Anti-Money Laundering
Anti-money-laundering and anti-terrorism legislation has developed over the last 20 years. Under EU influence, it seeks to combat financial crime. The legislation now extends to all crimes, no matter how small.
Money laundering typically involves the conversion and transfer of property which is the proceeds of criminal activity for the purpose of disguising or concealing its origin, its nature, source, location, movement, or rights of ownership in relation to it. The acquisition, possession, and use of property derived from criminal activity or participation in criminal activity.
Criminal activity in this context includes any crime that is an offence in the United Kingdom or would be an offence if it occurred in the United Kingdom. Property is criminal property if it represents the benefit from criminal conduct and the person, the offender knows or suspects it constitutes such benefit.
The Money Laundering Directives oblige many institutions and service providers, including most financial service providers, to take active steps to counter money laundering. All EU States have created criminal offences, prohibiting money-laundering activity. This is reflected in the United Kingdom in the Criminal Justice Act 1993 and later updated by the Proceeds of Crime Act 2002.
Credit institutions and most financial service intermediaries must take steps to implement procedures and controls to prevent money laundering.
The second Money Laundering Directive was introduced in 2001 and made relatively minor amendments. The third Money Laundering Directive came into force in 2007 and incorporates some recommendations of an international financial action task force.
The third Directive enhanced the risk and made the risk-based approach mandatory in relation to risk management generally and in relation to customer due diligence. Guidance was provided on how firms were to meet their obligations in relation to identifying customers and mandatory monitoring of certain customer relationships. Enhanced due diligence is to apply on a risk-sensitive basis and in particular for politically exposed persons from outside the United Kingdom.
The fourth Money Laundering Directive seeks to strengthen international cooperation. It emphasises the risk-based approach.
The Financial Conduct Authority regulates firms under money-laundering legislation. Certain businesses that are outside the scope of FCA registration must register with the FCA for money laundering regulation purposes.
Certain other bodies, including auctioneers and Foreign Exchange Bureaus, register with HMRC. Estate agents register with the Office of Fair Trading. Casinos must register with the Gambling Commission. Members of designated professional bodies who don’t undertake regulated activities are supervised by their relevant professional body.
The money-laundering legislation in 2007 requires systems and procedures to be implemented to deter the use by criminals of credit institutions for money laundering. Internal reporting, customer due diligence, record-keeping procedures, internal control, risk assessment, compliance monitoring management, recognition of suspicious transactions, and staff training programs are to be part of the procedures that are to be established. Failure to implement the regulation is an offence that may be prosecuted by the Financial Conduct Authority. They are subject to imprisonment for up to two years or a fine at the Crown Court level or six months or a £5000 fine at the Magistrates’ Court level.
The Proceeds of Crime Act makes it an offence knowingly to help another person to launder the proceeds of criminal conduct. This includes unsealing, disguising, transferring, acquiring, processing, investing, or using the proceeds of crime. Prior to the 2002 Act, it covered serious crimes. It now includes all crimes, including tax offences.
It is an offence if the person discloses knowledge and belief regarding the origins of the property either to the appropriate officer within his firm or to the police. Under the Serious Organised Crime and Police Act, there may be a defence if a person knew or had reasonable grounds for believing that the criminal conduct occurred outside the United Kingdom and was not unlawful in that overseas jurisdiction.
The main penalties under the Act provide for 14 years imprisonment or an unlimited fine on indictment or six months or a £5000 fine in the Magistrates’ Court.
If a person finds anything in the course of his employment or functions that makes him believe or suspect that money laundering has taken place, he must inform the police or the appropriate money-laundering officer within his organization. Failure to do so as soon as reasonably practicable is a criminal offence.
For those working in regulated industries, the offence is committed where there is both actual suspicion of money-laundering or where there are reasonable grounds for suspicion by which a reasonable person would have had suspicion.
It is an offence if a person has a reasonable excuse for failing to disclose information. The burden is on the person concerned to substantiate that the failure excused is reasonable. Where a person has had no subjective submission and has not been provided with an employer or appropriate training, there may be a defence. Under the Serious Organised Crime and Police Act, it may be a defence as mentioned above.
Breach of disclosure on foot of legislation does not break any duty of confidentiality. Failure to report a disclosable offence is subject to imprisonment of five years or an unlimited fine on indictment or six months imprisonment or a £5000 fine maximum in the Magistrates’ Court.
Where suspicions have been reported, the person, the subject of the suspicions must not be tipped off or alerted. This itself constitutes an offence. It is an offence if a person in a regulated industry based on information they acquired in the course of business that is likely to prejudice any investigation discloses that the information has been passed to the police or other authority such as the National Crime Agency, HMRC or that an investigation into money laundering is being contemplated or carried out.
It is not a defence to disclose within an EU grouped financial institution or credit institution, between professional advisors in the same group, between financial and credit institutions and advisors generally where disclosure is for the purpose of preventing a money laundering offence, to the supervisory authority (generally the FCA), by a professional advisor to a client for the purpose of dissuading a client from committing an offence.
It is arguable that it is a defence if it can be proved that the person concerned neither knew nor suspected that the disclosure was likely to prejudice an investigation. It is an offence to tip off subject to a maximum of two years imprisonment and/or an unlimited fine in the Crown Court or three months imprisonment or £5000 maximum in Magistrates’ Court.
A person outside a regulated sector, if they prejudice an investigation, may be subject to imprisonment for up to five years or an unlimited fine in the Crown Court or six months imprisonment or a £5000 fine in the Magistrates’ Court. It is an offence for those who suspect that a money-laundering investigation is being carried out, who are neither in the non-regulated sector, to make a disclosure that is likely to prejudice the investigation or, in the case of all persons, falsifying, concealing, or destroying documents relevant to an investigation.