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In this section, you will learn in more detail about the relevant UK legislation which has been put in place to tackle money laundering, the offences which it creates and the defences available. Essentially, the major pieces of legislation of which you need to be aware are:

  • the Proceeds of Crime Act 2002;
  • the Terrorism Act 2000;
  • the Money Laundering Regulations 2007; and
  • the Serious Organised Crime and Police Act 2005.

The offences they create can be divided into:

  • the principal money laundering offences;
  • failure to report offences;
  • tipping off and prejudicing an investigation; and
  • failing to have systems and procedures in place to combat money laundering (regardless of whether money laundering has taken place).

The Principal Money Laundering Offences

The principal money laundering offences created by the Proceeds of Crime Act 2002 mean that, in summary, it is a criminal offence for anyone to:

  • conceal, disguise, convert, transfer or remove from the UK any criminal property;
  • enter into or become concerned in an arrangement which the person knows or suspects facilitates the acquisition, retention, use or control of criminal property; or
  • acquire, use or possess criminal property.

These offences are punishable by up to 14 years’ imprisonment and apply to everybody, including not just those working on financial transactions but also, for example, those working in law firms, banks or accountancy practices.

People working in these areas need to take special care because they can, for example, leave themselves open to committing one of these offences if they gain a suspicion that the transaction involves the proceeds of crime and they do not report it.

The Proceeds of Crime Act 2002

What does 'criminal property' mean?

Traditionally when thinking about money laundering, proceeds of drug trafficking or organised crime come to mind. These are criminal offences and so any money or benefits derived from them are criminal property.

But these are not the only crimes which lead to money laundering. Any activity which is a crime in this country or, in many cases, in another jurisdiction falls within it. Therefore, we need to report suspicions of proceeds from any crime, including for example tax evasion or any type of fraud.

The Definition of Criminal Conduct Amended

The definition of criminal conduct was amended from 1 July 2005 by section 102 of the Serious Organised Crime and Police Act 2005, having previously included any conduct overseas which would have been an offence in the UK irrespective of the sentence.

The objective was to simplify and reduce the requirements to report suspicions of money laundering in certain circumstances without weakening the UK’s defences against money laundering.

The Principal Money Laundering Offences - Defences

If, whilst handling a transaction, someone in our firm, a partner, solicitor or support team member, forms a suspicion that money is being laundered, our firm can, in certain cases, obtain consent to continue with the transaction from the authorities before the act which would be an offence has happened, e.g. before the suspicious money has been transferred from client account.

This provides our firm and the person who had suspected money laundering with a full defence to the principal money laundering offences.

In such cases, our firm's Money Laundering Reporting Officer (MLRO) needs to make an external report to SOCA, the relevant authority, and obtain consent.

It is therefore imperative that we make a report about our suspicions to our MLRO with the utmost urgency, using the procedures which you will learn about in Module 6 so that our MLRO can decide whether an external report and consent are necessary.

Our firm's procedures provide for internal reports to be made by anyone who is suspicious to our firm's MLRO who is specially appointed to deal with internal money laundering reports, or a person nominated by him/her to receive your reports. You should consult our firm's procedures if you need to make a report.

The Terrorism Offences and Counter Terrorist Financing

The Terrorism Act 2000 also created some money laundering offences. Increasingly, the anti-money laundering regime is referred to as the AML and CTF regime. CTF stands for counter terrorist financing.

These offences relate to terrorist fund raising, using monies for terrorist purposes and involvement in arrangements which facilitate money being made available for purposes of terrorism. Care needs to be taken to be alert to these provisions when funds are being transferred to or for the benefit of clients.

Firms now have to verify the identity of new clients when they first become a client. As part of that verification process, our firm collates information about the client and the work our firm will be doing for the client. As we have seen, this information forms part of our firm’s CDD measures. Up-to-date CDD information including our firm's risk assessment of the client (particularly country risk) should help to identify any suspicions of this nature. This is covered in detail in Module 3.

As a member of the support team, you must pay particular attention to any information passed on by way of messages or otherwise and when dealing with transfers, payments, receipts and accounts departments which could arouse your suspicions.

Reports relating to terrorist fund raising are made in exactly the same way as for Proceeds of Crime Act money laundering offences.

