Money Laundering

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Since the Proceeds of Crime Act 2002 came into force, it has been applied by both the authorities and the Courts in a draconian manner (for example the approach taken by the Court of Appeal when considering the low threshold of proof which the authorities have to meet, in their various decisions in 2008).

Not only do I have the experience when dealing with these cases because of my long history dealing with serious organised crime and fraud, but additionally I offer a tenacious, pro-active, cutting edge approach to this area which has meant that I have been involved in the vast majority of the larger prosecutions and that I get results.

Knowledge & Defending

The offence can be committed if a person knew or suspected they were involved in money laundering. (dealing with /or in possession of criminal property).

It may be that an accountant or auditor with a particular knowledge of some business area can help a defendant show, for example, that it is not unusual for significant cash flow to come from certain types of all cash-only businesses – or that certain losses appeared to fall outside the charged period or the defendant’s work shift. The expert may be able to help rebut by comparing with similar businesses in the area and/or show the existence of a reasonable audit trail.

Each case is fact specific, but its important witness are identified and evidence is challenged at an early stage.

Investigation

Money laundering investigations can be complex and lengthy, its important you have early legal advice as soon as possible. Many of my clients contact me when they are on police bail to assist them with the appropriate police station strategy.

I have been involved in cases where the amount alleged to have been laundered is anything between £1,000 to hundreds of millions. I was recently instructed in a case arising from a phishing fraud which involved over £400 million being laundered over multiple jurisdictions across varying business sectors and commodities.

Compliance

I can also provide you with compliance advice to ensure you or your organisation are receiving advice on anti-money laundering and Money Laundering Regulations and assist with the advice on risk and the implementation of adequate structures.

The regulations have recently been updated by the Finance Act 2017 which has created new requirements and new offences, read on for more information.

Defence

A business may avoid criminal liability where it can show that it had implemented reasonable prevention procedures, or where it can show that in the circumstances it would have been unreasonable or unrealistic to have expected it to have had procedures in place.

What Firms Should Do

Firms will have to ensure that they have reviewed their current practices and procedures to minimise any risks, and to put in place appropriate monitoring and training of staff at all levels. The Act effectively makes owners and managers responsible for preventing their staff and external agents and consultants from committing tax evasion. And the larger and more complex the business, the greater the risk that an activity may occur that could be caught.

What is Money Laundering?

Money laundering is simply the ‘cleaning’ or disguising of the origins of the proceeds of crime. It can be committed by someone with their own proceeds (self laundering) or by someone handling someone else’s proceeds. Money laundering schemes range from the simple through to the sophisticated and may involve chains of companies and offshore accounts.

Money laundering is a criminal process of changing the illegal source of property to make it appear legitimate. It normally involves the introduction of illegally gained property into the financial system under the guise of a legitimate company’s assets. These assets, which can include many different forms of property including money, land, buildings, technology and intellectual property, may then be used as part of a legitimate business operation.

Money Laundering Offences

In the UK, money laundering is primarily regulated under the Proceeds of Crime Act (POCA) 2002 and the Money Laundering Regulations.

The EU is also in the process of introducing new rules to update the anti-money laundering directive, which is likely to include a requirement for all EU countries to put in place new central registers listing information on the ultimate beneficial owners of companies.

There are three main money laundering offences under the POCA:

  • concealing, disguising, converting, transferring or removing criminal property;
  • entering into or being involved in an arrangement that facilitates the acquisition, retention, use or control of criminal property;
  • the acquisition, use and possession of criminal property.

The alleged offender must know or suspect that the property constitutes or represents a direct or indirect benefit, in whole or part, from criminal conduct. However, an offence will not be committed if an authorised disclosure is made before money laundering occurs.

The National Crime Agency (NCA) is primarily responsible for collecting intelligence on money laundering and prosecuting money laundering offences. If someone is found guilty of a money laundering offence, they can be imprisoned for up to 14 years or fined, or both.

Reporting Money Laundering and Anti-Money Laundering Obligations

Under the POCA it is also a criminal offence to fail to disclose money laundering offences in the course of business under the suspicious activity reports system, or to fail to disclose a suspicious activity report (SAR) to the NCA’s UK Financial Intelligence Unit (UKFIU) when it has been made. It is also an offence to let a customer or third party know that their activities have been reported.

The offences relating to the failure to report suspected money laundering, as well as the three main offences listed above, also apply to property that is likely to be used for the purposes of terrorism.

Anti-money laundering obligations are also imposed on regulated financial businesses through the Money Laundering Regulations. These apply to a variety of businesses and professionals, including financial institutions, credit organisations, accountants, lawyers, estate agents, trust or company service providers and casinos, and include the duty to:

  • perform customer due diligence throughout the business relationship;
  • keep records on the identity of customers for five years; and,
  • to have policies and procedures in place to identify unusual activity or high risk situations.

It is one of the roles of the FCA to regulate and supervise compliance with these anti-money laundering obligations, and they will take enforcement action if non-compliance is found.

Money Laundering Regulations

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 came into force on 26 June 2017; implementing the EU’s Fourth Money Laundering Directive and replacing the 2007 Regulations.

The 2017 Regulations signal a shift away from a prescriptive approach, towards one requiring regulated businesses to consider and act on the specific risk factors they face.

Finance Act 2017

From 30 September 2017, the Criminal Finances Act 2017 will make companies and partnerships criminally liable if they fail to prevent tax evasion by either a member of their staff or an external agent, even where the business was not involved in the act or was unaware of it.

