relating to
terrorist funds, including funds that are likely to be used
for terrorism as well as the proceeds of terrorism.
The main defence under the Proceeds of Crime Act and the Terrorism
Act is to make an authorised or protected disclosure to a nominated
person within the firm - the firm's money laundering reporting
officer - or, in the specially prescribed form, to NCIS.
A person does have the defence for not making such a disclosure
that they have a reasonable excuse, but it is not likely that
many of these excuses will turn out to be successful.
The failure to disclose knowledge of
money laundering
Individuals and firms that are regulated are committing a serious
criminal offence if they fail to report any knowledge or suspicions
of money laundering as soon as practicable. In the first instance,
individuals within the regulated firms must report their knowledge
or suspicions to the money laundering reporting officer, who
then has to report them to NCIS together with reasons for any
suspicions.
Knowledge
Knowing about a crime and its proceeds goes beyond having the
facts inescapably presented. People who shut their minds to
the obvious or deliberately refrained from asking questions
to which they would not want to know the answers would not have
an excuse for not reporting money laundering offences. It would
also include knowing about circumstances that would indicate
the fact to an honest and reasonable person or that would lead
such a person to make enquiries.
Suspicion
Suspecting money laundering is more than speculation but it
is not proof or knowledge of the offence. It is personal and
subjective, but should be built on some objective foundations.
The firm's money laundering reporting officer should approach
the reporting of suspicions with a degree of consistency.
Mistakes
Genuine mistakes, which are subsequently put right, should not
be reported. The Proceeds of Crime Act introduces an objective
or negligence test into the issue of reporting money laundering.
The failure to disclose is an offence where the individual or
firm has reasonable grounds for knowing or suspecting another
person of money laundering. Reasonable grounds means that another
reasonable person in the same position would have been suspicious
and would have made a report. Incompetence or negligence is
no excuse.
Client confidentiality
Making a report takes precedence over issues of client confidentiality.
Regulated firms have to make reports of known or suspected money
laundering and are committing a criminal offence if they fail
to do so. Equally they are protected against any UK law that
would otherwise require them to keep information confidential.
Legal privilege
When giving legal advice to a client professional legal advisers
(who do not have to be either professional, or legally trained,
merely 'a person who receives information in privileged circumstances')
may have a defence to a charge of failing to report suspicions.
However, this defence cannot be used where the information is
given with the intention of furthering a criminal purpose.
Tipping off
It is an offence to tell - or 'tip off' - a suspect that a report
is being made (or has been made). This could happen when an
individual tips off a suspect in a way that would prejudice
an investigation, when they know or suspect that an internal
or external report has been made or will be made in the case
of terrorism offences. The tipping off could take the form of
a direct statement or more indirectly, a hint. Firms should
be very careful about providing any information generally that
a report has been made. A further offence relates to prejudicing
an investigation, for example by disclosing knowledge to someone
that would interfere with the work of the Asset Recovery Agency. |
4.
Is Your Firm Directly Affected?
The money laundering rules directly apply to a
regulated sector of relevant businesses that are required to
report knowledge and suspicions of offences. The businesses
include.
- Providers of accountancy related services and
auditing firms.
- Banking and investment businesses regulated by
the Financial Services Authority.
- Money service operators, including foreign exchange
bureaux.
- Estate agents and those providing estate agent
services.
- Casino operators.
- Insolvency practitioners.
- Tax service providers.
- Legal service providers, including both solicitors
and barristers.
- Company formation businesses.
- Businesses that provide services in relation to
the operation, administration or management of trusts and
companies.
- High value dealers - that is, any business that
involves accepting total cash payments of €15,000 or
more. High value dealers could include a very wide variety
of businesses that accept relatively large payments in cash,
such as antique dealers, car dealers, scrap metal merchants
and builders.
- Those who participate in the issue of securities,
providing services related to these issues, providing advice
on capital structures, industrial strategy and related questions,
as well as services to do with mergers and business purchase.
These rules apply to firms that operate in the UK but anti-money
laundering laws are increasingly prevalent throughout the world.
The UK laws are derived from the Second EU Money Laundering
Directive. As a result, firms with overseas operations should
consider local, as well as UK regulations, and where a firm
operates in several countries it should develop a comprehensive
approach to anti-money laundering activities. |
5.
Penalties
| Money laundering offences can be tried in a magistrates'
court or a Crown court, depending on their severity. A magistrates'
court can impose a fine of up to £5,000 and/or up to six
months in prison. A Crown court can impose an unlimited fine
and/or up to 14 years' imprisonment for the main money laundering
offences. For failing to report an offence, prejudicing an investigation,
and for tipping off, the Crown court can impose an unlimited
fine and/or up to five years in prison. |
6.
What Regulated Firms Need To Do
Firms that are in the regulated sector need to set
up various procedures as a matter of urgency. These include:
- Appointing a money laundering reporting officer.
- Setting up internal reporting procedures within
the firm.
- Training all staff within the firm so that they
are aware of the relevant regulations, can recognise possible
money laundering situations, and carry out the identification
procedures with clients or customers.
- Carrying out identification procedures.