In summary, it is a criminal offence to enter or become concerned in an arrangement which facilitates the retention or control by, or on behalf of another, of terrorist property:

  • by concealment;
  • by removal from the jurisdiction;
  • by transfers to nominees; or
  • in any other way.

It is a defence to prove that you did not know, or had no reasonable cause to suspect, that the arrangement was related to terrorist property.

The Money Laundering Regulations 2007

The Regulations set out the framework for compliance. Although they have been updated, regulations have been implemented in law firms since at least 1 March 2004. In most cases, firms have adopted a risk based approach and largely ignore any distinction which might be drawn between matters which may fall outside the strict definition.

Our firm has to have in place appropriate and risk sensitive policies and procedures which help to prevent our firm becoming involved in money laundering. Our firm needs to have in place:

  • customer due diligence measures and ongoing monitoring for clients;
  • record-keeping procedures in relation to identification and transactions;
  • internal reporting procedures, including an MLRO to whom people can report suspicions;
  • a system of regular training for relevant employees; and
  • monitoring and management of our compliance with the regulations.

 

Failure to comply with the Money Laundering Regulations and failure to have these systems and procedures in place is an offence in itself, punishable on conviction by a maximum of 2 years' imprisonment and/or a fine for those in charge of compliance within our firm, irrespective of whether money laundering has actually taken place. It is therefore essential that all relevant staff are trained and that the requirements are followed.

The Authorised Disclosure Defence

There is a general defence to the principal money laundering offences if an authorised disclosure of the suspicions is made to the relevant authority before the act which could result in a money laundering offence occurs and the authority gives appropriate consent to continue.

The way this typically works in practice is as follows:

  • A fee earner or member of the support team becomes suspicious when a client mentions on the telephone that, instead of the high street bank he was using, he will be borrowing funds to finance the purchase of some property from a business colleague based in a country known for terrorist activity.
  • Upon considering the CDD information and the financial standing of the client a suspicion is formed. A report, usually known as a suspicious activity report, must be made in accordance with our firm's procedures to our MLRO or person nominated by our MLRO in our firm's procedures, without delay and without telling the client. The information should be kept confidential and guidance sought from our MLRO or person nominated to accept the report. The matter should not be progressed without their guidance, so for example, if our firm were in the process of arranging a transfer of funds, this should not be completed.
  • During this period, and subsequently, it is very important that the fact that a report has been made is kept entirely confidential, because if the 'suspect', in this case, the client, learns of it and is able to hide the suspicious money or alter his intentions to avoid detection, the person who provides the suspect with the information may be guilty of prejudicing the enquiry against him and of tipping off. We will look at tipping off again in a little more detail later.

The Failure to Disclose Offences

In summary, it is a criminal offence to fail to report circumstances where you know or suspect, or there are reasonable grounds for you to know or suspect, that another person is engaged in money laundering and that knowledge (or suspicion) came to you in the course of business.

There is a corresponding offence which our MLRO can commit if he/she fails to properly pass on your suspicions to SOCA. This offence is punishable by up to 5 years imprisonment and/or a fine and can be committed by those working within law firms and other businesses conducting financial-type business.

The Failure to Disclose Offences

The suspicions about money laundering do not have to relate to a transaction that our firm is currently handling. They do not even have to relate to the client. They may involve information about some other transactions which happened some time ago and with which our firm had no involvement, or which involved someone other than the client.

Remember:

  • You personally could commit this offence if you do not make a report to our MLRO about information which is suspicious.
  • Reporting to our MLRO, in accordance with our firm’s procedures, the information which makes you suspicious provides you with a full defence to this offence.
  • For an offence to be committed there has to be a failure to disclose.
  • If our MLRO then makes a report to SOCA, he/she in turn is provided with a similar defence.

The Failure to Disclose Offences

Important points to note are:

  • To commit the offence you do not necessarily have to know or suspect money laundering. It is sufficient if a reasonable person would have known or suspected with the information that you had. So extreme care needs to be taken.
  • As with the principal offences, during this period, and subsequently, it is very important that the fact that a report has been made is kept entirely confidential in case tipping off occurs.

You can therefore clearly see how important it is to pass on any suspicions you may have to our MLRO or person nominated to accept the report in our firm's anti-money laundering procedures. If you are at all unsure about whether your concerns amount to a suspicion, do not hesitate to seek help from the partner/fee earner in charge or our MLRO. Also, remember to keep the matter completely confidential for fear of tipping off the suspect!

