1. Introduction What is money laundering? It is broadly the process or scheme by which both the identity of dirty money or money representing the proceeds of crime and the true ownership of those proceeds, are changed so that the money appears to come from a legitimate or lawful source.
In many cases, the money representing the proceeds of crime will pass through several financial centers and jurisdictions in an effort to clean it. There is no doubt that money laundering is a big international problem, increasingly carried out with great sophistication.1
Money laundering regulations The United Kingdom legislation specifying offences in connection with money laundering is now contained in several pieces of primary legislation. The money laundering directive2 required member states of the European Union3 to criminalize money laundering only in relation to drug trafficking, but left them free to introduce wider provisions to fight money laundering. UK legislation already existed containing money laundering offences related to drug trafficking, terrorism, and the UK, through the Criminal Justice Act 1993 ("CJA 1993") implemented the Directive4 by amending these offences and creating new money laundering offences in relation to "criminal conduct".5
"Criminal conduct" includes any offence wherever committed which would constitute an indictable offence if committed in the UK.6 Accordingly, the money laundering legislation covered not only drug trafficking and terrorism but also offences such as major thefts and fraud, robbery, forgery, blackmail and extortion. Although this concept widens the scope of the money laundering law, it also leads to some considerable logistical problems.
For example, it will be difficult to establish whether activities carried on outside the UK would constitute indictable offences in the UK, particular if the activity is actually legal in the jurisdiction in which it takes place. Moreover, there will be activities which are criminal in the jurisdiction in which they are carried out, but where the UK does not have equivalent legislation.
The primary legislation containing the money laundering offences are now set out in the following enactments:
---- (a) Proceeds of Crime Act, 2002; (POCA)
---- (b) Anti-terrorism, Crime and Security Act, 2001;
---- (c) Terrorism Act 2000;
---- (d) Serious Organised Crime and Police Act 2005. (SOCA)
---- (e) The Money Laundering Regulations 2007.
As mentioned above, the said laws created the money laundering offences applicable to "criminal conduct" and made certain amendments to the already existing drug trafficking and terrorist offences. There are now a number of basic money laundering offences which may be committed in the areas of criminal activity of drug trafficking, terrorism, and criminal conduct.
Criminal activity and offences The basic money laundering offences relate to drug trafficking, terrorism and criminal conduct using the umbrella term "criminal activity". There are five such offences which include:
---- (1) Assisting another to retain the benefit or proceeds of criminal activity, that is "arrangements"7;
---- (2) Acquisition, possession or use of proceeds of criminal activity, that is "acquisition";8
---- (3) Concealing or transferring the proceeds of criminal activity, that is "concealing"9;
---- (4) Failure to disclose regulated sector;10
---- (5) Failure to disclose nominated officers in the regulated sector;11
---- (6) Failure to disclose other nominated officers;12 and
---- (5) Tipping off.13
Arrangements It is an offence, punishable on indictment with up to 14 years' imprisonment or a fine or both, or up to six months' imprisonment or a fine or both on summary conviction, to help a person whom one knows, or suspects, has been engaged in, or has benefited from, criminal activity, to:
(a) retain or control the proceeds (whether by concealment, removal from the jurisdiction, transfer to nominees or otherwise);
(b) assist in an arrangement whereby the proceeds of the criminal activity are used to secure that funds are placed at the criminal's disposal, or that the funds are used for the criminal's benefit to acquire property by way of investment.
In relation to terrorism, the considerations above apply in relation to assisting another to retain proceeds of terrorist-related activities, whereas the offence of "assisting in the retention or control of terrorist funds applies only in respect of the first of these conditions.
Acquisition This offence is committed where a person who knows that any property is, or in whole or in part directly or indirectly represents, another person's proceeds of criminal activity, acquires or uses that property or has possession of it. In relation to terrorism, this offence is enlarged to include circumstances where one either knows, or has reasonable cause to suspect, the origin of the property.
This offence may also be punished on indictment up to 14 years' imprisonment or a fine or both, or up to six months' imprisonment or a fine or both on summary conviction.
Concealing This offence stands committed where a person conceals or disguises any property which is, or in whole or in part directly or indirectly represents, proceeds of his own criminal activity or converts or transfers that property or removes it from a particular jurisdiction for the purpose of avoiding prosecution or making or enforcement of a confiscation order.
In addition, this offence will be committed where a person knows, or has reasonable grounds to suspect, that any property is, or in whole or in part directly or indirectly represents, another person's proceeds of criminal activity and conceals, disguises, converts or transfers it and removes it from the jurisdiction for the purpose of assisting any person to avoid prosecution or making or enforcement of a confiscation order. This offence may be punished on indictment up to 14 years' imprisonment or a fine or both, or up to six months' imprisonment or a fine or both on summary conviction.
Failure to disclose As mentioned above the offence relate to disclosures in relation to:
---- (a) regulated sector;
---- (b) nominated officers in the regulated sector; and
---- (c) other nominated officers.
This offence is punishable on indictment up to five years' imprisonment or a fine or both, or up to six months' imprisonment or a fine or both on summary conviction. It is an offence for which persons working in the financial sector must be careful.
Tipping off This offence applies in relation to all areas of criminal activity and is punishable on indictment up to five years' imprisonment or a fine or both, or up to six months' imprisonment or a fine or both on summary conviction. It may occur in the following three instances:
---- (a) where a person knows or suspects that a police investigation and money laundering has been, or is about to be, commenced;
---- (b) if he knows or suspects the disclosure of suspected money laundering has been made to the police; or
---- (c) he knows or suspects that an internal report14 has been made, and he discloses to any other person, information or any other matter which is likely to prejudice any investigation which may take place.
