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The UK Legal 500 2016

The risks of liberation

August 2015 - Crime. Legal Developments by Rahman Ravelli Solicitors.

More articles by this firm.

The dangers that pension liberation and money laundering pose to those involved in pension funds and management.

The pensions reforms have ushered in a new era in which many people now believe that almost anything is possible: they can access their funds to finance cars, holidays and anything else that takes their fancy. Pension liberation appears to be the new concept to excite financially aware people in late to middle age. It is a major change – no one could argue otherwise.

But those involved in facilitating such changes need to be careful: both when it comes to where they invest such funds and the source of the funds that they are managing.

Investing funds

If we take the first of these two issues, two major responsibilities have to be considered by pensions professionals. Firstly, they must be aware of their statutory duty to carry out the request of the pension holder. This means that if the holder wants to move their fund then the pension professional has to act in accordance with their wishes. Secondly, what is equally – if not more – important is the need to make sure that in carrying out this duty the client’s funds do not fall victim to pensions liberation fraud.

There is no shortage of people out there looking to part others from their newly-accessible pension funds. Falling into such hands could mean all the funds disappearing, being used to help facilitate money laundering or other crime or, at the very least, being severely diminished via taxes and dubious fees. If any of these happens, the pension professional who facilitated it could come under investigation.

HM Revenue and Customs (HMRC) and the Pensions Regulator have made repeated warnings about pension liberation fraud in the run-up to the changes that came into effect this financial year. But while the warnings have often been aimed at the general public, trustees and pension providers must also be aware of their responsibilities under the law.

Pension professionals have to carry out due diligence to reduce the risk of any of the problems we listed earlier. Pension funds can be magnets for those seeking cash for high-risk, unregulated and even completely fraudulent investment structures. Those involved in the pensions industry need to take all possible steps to prevent illegal or unsatisfactory outcomes. If they are not sure what to do then they need to take informed, expert advice so that the correct precautions can be introduced.

Source of funds

Just as pension professionals must take care about where they allow liberated pension funds to be invested, they need to be equally cautious about the source of the funds that they are now being asked to divert somewhere. While there are plenty of people honestly looking to reinvest their newly-liberated pension cash, there are also many wanting to move around the cash they obtained from dishonest sources.

It would be a relatively logical step for a sophisticated criminal to look to launder the proceeds of crime under the guise of the cash being newly-liberated pension funds. For this reason, all those working in pensions (and other professional investment sectors) have to be aware of the scope of money laundering under the Proceeds of Crime Act 2002 (POCA). The Act makes anyone liable for prosecution if they deal with any funds or other property which they know or suspect may be the proceeds of crime.

Money laundering

In considering this, those handling pensions have to be aware of two factors at all times in relation to money laundering:

  • The money laundering offences under POCA involve dealing in "criminal property". This is any funds or assets that a person has gained from criminal conduct.
  • There is no requirement for actual knowledge of another's wrongdoing. Suspicion is enough; this means believing that it is possible the funds or property may be tainted by criminal conduct.

There are three main offences under POCA to be aware of:

  • it is an offence to conceal, disguise, convert or transfer criminal property.
  • it is an offence to enter into or become concerned in an arrangement if you know or suspect this facilitates, by whatever means, the acquisition, retention, use or control of criminal property by or on behalf of another person. Arguably this may present the most risk for those in the pensions industry.
  • it can be an offence to acquire, use or simply possess tainted funds.

Managing risks

If trustees or pension providers suspect money laundering, they can make a suspicious activity report (SAR) to the National Crime Agency (NCA). They can even ask for official permission to continue with a transaction even though they have suspicions. This is making an authorised disclosure and can involve the NCA granting the necessary permission. This process prevents those making the report from becoming criminally liable for money laundering.

In such circumstances, timing and the correct approach can be vitally important. Pensions professionals should be totally familiar with money laundering. They should also be aware of the variety of criminal schemes designed to part people from their pension funds. As a result, they should know the importance of seeking specialist legal advice immediately if they suspect something.

Pension funds are now at the start of a new era. When such new eras begin, there are always those looking to take advantage illegally. Those involved in pensions must take steps to make sure they do not help anyone achieve this.