Finance and Investment law - Money laundering

The typical example on how these three stages work is demonstrated in the diagram below.

Money laundering is an offence which involves a lot of legislation which firstly could be found by the 40 recommendations in 1990 of the intergovernmental Financial Action Task Force which requires customers and beneficial owners to be identified when entering into business relations. The global Anti Money Laundering Guidelines [2000] for private banks, which was launched by the representatives of international banking industry, which underlined the legal obligations on the banks to verify their customer, beneficial owners and their personal wealth.

Also as money laundering is a global phenomeum, international co operation places central measures to control it, e.g. the Criminal Justice [international co operation act [1990] is an example where the custom officers and police are provided with specific power t seize any cash under reasonable suspicion for  money which is being laundered in by the proceeds of drug trafficking.

There are other legislations in the United Kingdom such as to cover goods which represent the proceeds of stolen good under the Theft Act [1968]. Also The Misuse of drugs Act [1971] s27 (1) where new legislation was introduced to tackle the drug issue which stated that “the act permits the court to forfeit property whether it being money, drugs, weapon found I n possession of a convicted person and used for continuous offences”. Resulting from this the Hodgson committee was set up which led to the passing of a new legislation which was the Drug Trafficking Offences Act [1986] which was the first offence which categorized money laundering as a serious criminal offence.

The five basic money laundering offences which are identified are, firstly Under the Criminal Justice Act [1988], Criminal Justice (International Co Operation) Act [1990] and Drug Trafficking Act [1994] the concealing or transferring of proceeds to avoid prosecution or a confiscation order    can also be known as own funds money laundering.

The second basic offence can be identified as the Tipping off which is an offence under s.333 proceeds act [2002] and under Criminal Justice Act [1988] and Prevention of Terrorism (Temporary Provisions) Act Section 39.

The third under the Drug Trafficking Offences Act and Prevention of Terrorism (Temporary Provision) Act is the failure to disclose (s.330 proceeds act [2002]), and knowledge or suspicion of money laundering, which this offence doesn’t relate to the proceeds of crime in general.

The fourth basic offence can be identified is the acquiring, possession and use of criminal proceeds, which can also be found under the Criminal Justice Act [1988] and Drug Trafficking Act [1994]. Finally the last basic offence which could be found is under the Criminal Justice Act [1988], The Drug Trafficking Act [1994] and the Prevention of Terrorism (temporary provision) Act [1989] which is the offence of assisting another to retain the benefit of the crime.

After stating the basic offences of money laundering it is essential to know where the law actually comes from which basically the law relating to Money Laundering is mainly found in the Proceeds of Crime Act [2002]. The Proceeds of Crime Act [2002] has been amended by another act which is known as The Serious Organized Crime and Police Act [2005].

There are three main principle laundering offences which can be found under s327 to s329 and s330 to s333 of the proceeds act [2002].

S327 replaces s 49 of the Drug Trafficking Act [1994] and s 93C of the Criminal Justice Act [1988]. S.327 is an offence to conceal, disguise, transfer or remove criminal property [which is defined under s340 (3)”as being someone’s benefit from the criminal conduct where the alleged offender knows or suspects that it represents such a benefit”], from the jurisdiction. This extends to a vast range of concealing to its nature, location disposition, ownership or any rights which are referred to it. But under s338 if the person concerned has made a protected disclosure to the Serious Crime Organized Agency. A defense is available if consent is given to continue the act and also if the person has a reasonable excuse for doing so.

Also s327 (2C) relates to laundering as a deposit taking body that converts or transfers criminal property does not commit an offence provided and it does the act concerned in operating an account which it maintains and values of a criminal activity.

Under section s328 of the act makes it an offence to “enter into or become concerned in an arrangement which that person knows, or suspects, facilitates the retention, use or control or criminal property”. The defenses are the same as related to s327 where the exception for deposit taking which exists for s327 also applies here.

Also under s329 which is also included in the proceeds act [2002] “makes it an offence for someone to acquire, use or have possession of the criminal property” which simply means having possession. Where another defense could be argued under this offence that the person innocently brought the item for full value, also a defense of protection to the traders who buy goods and are not under a duty to be questioned of the income of money is also provided.

If convicted on any of these offences under s327, s328 and s329 under the proceeds act [2002] the penalties are up to 6 months imprisonment and/or fine. If convicted on inducement it will be imprisonment up to 14 years and/or a fine. As it can be seen the penalties can be severe. If convicted under s330 – s333 breach of law on appropriate consent by money laundering then they might be liable for up to 6 months in prison and/or a fine on a summary conviction.