As you have just learned, it is essential, if you have a suspicion that money laundering may have occurred or may be about to occur, that you report it without delay to our MLRO.

The difficulty is that it is not always easy to decide whether the concerns you have amount to a suspicion. ‘Suspicion’ is not defined in the Proceeds of Crime Act.

The test differs depending upon whether it is a principal money laundering offence or failure to disclose offence.

For the former, the test is: Do you, as a matter of fact, have a suspicion?

For the latter, the test is: Would a reasonable person have a suspicion based on the facts as known to you or which should reasonably have been known to you?

In this lesson you will learn about:

  • what amounts to ‘suspicion’ in the UK; and
  • the ‘objective test’ used for establishing guilt.

What Amounts to ‘Suspicion’ in the UK

The anti-money laundering legislation does not define 'suspicion'. However, it does introduce criminal liability for failing to disclose information when there are reasonable grounds for knowing or suspecting that another person is engaged in money laundering.

‘Suspicion’ is personal and subjective and falls far short of proof based on firm evidence. The courts, however, have defined ‘suspicion’ as:

  • beyond mere speculation; and
  • being based on some factual foundation.

What Amounts to ‘Suspicion’ in the UK

If you have any concerns at all about a matter and are at all unsure about whether or not it amounts to a suspicion, seek immediate guidance from the partner/fee earner, our MLRO or person nominated to accept the report in our firm's anti-money laundering procedures.

Knowledge for these purposes can be:

  • actual knowledge; but also
  • shutting your mind; or
  • a deliberate failure to enquire.

It is better to bring to their attention a piece of information which they might not have and which may lead to a suspicion than for something important to be missed and a criminal offence committed.

If you consider a transaction to be suspicious:

  • you are not expected to know the exact nature of the criminal offence; nor
  • that the funds definitely arose from the crime.

The Objective Test

The Proceeds of Crime Act 2002 introduced criminal liability for failing to disclose information when there are reasonable grounds for knowing or suspecting that another person is engaged in money laundering.

This introduces an objective test for establishing guilt. The test is, therefore, now two-fold:

  • do you, as a matter of fact, have a suspicion?; alternatively
  • would a reasonable person with your experience, background and understanding have a suspicion based on the facts as known to you or which should reasonably have been known to you?

The Offence of ‘Tipping Off’

There are two ‘Tipping Off’ offences which can be committed under POCA. Both relate only to work undertaken within the 'regulated sector', they are:

  • disclosing a suspicious activity report (SAR): It is an offence to disclose to a third person that a SAR has been made if that disclosure might prejudice any investigation that might be carried out as a result of the SAR. (S333A(1));
  • disclosing an investigation: It is an offence to disclose that an investigation into a money laundering offence is being contemplated or carried out if that disclosure is likely to prejudice that investigation. (S333A(3)).

These offences only apply in relation to work within the 'regulated sector'. Note that in relation to the second offence, you can commit this offence, even where you are unaware that a SAR has been submitted.

The Offence of Prejudicing an Investigation

The offence of prejudicing an investigation applies to work carried on outside the 'regulated sector'. Prejudicing a confiscation, civil recovery or money laundering investigation, occurs if the person making the disclosure knows or suspects that an investigation is being, or is about to be conducted.

It is a defence that a disclosure is made by a legal adviser to a client, or a client's representative, in connection with the giving of legal advice or to any person in connection with legal proceedings or contemplated legal proceedings.

The Terrorism Act 2000 has been amended to include the offences of:

  • disclosing a suspicious activity report (SAR); and
  • disclosing an investigation.

There are similar defences to these offences including disclosures within an undertaking or group and the exception for solicitors for disclosures made for the purpose of dissuading the client from engaging in conduct amounting to an offence.

The Dos and Don'ts of Reporting Suspicions

If you have concerns:

  1. about the client;
  2. about any other party to the transaction; or
  3. about any aspect of any matter,

you MUST review and immediately follow our firm's procedures, which require you to discuss the matter with the relevant partner/fee earner, our MLRO or other designated person.

Your suspicion or concern can relate to a major or a minor crime. You may not even be sure what the particular crime is. It matters not where or when it was committed, so long as it would have been a criminal offence if it had happened in the UK.

 

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