- Retaining the necessary records for at least five
years.
- Reporting suspicions of money laundering to NCIS.
A failure to implement the procedures is in itself a criminal
offence with sentences up to two years and/or a fine.
The money laundering reporting officer
Regulated firms must appoint a money laundering reporting officer
(MLRO) as a matter of urgency. This person needs to be someone
with a suitable level of seniority and experience in the firm,
and in many firms he or she is typically a director, partner,
or principal. A sole trader or practitioner who does not employ
anyone else is not required to appoint an MLRO.
Individuals in the firm should report any knowledge or suspicions
of money laundering to the MLRO who in turn should consider
the information and decide whether to report it to NCIS. MLROs
who are in doubt about whether to make a report should seek
advice from the duty desk at NCIS, or their professional body
(or if all else fails from the Courts) and if they decide not
to make a report, they should record the reasons for this decision.
The MLRO is personally liable if he or she has received reports
of money laundering that should have been passed on to NCIS
and this was not done.
The MLRO can delegate a number of antimony laundering duties
to other people in the firm, but should keep control of the
individual processes in the firm. They should also set up alternative
deputizing procedures if they are away from work for any significant
periods. The MLRO and anyone else working in this area needs
to be adequately trained for the job, and be provided with adequate
resources to perform their duties.
Training
Firms must make sure that all staff are trained in money laundering
at a level that is appropriate to their role and seniority within
the firm. The training should cover:
- The basic law relating to money laundering.
- The firm's procedures for identifying clients,
record keeping and internal reporting.
- Identifying money laundering.
The aim should be to make sure that the firm establishes a culture
of compliance with the money laundering regulations.
Firms would be well advised to keep records of their anti-money
laundering training to be able to demonstrate the level of
their compliance if they are ever challenged.
Identification procedures
Firms have to be able to establish that new clients are who
they say they are. A firm must normally obtain evidence where
it forms a business relationship or where there is a transaction
of €15,000 (about £10,000 at current exchange rates).
The proof of identity must be obtained as soon as possible
after the start of the business relationship.
Firms are encouraged to take a risk-based approach to money
laundering. For example, any firm of accountants is likely
to undertake a more rigorous approach to the establishment
of an offshore trust in a high-risk jurisdiction. The legislation
also requires regulated businesses to be aware of the greater
risks associated with contact that is not face to face with
people.
Individuals
The proof of identity for an individual should be the best
available in the circumstances to identify that applicants
are who they claim to be. Firms should have a written procedure
setting out when identification is needed and the forms of
documentation that are acceptable. They should identify their
name, permanent address as well as date and place of birth
and should include both of the following:
- An official document with a photograph is very
strong identification of identity. This is likely to be
either a passport or a new-style driving licence.
- A separate document that confirms the individual's
current address, such as a recent utility bill or council
tax bill.
Businesses
Firms need to check the identity of companies, partnerships
and sole trader businesses by establishing the identity of the
entity itself and then the people who are behind it - owners,
directors, partners etc. The firm should check the business
entity by examining the main documentation, and the individuals'
identities should be established as outlined above.
Trusts
The main identification requirements for trusts should be to
check the nature and purpose of the trust, where the original
funds came from, and the identities of the main people involved
as trustees, settlers and beneficiaries.
Terrorists
Firms might want to check the identity of new clients against
the lists of known terrorists. Some lists can be found at:
www.bankofengland.co.uk/sanctions
www.treas.gov/offices/enforcement
www.fbi.gov/mostwant/terrorists/fugitives.htm
Reporting suspicions to NCIS
NCIS co-ordinates the information flow among the different law
enforcement agencies in the UK. NCIS has designed standard disclosure
forms that MLROs should use for filing reports. One is for so
called low-value intelligence reports, while the other is for
more serious offences. They are available online at the NCIS
website www.ncis.co.uk. NCIS, or the appropriate investigation
body, will then contact the firm if they have any questions
they want to raise about the report.
Once a report has been made, the firm should not carry out,
for seven working days (starting the day after NCIS receives
the report), any transaction that would help the money launderer
or that would constitute money laundering in any other way.
If the position is urgent, the firm should let NCIS know quickly
and mark the report as such. However, where the firm is not
involved in a money laundering transaction or is not helping
it, it is not necessary to obtain NCIS' consent. The firm should
always bear in mind the danger of tipping off a money launderer
during this period.
If the firm receives no response during the seven working day
period, NCIS is deemed to have provided consent to the transaction
in the report. If NCIS refuses to consent, there is a further
period of 31 calendar days starting on the day the firm receives
the notice from NCIS, and during this period the firm should
not proceed with the transaction that has been reported.
The legislation does not require firms to carry out investigative
work over and above what they would usually do as part of their
normal relationship. |
7.
Conclusion
| The money laundering rules will have a profound
effect on many regulated firms and their relationship with their
clients. Regulated firms need to prepare and remain vigilant
— if only because the penalties for failing to carry out
the requirements effectively are very serious. |
This document is prepared for guidance only. We recommend that you contact us for advice before acting on any information contained in the document and we cannot accept responsibility for any action taken without such advice.
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