 There are other laws concerning money laundering which is firstly the Terrorism act [2000] and the Terrorism act [2001]. The Terrorism act [2000] was reformed in [2001] and extended its previous counter   of terrorism legislation. This act gives the government the power to break down terrorist organizations. It also criminalizes the fund raising and any other financial help given to terror organizations, also gives the courts power to order forfeiture of property or any money used for or by terror activities.

This act states a disclosure here an individual “believes or suspects that another person has committed an offence” and where he “bases his belief or suspicion on information which comes to his attention in the course of a trade, profession, business or employment. In such circumstances the individual or his employer “commits an offence if he does not disclose to a constable as soon as is reasonably practicable”.

The Terrorism act contains a number of sections referred to money laundering, which define terrorist property as money or any other property. S15 to s21 relate to money laundering which Firstly section 15 of the Terrorism act criminalizes fund raising. Also  S15 (2) of the act makes it an offence to receive money or other property with the intention that it be used or where there is reasonable cause to believe it will be used for the purposes of terrorism.

Section 16 of the Terrorism Act criminalizes the use of property or money for terrorism activities or for the possession of money or property intended for the use of a terrorism activity. Section 17 of the Terrorism act also criminalizes involvement in arrangements for transfer of money or property for possible terrorist purposes.

Under Section 18 of the Terrorism act which also criminalizes the money laundering of terrorist property. The offences apply to persons, both corporate and unincorporated. The offences also apply to persons who have the actual or reasonable 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.

Finally under s19 – s21 of the Terrorism Act it was demanded by the money regulations act for the buildup of the internal reporting arrangements demanded which also section 20 of the Terrorism Act covers the non- regulated sector which states, “That any person “may disclose a suspicion or belief …that arises in the course of trade, profession, business or employment…..”.

The Anti Terrorism Crime and Security Act 2001 and the Terrorism (United Nations Measures) order 2001 were result of the tragedy of the attack on the world trade centres. The main issues focused here was the context of laundering being the seizing of terrorist funds. Forfeiture of funds in civil proceedings is possible following this act and the police have special powers t seize cash in reasonable grounds of belief that it would be cash used for terrorist activities which can be held up to 48 hours and more by permission by the magistrates.

The penalties for these offences are a fine and/or imprisonment up to 6 months. On indictment imprisonment of 14 years and /or fine by virtue.

Finally the final law is the Money Regulations Act [2003] which applies to people caught under the laundering laws to those carrying on ”relevant business” which includes conduct which involves dealing in investments, accepting deposits, arranging and managing investments  and safe guarding and administrating assets amongst others which is simplified by the Money Regulations Act [2007]. However this does not apply to any situations to do with accepting deposits under this act. Also under s38 of the Proceeds of Crime Act [2000] states that “an official solicitor when acting as trustee in his official capacity and in the case of arranging and advising on regulated mortgage contracts” and many more such as accepting deposits under the act, arranging and advising on regulated mortgage contracts and many more.  

The Money Regulations act [2003] has set requirements which are firstly the person dealing with the client has reasonable suspicion to suspect that a one off transaction which could be part of a money laundering transaction. Also identity checking which is a new regulation, where identity is checked in certain circumstances, like where a one of transaction exceeds the maximum limit and where there are serious on connected transactions etc. Also such as documents which can be used to prove identity of passports, driving licenses and identity cards etc.  

Once both of these requirements are fulfilled then a photocopy of this is placed on file. The problems which can be faced by these relevant documents is if the person making the transaction is foreign so it is always useful to know your client such as within the Proceeds of Crime Act [2002] it requires “that a suspicious transaction report be made as soon as possible once a person acting in the course of the trade, profession or business knows or suspects that someone is engaged in drug money laundering” The guidance of this act gives less information on what is the appropriate state of mind. A useful definition is given by the Australian Suspicious transaction reporting agency which viewed that the cause of the suspicion is that should relate to mistrust consideration.

Suspicion s a requirement under the regulations so a definition for knowing your client for reasonable suspicion is given by the case of Hussein v Chong Fook Kam where Lord Devlin stated:

“Suspicion in  its ordinary meaning is a state of conjecture or surmise where proof is lacking” also he added that “Suspicion can take into account matters that could not be put in evidence and take in account for matters which are admissible and which could not form part of a prima facie case”

Other case law examples is the case of Bowman v Fels which is a county court case where the case arose as a result of a property dispute between ex cohabite, where after the hearing the solicitor for ne party submitted a suspicious transaction report. The Law Society had to seek clarification under the s.328 Proceeds of Crime Act [2002]. The case a then settled between the original parties involved where the key point was that certain activities are excluded from the scope f proceedings which relate to s.328 such as litigation from the issue of proceeding and securing injunctive relief.

