Money laundering

[edit] Introduction

Money laundering may be defined as 'the techniques, procedures or processes used to convert illegal funds obtained from criminal activities into other assets in such a way as to conceal a fund's true origin so it appears the money has come from a legitimate or lawful source.'

In recent years there has been an increased emphasis in using legislation to pass the burden for identifying money laundering acts from statutory authorities to financial institutions and businesses. At the same time the scope of legislation has widened significantly with draconian penalties available to the courts for those who break the law.

Currently the law providing the framework for money laundering is to be found in:

• The Proceeds of Crime Act 2002.
• The Terrorism Act 2000.
• The Money Laundering Regulations 2003.
• FSA Money Laundering Sourcebook.

[edit] The Proceeds of Crime Act 2002

This Act is the principle piece of legislation governing money laundering. It covers all types of crime, not just those arising directly from organised crime. It effectively creates notifiable incidents arising in situations that many of us would not consider as falling within the definition of 'money laundering'. There is also no de minimis limit. Therefore, a deliberate under-declaration of one's own tax liability, even of only a few pounds, is a money laundering offence.

There are three primary offences under this Act

[edit] 1. Concealing

Where someone knows or suspects that property is a benefit from criminal conduct or it represents (directly or indirectly) such a benefit, then they commit an offence if they conceal, disguise, convert, transfer or remove that criminal property from England, Wales, Scotland or Northern Ireland.

[edit] 2. Arranging

An offence is committed by a person if they enter into or become concerned in an arrangement which they know or suspect facilitates the acquisition, retention, use or control of criminal property by, or on behalf of, another person.

[edit] 3. Acquisition use and possession

An offence is committed if someone, knowing or suspecting that property is a person's benefit from criminal conduct (directly or indirectly) acquires, uses or has possession of property.

There are also two third party offences:

• Failure to disclose a primary offence.
• Tipping off persons engaged in money laundering or terrorist financing as to an investigation.

[edit] The Terrorism Act 2000

Sections 18-23 of the Terrorism Act 2000 refer to the money laundering offences which could be committed in relation to terrorist funding. For example, Section 18 states that a person commits an offence if they enter into or become concerned with an arrangement which facilitates the retention by, or control of, another person of terrorist property. Also an offence would be committed if a person did not know, but should reasonably have suspected, the funds involved were terrorist property.

[edit] Implications for practitioners

The consequences of committing either primary or third party offences could be serious. Without direct involvement, however, it is difficult to see how a practitioner could be guilty of committing a primary offence under the Proceeds of Crime Act. It must, however, be emphasised that failure to report a suspicion could be an offence.

Individual employees in regulated sector firms can discharge their disclosure obligations under the Proceeds of Crime Act and avoid committing a criminal offence by making a 'required disclosure'. This may be in the form of a report to the firm’s money laundering reporting officer in accordance with internal procedures. It is important to note here that if an individual does not make a required disclosure and subsequently a court determines that the individual had reasonable grounds for suspecting that a transaction involved money laundering only two general defences are available:

1. The individual had a 'reasonable excuse' for not making a required disclosure.
2. The individual has not been provided with suitable training by his employer and did not have knowledge or suspicion of money laundering.

[edit] Implications for companies

The regulated company carries the responsibility to ensure that all staff, and in particular those who perform client-facing roles, are fully aware of the law relating to money laundering and have been trained to identify potential money-laundering scenarios. It is also the company's responsibility to implement procedures for reporting suspicious transactions internally and to escalate the matter on to the National Crime Intelligence Service if necessary.

The company should appoint a money laundering reporting officer (MLRO) to whom all suspicious transactions must be reported. The company must maintain a log of all such reports. It will be the MLRO's responsibility to decide whether the transaction is suspicious, whether it may proceed and, if not, to make a formal Suspicious Activity Report to the National Crime Intelligence Service.

[edit] Identifying suspicious transactions

There is no clear definition of what may constitute a suspicious transaction. Areas of vulnerability and factors which may give rise to suspicion might include:

• A new corporate / trust client where there are difficulties encountered in obtaining copies of accounts or other incorporation documents.
• A personal customer where ID verification proves problematic.
• Difficulty in verifying information provided by a customer.
• Complex offshore structures.
• Any transaction involving an undisclosed third party.
• A request to insure goods in overseas locations known to have drug-trafficking, organised crime or terrorist connections.
• Attempts to pay large sums in cash.
• Extensive use of bank giro rather than cheque / demand draft.
• Use of a third party cheque to purchase.
• Apparent involvement of complex intermediary chain.

Applying common sense is a valuable element in identifying transactions that are unusual.

[edit] Summary

Robust anti money laundering procedures are essential in order to comply with legal obligations. These obligations fall on each member of staff personally as well as upon the company.

[edit] Related articles on Designing Buildings Wiki

• Company acquisitions in construction.
• De minimis.
• IR35.
• PAYE.
• Taxation articles index.
• VAT.