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What exactly is money laundering? Money laundering is the process by which criminals attempt to legitimise the source of their funds (often in the form of large quantities of cash) and change the form of the proceeds to render it more readily usable. This process is achieved by three processes
Is it a crime? There are three main offences under sections 327 to 329 of the Proceeds of Crime Act 2002. Broadly these make it an offence if you
If you know or suspect that it is criminal property. The offences are punishable on conviction by up to 14 years imprisonment and / or a fine. There are provisions creating similar offences under the Terrorism Act 2000. Under the Terrorism Act it is an offence to:-
The offences apply to persons who have either actual knowledge of the intention to apply funds for terrorist purposes or where that person had reasonable cause to suspect that the property would be used for the purposes of terrorism. So what is criminal property? Criminal property is the benefit of any crime, in whole or any part, whether direct or indirect. It does not matter who committed the crime. It does not matter who benefited. It does not matter when the crime took place. What counts as terrorist property?
“Terrorist property” covers money and every other kind of property or possession which is likely to be used for the purposes of terrorism (including any resources of a proscribed organization) or is the proceeds of the commission of acts of terrorism or the proceeds of acts carried out for the purposes of terrorism (such as robbing a bank with a view to funding terrorist acts). The definition is extremely widely drawn. Tell me about the authorised disclosure defence?
The most important defence is an “authorised disclosure” – that is to say you disclosed to a money laundering reporting officer (who passes it on to SOCA), customs officer or constable in the form required and either
If you need to deal with the property you should ask for prior consent to do so from the person you made disclosure to. The Serious Organised Crime Agency (SOCA) can be contacted at A key element of consent is the specification of time limits within which the authorities must respond to an authorized disclosure in circumstances where a consent decision is required. You are deemed to have SOCA’s consent to deal with the property:-
Do I need my client’s consent before I make a report? No. And if you tell your client you are at risk of committing the offence of tipping off. What is “tipping off”? Tipping off is a serious criminal offence for those in the regulated sector. It is found at section 333A Proceeds of Crime Act 2002. You commit the offence if you make any disclosure to any person likely to prejudice an investigation. An example might be if you tell the client that a SAR is or is about to be filed in respect of them. You don’t have to speak to commit the offence. You can tip off by failing to respond where an answer is expected. The offence is punished by up to 2 years imprisonment and / or a fine. There is a similar offence under the Terrorism Act 2000 too. It is found at section 39 Terrorism Act 2000. This does not prevent you from
Ø Discussing the matter with colleagues within your own practice Ø Discussing the matter with your supervisory body Ø Disclosing information for the detection, investigation or prosecution of a criminal offence (whether in the Ø If you are a lawyer who qualifies as a “relevant professional legal adviser” from discussing it with another lawyer Ø If you are a lawyer who qualifies as a “relevant professional legal adviser” from attempting to dissuade your client from committing an offence Ø If you are a tax advisor or accountant who qualifies as a “relevant professional adviser” from discussing it with another relevant professional adviser of your discipline Ø If you are a credit institution from disclosing this to other credit institutions Ø If you are a financial instition from disclosing this to other financial institutions
What happens if I really am put on the spot – such as if a transaction is being held up because consent has been refused? What is the extra offence for member of the regulated sector? Members of the regulated sector commit a criminal offence under section 330 Proceeds of Crime Act 2002 if
This is a serious criminal offence and carries up to 5 years imprisonment and / or an unlimited fine. So am I part of the regulated sector? You are part of the regulated sector if you are
What is a regulated activity? A regulated activity is:-
What test should I apply to judge whether I have a suspicion? Suspicion is subjective. It is more than mere speculation but falling short of proof based on firm evidence. A suspicion must be of a settled nature and must be based on the facts as they present themselves – that is to say you are able to point to a fact or facts which cause you to feel uneasy about the client or his transaction. When should I be suspicious? Examples of when you might be suspicious about a client or transaction include:-
Are there any defences to failing to report my suspicion? Yes. There is a defence if:-
Legal privilege defence has been extended to certain accountants, auditors or tax advisers. Something enjoys legal privilege where it is
Examples of this have been suggested to include:
What is the effect of the new Money Laundering Regulations 2007? From 15th December 2007 the Money Laundering Regulations 2007 requires “relevant persons” to have implemented polices and procedures for:-
The policies and procedures should set out
Who are relevant persons? They are pretty much the same as the regulated sector. They are:-
What is a high value dealer? What does customer due diligence involve? Customer due diligence has to be carried out
Customer due diligence involves
You should either copy the original documents yourself or accept copies that have been authenticated by another independent professional such as a lawyer, doctor, accountant, postmaster, teacher, justice of the peace or minister of religion. The name and address of the person verifying the authenticity of the document should be shown that this can be verified with them. This file should be scrutinised on an ongoing basis to check that the documents and data are up to date. You need to review this checklist regularly to ensure that documents, data and information are up to date. If details have changed the old document should be retained but new evidence obtained and added to the file.
