Trading Abroad And Money Laundering Risks

Rahman Ravelli | View firm profile

Aziz Rahman explains what those trading internationally need
to do to ensure they are not targeted by money launderers.

Aziz Rahman explains what those trading internationally need
to do to ensure they are not targeted by money launderers.

Money laundering is only possible if the person wanting to
commit the offence can find a means of carrying it out.

To launder money – to disguise the fact that it is proceeds
of crime – requires the use of a company, organisation or an individual who can
put it through their accounts; making it harder to identify as “dirty money’’.

Money laundering happens in national and international
businesses. It may involve people who are participating knowingly. But it may
also many use people who have no idea that their or their company’s accounts
have been used as a vehicle for laundering.

Penalties

Take the example of Deutsche Bank and the penalties it has
recently had imposed on it. It has been fined more than £506m for failing to
prevent £8 billion of Russian money laundering and for exposing the UK
financial system to the risk of financial crime.

The UK’s Financial Conduct Authority (FCA) imposed its
largest ever fine (£163m) on Germany’s biggest bank, saying it had missed numerous
chances to clean up its Russian operations because its systems to detect
financial crime had been weak. The US’ New York Department of Financial
Services (DFS), fined the bank £343M and ordered the bank’s behaviour to be monitored
for two years.

Deutsche Bank’s problems are an indicator of both the
penalties available for those found to have allowed money laundering to take
place and the international nature of money laundering.

This was emphasised last year, when the leaking of the
Mossack Fonseca Panama Papers showed how offshore structures were being used to
facilitate money laundering. According to the United Nations, money laundering
could account for up to 5% of global GDP.

The Panama Papers put money laundering in the media
spotlight but many countries were already tightening their regulations and
beefing up their enforcement to tackle it. As an example, money laundering has
been at the heart of the Financial Conduct Authority’s (FCA) business plan for
the past financial year, meaning it is high priority.

In the UK, the maximum sentence for money laundering is 14 years.
It pays, therefore, to be aware of how to identify, prevent and report money
laundering, whether your do business only in the UK or elsewhere in the world.

Definition

Money laundering is defined as the disguising of the origins
of money that is the proceeds of crime. A person can launder their own criminal
proceeds or have it done for them by another person. Both of these are offences
under the Proceeds of Crime Act 2002 (POCA):

* Section 327 makes it illegal to hide, disguise, convert,
transfer or remove criminal property from the jurisdiction.

* Section 328 makes it illegal to enter into or become
concerned with an arrangement to obtain, retain or use the proceeds of crime.

*Section 329 prohibits the possession of criminal property.

Sections 330 to 332 of POCA make
it an offence to fail to disclose knowledge or suspicion of money laundering in
the regulated sector; with Da Silva (2006) defining suspicion in money
laundering as “a possibility, which is more than fanciful, that the relevant
facts exist’’.

What is Criminal Property?

It can be seen then that the
lynchpin of the three offences is the notion of ‘criminal property’. The
prosecution has to prove that the property, whether it is cash, a house, a car
or whatever, is ‘criminal property’. This is defined at s340(3) as property
which represents a benefit from criminal conduct, either directly or
indirectly, in whole or in part, so long as the launderer ‘knows or suspects’
that the property represents such a benefit. The prosecution has to show that
the launderer committed the relevant act (i.e. transfer, concealing etc)
knowing or suspecting that the property derived from criminal conduct.

 

Precautions

If you are trading here or abroad
and you are suspected of allowing money laundering to take place you must be
able to show that you had done everything possible to prevent it happening.

We are living in an era in which
even countries such as Afghanistan and Yemen are introducing measures that will
clamp down on money laundering. There is greater cooperation than ever before
when it comes to countries combining to tackle money laundering. Those in
business need to at least match this commitment with anti-money laundering
efforts of their own.

Checking a current or potential
client or trading partner’s background is essential if your relationship with them
involves the moving of money or assets. Even issues such as proof of identity
and establishing who exactly stands to gain from a deal have to be addressed
properly, as failure to do this can provide the potential opportunity for the
money launderer.

If checks are made, those making
them need to know what to do next. Companies, therefore, must have a clear set
of procedures in place about to whom such suspicions about third parties should
be reported. Similarly, a defined whistle blowing procedure should be
introduced for staff to report any concerns they have about the conduct of
their colleagues.

It is worth emphasising here the
point that Deutsche Bank did have procedures in place but they were weak and
not properly enforced. Paying lip service to the idea of money laundering
prevention will never be adequate; either when it comes to stopping money
laundering or when you have to mount a defence against accusations that you
allowed it to happen. If you can be shown to have ignored the signs of money
laundering you will find it difficult to mount a successful defence.

If procedures are introduced, they
have to be regularly reviewed and, when necessary, revised, so that they are
fit for purpose. In order to do this, training among at least some senior staff
is necessary, otherwise such procedures will fail like Deutsche Bank’s did.

Signs

While there is no manual that
lists the signs of money laundering, certain types of behaviour must arouse
suspicion in the mind of anyone intent on keeping money laundering away from
their business affairs.

If someone suggesting a business
transaction is vague about the money or people involved, why it is happening or
why you’ve been approached, you must consider whether it all seems logical. You
have to make sure you are not the main component of an elaborate cover for
money laundering. However innocent you may be, you will face very difficult
questioning if money laundering has been committed by someone using you or your
company.

Policies that limit the cash
amounts involved in deals, make certain trained staff responsible for checking
third party funding sources and restrict use of company accounts can all be
obstacles to money laundering.

But such approaches must be
enforced, not just introduced.

 

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