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WHAT GENERAL COUNSEL NEED TO KNOW ABOUT MONEY LAUNDERING

April 2019 - Crime. Legal Developments by Rahman Ravelli Solicitors.

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WHAT GENERAL COUNSEL NEED TO KNOW ABOUT MONEY LAUNDERING

Nicola Sharp explains what money laundering is and outlineshow businesses can reduce the dangers it can pose.

HM Revenue and Customs recentlypublished a list for the tax year just ended of companies that have notcomplied with the 2017 money laundering regulations. It made the headlinesmainly because the list included the estate agents Countrywide.

With law enforcement agencies taking a tougher stance onmoney laundering, companies and individuals have to be aware of both the risksand the law regarding it if they want to avoidCountrywide’s plight. It will not be an area of law that general counselin many companies will be especially familiar with. But there may be anoccasion in the future when they need to know what money laundering is and howto respond to allegations.

If allegations are made, the best course of action is toseek expert, specialist legal representation. This article is a brief refresher guide to money laundering, the problems itcan cause those in business and how the potential for problems can beminimised.

The Definition of Money Laundering

Money laundering is the ‚Äėcleaning‚Äô - the disguising of theorigins - of the proceeds of crime. While money laundering schemes may vary,they are all attempts to hide the fact that wealth was acquired through crime.

It can involve a person laundering the proceeds of their ownoffending or someone else’s offending. Money laundering will usually involveputting money that was gained through crime into the financial system, using itin a series of complex transactions and then absorbing it into the legaleconomy by buying assets such as property. Prosecutions for money launderingcan involve any or all of these stages.

In the UK, money laundering offences are the subject ofsections 327 ‚Äď 329 of the Proceeds of Crime Act 2002 (POCA).

The three money laundering offences created by POCA eachcarry up to 14 years imprisonment:

Section 327. This offence can be committed if a personconceals, disguises, converts, transfers or removes criminal property from thejurisdiction. This offence is usually the one the Crown will use to prosecutesomeone they believe has laundered their own proceeds of crime.

Section 328. This offence is committed when a person becomesinvolved in an arrangement to help someone else keep, obtain, use or controlcriminal property. For this offence, the person becoming involved must know orsuspect that the property is criminal property.

Section 329. This offence is committed when a personacquires, uses or has possession of criminal property. For example, someone who buys a car or ahouse from a criminal. There are exceptions to all three charges - where theorganisation concerned makes an ‚Äúauthorised disclosure‚ÄĚ to the relevantauthorities. This is to protect banks and other businesses from committing whatwould otherwise be an offence when dealing with a criminal‚Äôs money. The Act is clear that certain suchorganisations are under a duty to inform the police of any customer theybelieve is laundering criminal cash through their business.

What should always be remembered is that money launderingcan be committed unwittingly. For example, acompany‚Äôs office in a foreign country may have secured contractsusing bribery. That bribery may not be known to those in the company‚Äôs UKheadquarters. Yet if any proceeds from such contracts are then transferred tothe company‚Äôs UK accounts this is, in effect, a case of the company moving theproceeds of crime ‚Äď which is potentially moneylaundering. Such a scenario raises the issue of thelegal requirements to report money laundering. A failure to report it can haveserious repercussions.

Obligations to Report Money Laundering

POCA places a responsibility to report money laundering onanyone in the UK that may have any dealing with an individual or business. Itcan be reported to the National Crime Agency (NCA), HM Revenue and Customs(HMRC) or the police.

Extra responsibilities are placed on those who work in whatis defined by POCA as the ‚Äėregulated sector‚Äô: firms that are part of thefinancial services community and are regulated by the Financial Conduct Authority (FCA) or various other professional bodies.Such organisations include banks, insurance companies, lawyers, and accountants.

Those in the regulated sector are thought to be more likelyto encounter money laundering because of the large amounts of money that aremoved through them. Persons in the regulated sector are required, under Part 7of POCA and the Terrorism Act 2000 (TACT), to submit a suspicious activityreport (SAR) if they know, suspect or have reasonable grounds for knowing orsuspecting that a person is engaged in, or attempting, money laundering orterrorist financing. A SAR must be submitted as soon as is practicable. Lastyear saw a record 463,938 SARs submitted ‚Äď a 10% increase on 2017.