You should check any photographs for likeness. You should check the date of birth with the client's apparent age and with any other documents on which it appears. You should compare the spellings of names and addresses on different identification documents. You should compare the customer's signature with the signature on other identification documents. It may be necessary to scrutinise the source of funds for a transaction to ensure they are consistent with your knowledge of the client, his business and risk profile: Reg. 8(2) MLR 2007. No money should be taken and no work should be undertaken without completing your customer due diligence. If your client is an intermediary, you need satisfactory proof of identity of both the intermediary used and his ultimate client. This data should evidence who are the directors (including de facto and shadow directors and the beneficial owners of the shares of the company). When looking at the client’s beneficial ownership, you need to identify any person who owns 25% or more of the voting rights or shares in the entity. If the client or ultimate client is a trust or other legal arrangement, the identity of each person entitled to an interest of 25% or more of the capital and the class of person for whose benefit the trust operates and any person who has control over the trust. Where the estate of a deceased person is in administration the beneficial owner is treated as being the executor or administrator. The enquiry should be made on a risk sensitive basis with greater enquiries for high risk customers.
What do I do if I cannot comply with the customer due diligence requirements? You must
What does “on a risk sensitive basis” mean? The degree of due diligence you undertake and the frequency of review should reflect the type of the client, business relationship and the product or transaction involved. Remember that you will need to be in a position to demonstrate to your professional body that the extent of the measures you adopted in respect of your customer was appropriate. So how do I know when to take more or indeed less care? There are provisions under the Money Laundering Regulations 2007 for simplified due diligence in respect of certain transactions and customers. If the customer’s business falls within certain categories at reg 13 MLR 2007 no further enquiry is needed unless terrorist financing or money laundering is suspected. These include (amongst others) a credit or financial institution which is subject to the requirements of the money laundering directive, a company whose securities are listed on a regulated market subject to specified disclosure obligations and a UK public authority. Where the product falls within certain categories under reg 13 no further enquiry is necessary unless money laundering or terrorist finance is suspected. These product include (amongst others) (a) a life insurance contract where the annual premium is no more than 1,000 euro or where a single premium of no more than 2,500 euro is paid (b) an insurance contract for the purposes of a pension scheme where the contract contains no surrender clause and cannot be used as collateral (c) certain employee pensions (d) a child trust fund. What if I am getting referred the work by a professional? You can rely on customer due diligence already conducted by certain other professionals or financial institutions provided they under a duty under the Money Laundering Regulations 2007 or its EEA member state equivalent and they agree to let you do so. The professionals listed for these purposes are:-
This does not exonerate you from your responsibilities under the Regulations however. When do you have to take extra care? You will need to take extra care if, for example,
Who are politically exposed persons? These include heads of state, heads of government, ministers and deputy or assistant ministers, members of parliaments, members of supreme courts, of constitutional courts or of other high-level judicial bodies whose decisions are not generally subject to further appeal, other than in exceptional circumstances, members of courts of auditors or of the boards of central banks, ambassadors, chargés d'affaires and high-ranking officers in the armed forces, members of the administrative, management or supervisory bodies of state-owned enterprises. Who falls within the definition of an “associate” or a member of ones “immediate family”? An associate for these purposes includes any individual who is known to have joint beneficial ownership of a legal entity or legal arrangement, or any other close business relations, with the person and any individual who has sole beneficial ownership of a legal entity or legal arrangement which is known