Money laundering

 

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Key principles
  • In England and Wales, any individual or corporate that deals in criminal property may be liable under the Proceeds of Crime Act 2002 (POCA) for one of the three primary money laundering offences: concealing, disguising, converting or transferring the proceeds of crime (section 327); assisting or abetting such conduct (section 328); or handling the proceeds of crime (section 329).

    The National Crime Agency (NCA) can provide a defence to any offence of money laundering. Any entity that is likely to deal with the proceeds of criminal activity should disclose the relevant transaction to the NCA. After disclosure, the NCA has a seven working day period in which to consider the activity and provide or refuse a “Defence Against Money Laundering” (DAML). Previously known as “consent”, the NCA changed its terminology to DAML following concerns that reporters of Suspicious Activity Reports (SARs) were seeking consent without fully understanding the money laundering provisions.

    Firms conducting business in the regulated sector (typically financial and credit institutions, accountants, tax advisers and other professionals) are also obliged to disclose their knowledge or suspicion, or reasonable grounds for such, that another person is engaged in money laundering to the NCA. Disclosure is made in the form of a SAR. The obligation arises only if the information on which knowledge or suspicion is based came to the firm in the course of its business in the regulated sector. Failure to disclose such knowledge or suspicion constitutes an offence under section 330 POCA.

    It is an offence for a person to disclose to another that an investigation into money laundering allegations is taking place, or, in the regulated sector, to “tip off” a person that a SAR has been submitted, where that disclosure is likely to prejudice the investigation (sections 333A and 342 POCA).

Recent developments
    • On 18 June 2019, the Law Commission published its report on the SARs regime. The report makes a series of recommendations and highlights much that is wrong with the current system, which UK Finance estimates costs UK banks over £5bn a year in compliance costs.
      • To assess the usefulness of SARs under the current regime, the authors reviewed a “statistically significant” sample of 536 authorised disclosures and 100 required disclosures. In the authors’ view, 15% of the SARs containing authorised disclosures did not show a suspicion of criminal activity that met the standard set down in the case of R v Da Silva, of “a possibility, which was more than fanciful, that the relevant fact existed”.

      • The Law Commission made the following recommendations:
          • the requirement to make authorised disclosures seeking consent to deal with suspected criminal property should remain;
          • the requirement to file a SAR should not be limited to situations where a “serious crime” is suspected – all crimes should be covered;
          • a prescribed form should be created for SARs to increase uniformity and ensure the right information is provided;
          • the creation of an Advisory Board constituted of public and private sector experts to carry out ongoing review of the quality of SARs filed;
          • statutory guidance to include guidance on the meaning of having a suspicion and “reasonable excuse”, as well as the effect of receiving “appropriate consent”, to be drafted in consultation with the Advisory Board;
          • credit and financial institutions be protected from committing a potential money-laundering offence if the transaction they process is carried out to ringfence the proceeds of crime;
          • no UK nexus to be required in relation to the predicate offending before the UK’s money laundering system is engaged; and
          • consent not to be required for banks repaying customers who have been the victims of fraud.

    • On 15 April 2019, HM Treasury (HMT) published its consultation on the transposition of the Fifth Money Laundering Directive (5MLD) into UK law. The consultation seeks views and evidence on the steps that the government proposes to take to fulfil the UK’s obligation to transpose 5MLD. 5MLD came into force on 20 June 2018, and Member States (and for now the UK) have until 10 January 2020 to implement the legislation. Key changes include (amongst others) bringing virtual currency exchange platforms and custodian wallet providers within the scope of 4MLD.

      The consultation document indicates that the UK government is considering the “gold plating” of 5MLD in certain areas, including bringing additional crypto-businesses within the scope of AML controls and extending UK requirements to businesses based outside of the UK. The deadline for responding to the consultation was on 10 June 2019. Following the consultation process, HMT will issue proposed amendments to the UK’s existing AML legislation.

    • On 12 November 2018, the sixth EU money laundering directive (6MLD) directive 2018/1673 was published in the Official Journal of the EU.

      The 6MLD complements the criminal aspects of the 5MLD. Some of the key proposals are as follows:

      • Money laundering offences in Member States will be punishable by a maximum imprisonment term of four years alongside discretionary additional sanctions;

      • Organisations may be liable for money laundering offences where (i) the offence was committed for the benefit of the organisation and (ii) those who have the power to represent, make decisions for and exercise control within the organisation (ie its controlling minds) have either committed the offence or allowed the offence to be committed through a lack of supervision. This will be a more radical change in those Member States where corporate criminal liability is not generally recognised;

      • The proceeds from new types of criminal activities have been brought into scope money laundering, such as environmental crimes (not yet defined), certain tax crimes and cybercrime; and

      • Certain specified factors should be considered in determining which European state has jurisdiction in cases where an offence could be prosecuted in multiple states and, where appropriate, the matter should be referred to Eurojust.

    Member States are expected to transpose the 6MLD into their laws by 3 December 2020.

    For our in-depth article on the impacts of these powers, please click here.

    • In May 2019, the National Crime Agency (NCA) secured, at the High Court, three Unexplained Wealth Orders (UWO) as part of an investigation into London property linked to a politically exposed person believed to be involved in serious crime. This was the second time that the NCA was successful in securing UWOs. In July 2019, the NCA secured a UWO for property worth £10 million against a businessman with suspected links to criminals involved in drug and firearms trafficking. This is the first time that the NCA has been able to secure a UWO targeted at suspected serious organised crime.

Practical tips in an investigation
    • If an investigation uncovers suspected criminal activity, it is important to consider the related money flows and potential POCA liability: Which individuals or entities have received or might be receiving proceeds of crime? Who might possess criminal proceeds, and who might want to deal with such proceeds in future?

    • Only regulated firms are under an obligation to disclose suspected money laundering - and in specific circumstances where they suspect money laundering by another person because of information received as part of their regulated business. In all other circumstances, disclosure is voluntary and will only be necessary if consent is needed in advance to deal in criminal proceeds.

    • The submission of a SAR requires careful consideration of the consequences, including the possibility that the NCA will share the information with other law enforcement agencies in the UK or overseas for further investigation. If an entity is obliged to submit a SAR, or believes that a third party (such as an auditor) may be required to submit a SAR as a result of information unearthed during an investigation, careful thought should also be given to proactive self-reporting to other authorities.
International perspective
  • Whilst the anti-money laundering laws and regulations of many business and financial centres share similar features, the laws of some jurisdictions differ on what relevant authorities consider to be a proceed of crime. For example, in jurisdictions that do not have an income tax regime, and therefore no laws against tax evasion, local legal advice might be required to determine whether suspicions about a person evading tax from another jurisdiction (where tax evasion is a crime) gives rise to an obligation to report to the relevant anti-money laundering authorities.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.