Another important requirement set out by the regulations is systems, which may include training employees to enable them to spot transactions which are suspicious to be engaged in money laundering and keep up to date with new laws set by the future acts. Also internal reporting procedure could be used where reports could be made to the nominated officers for reasonable suspicious reports where such reports do not actually give rise to suspicion if they don’t then it must be reported to the Serious Crime Organized agency.

Overall from my point of view I believe even though legislation has come into practice people still have difficulties to tackle the problem of money laundering due to the vast majority of illegal immigrants approaching the UK and due to the high number of money being laundered by terrorist and drug activities such as the Drug Trafficking Offences Act [1986] and The Misuse of Drugs Act [1971] does have an effect up to a certain extent. Still from my point of view I believe that there should be harsher and tougher legislation which needs to be put into force to tackle the problem.

Also the regulations that have been put down by the Money Regulations act [2003] are not effective to a certain extent. This is because from my point of view the requirement of identification problems which arise due to the problem of documents being issued when for example you have documents of a person which are in foreign language, which I hard for any firm to simply understand. Also Identity theft is also becoming a large problem as a lot  of criminals seeking to launder money usually use fraud identity such as fake identity cards and passports which such documents can be easily be obtained.

Also other reasons which may affect the effectiveness of the money Laundering Regulation is because many firms might not have appropriate technology to train employees on how to identify suspicious transactions therefore it will not be easy to tackle this problem if the employees have lack of knowledge that their dealing with a customer of suspicious transaction which is intending to launder money so therefore there must be some more intelligence with greater skills to identify suspicious illegal transactions involved in money laundering.

Q1 [B]

The third Money laundering directive has been incorporated in the UK on the 15th of December 2007 which replaced the Money Laundering Regulations Act [2003] to Money Laundering regulations [2007] which has been amended with additional regulation and changes of responsibilities.

The guidance given by the act focuses on the “relevant persons” such as barristers. Other requirements can be known as firstly customer due diligence which consists of identifying and verifying the identity of the customer and any beneficial owner, which involves being monitored for relationship purposes.  

Also other requirements are record keeping procedures where a person must maintain records for at least five years relationship to business relationships and transactions and the subject of customer due diligence. Another requirement is trained employees which under regulation 21 of this act it provides that staff training should be given to all relevant persons. They must ensure that they adopt such policies and procedures as part as their personal practice.

These regulations were formed to stop criminals trying to get assistance from professionals t help them succeed in there money laundering schemes.  Failure to comply with such regulations could lead to a fine and/or 2 years imprisonment, e.g. the case of R v Duff  where a professional was jailed for the offence of failing to report a suspicion of money laundering. This regulation also imposes other obligation to other professionals such as accountants and tax advisers.

To summarize it the changes made to Money Laundering Regulations Act [2007] were made to make a lot of acts a criminal offence. In order to identify the customer can be quite hard; however it is important to know whom the beneficial owner of the money is. The first problem arises is that the concept of beneficial ownership it is impossible to check. Although if the beneficial ownership is identified the second problem which arises is that the identity of the beneficial ownership may not be perfect.

 

The new regulations suggested that the identity needs to be checked in a risk sensitive basis. This risk management is fashion of the age, which consists of the idea that rather than having to follow rules, you discover the risk and then try to overcome the risk by becoming more focused. By becoming more focused, it is acknowledged that the risk of money laundering will be reduced as by becoming more aware you are preventing launders from laundering. It was noticed that at times when certain people such as old ladies were asked identities, they would pass at the sight of showing their library cards; this causes problems for the prevention of money laundering as identification check has become poor, and therefore it is recommended that you must know your client. 

 

Another change is for continuation of ongoing monitoring of clients.  It is acknowledged that it is necessary to know who the client is, as if you’re focusing on the client and something goes wrong, and then you have proof to show that you have been assessing the client. In certain situations, a client may be unable to attend meetings arranged and therefore it is the duty by the banker to arrange to meet them. If a situation arises and the person has gone oversees, the banker must arrange for a reliable source to verify their identity overseas. However many would agree that the reason why clients do not show is that they are trying to avoid the situation, which would render a higher risk attached.

The changes made to the act try to make it easier to track down the issue of money laundering and how to prevent it whether or not it works it is hard to justify due the vast criminal activities involved in money laundering.

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