In relation to terrorism, the Terrorism Act 2000 also provides that there is an offence if any person who knows, or has reasonable cause to suspect, an investigation is taking place, falsifies, conceals, destroys or otherwise disposes of material which is likely to be relevant to the investigation.
Assisting It will be a defence to an allegation of assisting to prove that:
---- (a) the accused person did not know or suspect that the help he had given was in relation to the proceeds of the criminal activity;
---- (b) the accused person did not know or suspect that he was assisting the criminal to retain any property or that the arrangement was used in the manner set out in the offence;
---- (c) the accused person intended to report his suspicion but had a reasonable excuse for having failed to do so.
Where a person knows or suspects that he may be committing the assisting offence, he is required to report it either to a constable, or in line with the internal reporting system15 operated by his employer, if there is one. Where that is the case, no offence will be committed if the disclosure is either made before the person commits the act which he suspects may constitute assisting and continues with the consent of the constable, or is done on his own initiative as soon as it is reasonable for a report to be made to alter the act. where a disclosure is made to a constable or in line with internal reporting procedures, there will be no offence if the disclosure is made before the person does the act concerned and it is done with the consent of the constable, or the disclosure is made after the act but on the person's own initiative and as soon as it is reasonable for him to make the report.
It will be a defence to any allegation of acquisition, if the person concerned acquired property for adequate consideration (there will be inadequate consideration if the value of the consideration is significantly less than the value of the property) or if the person intended to make a disclosure but had reasonable excuse for not doing so.
The concealing of offence does not constitute a defence.
There will be no offence of failing to disclose where a professional legal adviser has failed to disclose any information or other matter which has come to him in privileged communication.
Where the person charged had a reasonable excuse for not disclosing the information or that information was disclosed in accordance with internal reporting procedures, the facts will constitute a defence to the charge of disclosure failure.
Tipping off There will be no offence for a professional legal adviser to disclose information or other matter aimed at, or to, (a) representative of his client in connection with the giving of legal advice to the client; or (b) to any person (i) in contemplation of, or in connection with, legal proceedings; and (ii) for the purpose of on going proceedings.
Lack of knowledge about the subject will be a defence in respect of the charge of tipping off to prove that he did not know or suspect that the disclosure was likely to be prejudicial as envisaged by the legislation.
Internal reporting Where a report needs to be made, it should be made to "a constable", the same will include a report made in accordance with the internal reporting system which the employer (of the person who forms the suspicion) has set up. The following chart illustrates those situations where the internal reporting of offence is required.
THE MONEY LAUNDERING REGULATIONS 2007 The Money Laundering Regulations 2007 ("the Regulations") formed the other aspect of the UK's implementation of the Money Laundering Directive.16
These Regulations apply to the following persons:17
---- Credit institutions;
---- Financial institutions;
---- Auditors, insolvency practitioners, external accountants and tax advisers;
---- Independent legal professionals;
---- Trust or company service providers;
---- Estate agents;
---- High value dealers;
---- Casinos.
Exclusions
A. These Regulations do not apply to the following persons:
---- (a) a society registered under the Industrial and Provident Societies Act 1965;
---- (b) a society registered under the Industrial and Provident Societies Act (Northern Ireland)1969;
---- (c) a person who is or falls within a class of persons specified in Schedule to the Financial Services and Markets Act 2000;18
---- (d) a person who was an exempted person for the purposes of section 45 of the Financial Services Act 1986 immediately before its repeal, when exercising the functions specified in that section;
---- (e) a person whose main activity is that of a high value dealer, when he engages in financial activity on an occasional or very limited basis; 18A or
---- (f) a person, when he prepares a home information pack or a document or information for inclusion in a home information pack.
These Regulations also do not apply to
---- (a) the Auditor General for Scotland;
---- (b) the Auditor General for Wales;
---- (c) the Bank of England;
---- (d) the Comptroller and Auditor General;
---- (e) the Comptroller and Auditor General for Northern Ireland;
---- (f) the Official Solicitor to the Supreme Court, when acting as trustee in his official capacity;
---- (g) the Treasury Solicitor.
Scope of the regulations The scope of these Regulations is very wide, as these regulations have within their ambit not only mainstream financial businesses (such as banks, building societies, stockbrokers and life insurers), but also professionals. These professionals do either have investment business under the Financial Services and Markets Act 2000 or belong to businesses listed in regulations 3.19
In terms of these regulations20 any person carrying on financial business in the UK (with regard either to a business relationship or a one-off transaction), is required to put in place the following procedures:
---- (a) customer due diligence;
---- (b) record-keeping procedures;
---- (c) internal reporting procedures; and
---- (d) training.
Persons covered by the said Regulations are also required to institute training procedures in order that employees who handle relevant financial business are aware of the law relating to money laundering and terrorist financing and the employer must also provide sufficient training in the recognition and handling of suspicious transactions.
The Regulations provide details in respect of these procedures which are complemented by the provisions of annexed schedules which provide details about activities falling within the scope of these regulations.21
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Table
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Offence/Reporting Drugs Terrorism Criminal
Defence Conduct
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1. Assisting Yes Yes Yes
Internal Reporting Yes Yes Yes
2. Acquisition/Possession/Use Yes Yes Yes
Internal Reporting , Yes Yes Yes
3. Concealing/Transferring Yes Yes Yes
Internal Reporting No No No
4. Failure to Disclose Yes Yes No
Internal Reporting Yes Yes N/A
5. Tipping Off Yes Yes Yes
Internal Reporting No No No
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(To be continued)
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