to have been set up for the benefit of the person. A member of ones immediate family means a spouse, a partner (that is to say someone in a relationship considered under their national law to be equivalent to a spouse), children and their spouses or partners and parents. What do I do if the client is a politically exposed person? A relevant person who proposes to have a business relationship or carry out an occasional transaction with a politically exposed person or their family or associates must have approval from their senior management for establishing the business relationship with that person. What should I do if my client is not physically present? Where the customer has not been physically present for identification purposes, a relevant person must take specific and adequate measures to compensate for the higher risk, for example, by applying one or more of the following measures
Is this just a one off thing I have to do for all new customers? No. You are under an ongoing duty to monitor clients. You need to scrutinise transactions undertaken throughout the course of the relationship (including, where necessary, the source of funds) to ensure that the transactions are consistent with the relevant person's knowledge of the customer, his business and risk profile. It also involves keeping the documents, data or information obtained for the purpose of applying customer due diligence measures up-to-date. And record keeping? You need to keep records not only of your client due diligence and the evidence in support but also of transactions your clients have undertaken.
This means you should have records of
The Money Laundering Regulations 2007 provide that records must be kept for at least 5 years from the last transaction or from the end of the business relationship. What does internal reporting involve? Relevant persons have to appoint a Money Laundering Reporting Officer.
The Money Laundering Reporting Officer's role is to act as conduit for receiving client identification, his disclosures, assessing them (Is he suspicious or does he have grounds for suspicion?) and passing them on to SOCA. He will usually be also responsible for monitoring clients, maintaing the anti-money laundering records and for ensuring staff are trained. This role carries serious responsibilities. A Money Laundering Reporting Officer commits a criminal offence under the Proceeds of Crime Act 2002 if
The Money Laundering Reporting Officer should be an employee of your firm and work in the UK. If you are a sole proprietor, then you are the Money Laundering Reporting Officer.The person appointed must have reasonable access to all the information which could help him when considering disclosures from staff. Staff need to be able to contact the Money Laundering Reporting Officer urgently during your normal working hours. And staff training? Relevant persons are required by law to take appropriate measures so that all relevant employees are made aware of the law relating to money laundering and terrorist financing and regularly given training on how to recognise and deal with transactions and other activities which may be related to money laundering or terrorist financing: reg 21, MLR 2007
Your employer will need to provide evidence that he has trained all his staff. Therefore once you have completed reading this, you will need to complete the training certificate application on the main webpage, giving your name, your employer's name and your address. You will also need to give the password at the end of this text.
And if we don’t put the Money Laundering Regulations procedures in place? If you are a relevant person and you fail to comply with the requirements of the Money Laundering Regulations 2007 you can get a criminal conviction and could face up to 2 years in prison and a fine. Where can we get further information? You could look at:-
If you are still in doubt take legal advice. So who is going to police this? Various types of business and professions are subject to regulation by different supervisory bodies. The supervisory bodies are under a duty to effectively monitor you and ensure your compliance with the Regulations. In practice, this will involve the supervisory body sending someone to your offices and inspecting your money laundering compliance records and client files. It has been suggested that they might test your systems by pretending to be a "secret shopper". The default regulator for service providers is Her Majesty’s Revenue and Customs.
Today's training password is "SAFE". |
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The money-launderer standard forms, policies and procedures and training materials are the copyright of Money-Launderer Ltd.