Key facts

For a firm to be liable under the Act, there must have been:

  • Stage one: criminal tax evasion by a taxpayer (either an individual or a firm) under existing law.
  • Stage two: criminal facilitation of the offence by a representative of the firm, as defined by the Accessories and Abettors Act 1861.
  • Stage three: the firm failed to prevent its representative from committing the criminal act outlined at stage two.

The new rules target deliberate and dishonest behaviour. They do not create any new offences at the individual level – if activity would be considered to be tax evasion under existing law, then it will continue to be so. Likewise, if the activity would not currently be considered tax evasion, then the new law does not make it so.

Who do the 2017 Regulations apply to?

The 2017 Regulations apply to: credit and financial institutions, auditors, insolvency practitioners, accountants and tax advisers, legal professionals, trust or company service providers, estate agents, high value dealers (earning at least €10,000 on a trade of goods) and gambling providers.  Certain of the Regulations will also apply to auction platforms.

The 2017 Regulations provide an exemption for persons engaging in financial activity “on an occasional or very limited basis“, as defined by the fulfilment of all criteria in Regulation 15(3).

What are the key provisions and changes?

The 2017 Regulations do not provide a complete overhaul of the previous legislation.  Instead, businesses will now be required to adopt a more risk-based approach to their anti-money laundering procedures and controls, including their customer due diligence measures.

Key changes for regulated businesses and their MLROs include:

Risk assessments:

  • Regulated businesses are required to undertake written risk assessments to identify the risks posed to their specific business by money laundering and terrorist financing (Regulation 18).
  • The 2017 Regulations specify a number of factors which must now be considered during these risk assessments, including: geographic areas of operation, customers, the types of services and products, and the nature of transactions.
  • Risk assessments must be made available to the relevant supervisory authority on request.

Policies, controls and procedures:

  • Written policies, controls and procedures (as approved by senior management) must be put in place in order to manage and mitigate the risks identified in the firm’s own risk assessment (Regulation 19). These procedures must include customer due diligence and regular training for relevant employees.
  • Subject to limited exceptions, a firm must communicate and apply its policies, controls and procedures under the 2017 Regulations to its branches and subsidiaries – including those located outside the UK.

Customer due Diligence (CDD):

  • Part 3 of the 2017 Regulations sets out the circumstances in which CDD must be applied for new and existing customers.
  • ‘Simplified CDD’ is no longer deemed automatically sufficient in any circumstances. Now, businesses must always consider the applicable risk factors (taking into account their risk assessments), and consider what level of CDD is appropriate.
  • ‘Enhanced CDD’ and enhanced ongoing monitoring are compulsory in certain high-risk situations, such as transactions or business relationships involving a ‘high-risk third country’, or where the customer is a politically exposed person (PEP).
  • Firms must have appropriate risk-management systems in place to identify whether customers or their beneficial owners are PEPs – or family members or known close associates of a PEP. Enhanced CDD measures must now be applied to a person for at least 12 months after they cease to be a PEP.

Employee screening and training

  • Regulation 21 sets out a requirement for the screening of relevant employees.
  • A relevant employee is defined as anyone whose work is:
    • relevant to the firm’s compliance with any requirement in the Money Laundering Regulations; or
    • otherwise capable of contributing to the:
      • identification or mitigation of the risks of money laundering/ terrorist financing to which the firm is subject; or
      • prevention or detection of money laundering/ terrorist financing in relation to the firm’s business.
    • Screening of relevant employees means an assessment of:
      • the skills, knowledge and expertise of the individual to carry out their functions effectively; and
      • the conduct and integrity of the individual.
    • The screening obligation will only applied to firms where “where appropriate with regard to the size and nature of [their] business“.
    • On training, Regulation 24 requires that relevant employees are:
  • made aware of the law relating to money laundering and terrorist financing, and to data protection; and
  • regularly given training in how to recognise and deal with transactions and other activities which may be related to money laundering and/or terrorist financing.

Investigations and enforcement: new criminal offence

  • Part 8 of The 2017 Regulations makes extensive provision for the investigation of breaches of AML requirement. We anticipate that, in line with the statements made in the FCA’s 207/2018 Business Plan, the FCA will treat AML breaches with increasing severity.
  • To this end, Part 9 of 2017 Regulations creates a new criminal offence, whereby any individual who recklessly makes a false or misleading statement in the context of a money laundering investigation may now face a fine or up to 2 years’ imprisonment.

Practical guidance

The FCA has indicated that it will look to use its powers under the 2017 Regulations to prosecute firms which have poor AML controls in place.  It is essential that relevant businesses act now to take detailed legal advice on the 2017 Regulations.  In particular:

  • Relevant staff should familiarise themselves with the new 2017 Regulations and training should be provided, particularly for staff conducting CDD.
  • The changes to CDD requirements (removal of the automatic application of simplified CDD and new obligations to perform enhanced CDD) must be immediately implemented into firms’ CDD policies.
  • Detailed written risk assessments, complying with the requirements set out in the 2017 Regulations, need to be conducted.
  • Following on from the risk assessments, AML policies, internal controls and procedures should be reviewed and brought up to date – referencing the risk assessments.
  • Businesses should look out for sector-specific guidance, still to be published. The FCA has recently completed a consultation on its own guidance and procedures and is due to release a policy statement in July 2017.

Get in Touch

Tanveer is happy to be contacted directly by individuals, solicitors, in-house counsel and other professionals. He primarily accepts instructions on a private basis, however, in limited circumstances, he will accept legal aid instructions.

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