The Importance of an Internal Investigation

A company may become aware of money laundering as a resultof suspicions about the transactions being conducted or proposed by a client ortrading partner. But it can be discovered in a number of other ways. It may benoticed in routine checks or audits or as part of an investigation into anotheraspect of a company’s working practices. It could be raised as a concern by awhistleblower who is either an employee or has dealings with the company as acustomer, client or trading partner. Money laundering could even be recognisedduring the due diligence process, when one company is looking to buy or mergewith another. Information shared between those working in the regulated sectormay also lead to a company being notified of the possibility of laundering.

When money laundering becomes apparent or there is even theslightest possibility that it has been committed, it isadvisable that a company conducts an internal investigation. This isessential in order to determine what exactly has happened, how it happened,what evidence is available and the best course of action. The findings of aninternal investigation can enable a company to self-report the money launderingit has identified. This may mean more lenient treatment from the authoritiesthan if the authorities found out about the laundering for themselves.

A carefully planned and conducted internal investigationwill also ensure the company is better prepared when a law enforcement agencybegins its investigations. It is often the case that it is best for an internalinvestigation to be conducted by external experts experiencedin dealing with the relevant law enforcement agencies, who can determine the best course of action to follow.

Money Laundering Prevention

While companies or individuals may seek specialist advice ifthey become the subject of a money laundering investigation, such expertise canalso be sought in order to prevent the offence being committed. The potentialfor wrongdoing being committed by staff can be assessed and then acted upon.New procedures can be introduced or existing ones changed to make it asdifficult as possible for money laundering to be carried out by employees,clients, customers, trading partners or associates of a company.

While many in business have to react to money launderingallegations as they arise, there is value in being proactive and looking at howmoney laundering risks can be designed out. Changes to the way individuals anddepartments work ‚Äď both independently and with colleagues and third parties ‚Äďcan make it harder for illegal acts to be committed. The fact that a serious,concerted effort was made to prevent money laundering can form a strong part ofany defence to allegations that may be made in the future.

Money laundering prevention will also be aided by efforts topromote an anti-crime culture in the workplace. A well thought-out whistleblowing procedure that is regularly reviewed for effectiveness and publicisedin the workplace will be of value in encouraging staff to report theirsuspicions of wrongdoing in the knowledge that their concerns will be treatedseriously and investigated properly.

A workplace culture that sees staff questioning the originsof money passing through a company, its rightful owner, how it was acquired andthe precise details of any deal it is set to be used in can go a long way toreducing the potential for laundering. This can involve staff training, whichwill cost. But the costs may be significantly less than those caused by a moneylaundering investigation and prosecution.

Increasing Scrutiny

Money laundering is unlikely to affect each and everybusiness. But each and every business does need to be aware of how to reducetheir vulnerability to it.

Money laundering is subject to ever more official scrutiny.As an example, the European Union’s Fourth Anti-Money Laundering Directive (4MLD) came into force on 26th June 2017. It places greater obligations on banksand other financial institutions to carry out greater levels of customer duediligence. The Directive also requires corporate and legal entities, trusts andother similar structures to maintain adequate, accurate and current informationon their beneficial ownership. And it compels each EU state to carry out anational risk assessment every two years of its exposure to money launderingand terrorist financing. The EU’s Fifth and SixthAnti-Money Laundering Directives are also scheduled.

In the UK, the Criminal Finances Act 2017 has introducedunexplained wealth orders (UWOs) and asset freezing orders. UWOs require anindividual or a company to explain how they came to possess an asset ‚Äď or risklosing it - while asset freezing orders allow the authorities to freezeaccounts while they investigate the source of the funds in them.

Like 4 MLD, they are an indicator of the authorities‚Äô desireto tackle money laundering ‚Äď and of the need for those in business to be awareof the risks.