Finance and Investment law - Money laundering

Once this has taken place the final stage of the process is known as integration. Here the illegal money is integrated into the legitimate economic and financial system. Thus making it difficult to distinguish between legal and illegal wealth, as it provides a means of making the launderers wealth look as it has been earned legally. A popular method that is used by the launderers is by property dealings to integrate laundered money back into the economy. Another method that is used is by false loan repayments or forged invoices, by over valuating the entry documents to justify the funds later. Also to increase their profits, they will claim tax relief on the loan repayments and charge themselves interest on the loan. Making it appear that the income from property or legitimate business assets are clean.

There are many legislations to help combat the issues of money laundering. These can be found in 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. For example when opening bank accounts or any transacting business involving at least £15,000 in a single transaction.  Also in 2000 representatives of international banking industry launched global anti Money Laundering guidelines for private banks. This underlined the legal obligations on banks to know their customer, any beneficial owners and their wealth.

As money laundering is a global phenomeum, international co operation is central measures to control it especially in the case of cross border transfers. By The Criminal Justice (International Co Operation Act) 1990 the police and custom services are provided with powers to seize cash being bought into or out of the United Kingdom, where they have reason to believe that such money represents the proceeds of drug trafficking. The power operates in relation to cash of £10,000 or more.

Other UK legislation which prohibits third parties being involved in facilitating property which has been obtained unlawfully can be found under The Theft Act 1968  its main focus was to cover goods which represent the proceeds of stolen goods. It did not however cover the drug issue therefore new legislation was introduced to tackle that problem by virtue of The Misuse of Drugs Act 1971. S 27 (1) of the act permits the court to forfeit property whether it being money, drugs, weapons or vehicles found in possession of the convicted person and used in continuance of offences under the act. However the case of R v Cuthbertson restricted scope of S27 against the forfeiture involving £750,000. Resulting from this the Hodgson Committee was set up to inquire this issue, which led to the passing of The Drug Trafficking Offences Act 1986. This was the first statute to categorise money laundering as a criminal offence. However there are five basic money laundering offences which are:

.Assisting another to retain the benefit of the crime, this can be found under the Criminal Justice Act 1988, The Drug Trafficking Act1994 and the Prevention of Terrorism (temporary provision) Act 1989. The penalty for the commission under this offence is imprisonment up to six months or a fine or both, and on a conviction on indictment the penalty is imprisonment up to 14 years or a fine, or both.

. Acquiring, possession and use of criminal proceeds, again this offence can be found under the Criminal Justice Act 1988 and Drug Trafficking Act 1994.

. Concealing or transferring proceeds to avoid prosecution or a confiscation order also known as own funds money laundering. Under the Criminal Justice Act 1988, Criminal Justice (International Co Operation) Act 1990 and Drug Trafficking Act 1994.

. Failure to disclose knowledge or suspicion of money laundering under the Drug Trafficking Offences Act, Prevention of Terrorism (Temporary Provision) Act.

This offence only relates to drug trafficking and terrorism not proceeds of crime in general. The penalty for this offence on indictment is imprisonment of up to five years.

. Tipping off under Criminal Justice Act 1988and Prevention of Terrorism (Temporary Provisions) Act.  

The law relating to Money Laundering is mainly found in the Proceeds of Crime Act 2002, which has been amended by The Serious Organised Crime and Police Act 2005. There are three main principal laundering offences which can be found in S327 to S329.

S327 makes it an offence to conceal, disguise, convert, transfer or remove criminal property fro the jurisdiction. Criminal property 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. This extends to concealing its nature, source, location, disposition, movement or ownership or any right in relation to it. However there is defence if the person concerned has made a protected disclosure under S338 to the Serious Crime Organised Agency and has been given consent to continue the act. Also if the person concerned has a reasonable excuse for not doing so.

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. Here again there are defences for this offence which are the same as above.

S329 of the act makes it an offence for someone to acquire, use or have possession of the criminal property. Here a defence is provided to protect traders who buy goods and are not under a duty to be questioned of the source of money.

The penalties upon conviction if convicted on these offences 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 as in Simpson 1998

A separate set of laws apply to terrorist money which inter alia create series of criminal offences,  relating to handling terrorist money determined by the Terrorist Act 2000.

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.

S19 (2) explains that it is an offence to fail to report to the police as soon as reasonably practicable suspicion that someone has committed a financial offence in relation to laundering where the information has come to their possession as part of their trade, profession, business or employment. They must under this act report the information which the suspicion is based. There is however a defence to this offence of having a reasonable excuse for not making a disclosure in circumstances such as information obtained by professional legal adviser obtained in privileged circumstances. 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 of S22 of the act.

The Anti Terrorism Crime and Security Act 2001 and the Terrorism (United Nations Measures) order 2001 were result of the attack on the world trade centres. The main issues focused here was the context of laundering being the seizing of terrorist funds. This act allows the forfeiture of funds in civil proceedings in a magistrate’s court where the monies are intended to use for terrorist purposes, which consists of the resources of a proscribed organisation and property which is obtained through terrorism to be seized. Also here any officer is permitted to seize cash if he has reasonable grounds to believe it to be terrorist cash. The money can be held up to 48 hours, if it is to be held for longer the 48 hours, the money must be placed in an interest bearing account. The initial period can be extended for up to 3 months or even up to 2 years. The powers of seize have been widen to include freezing orders and funds being held on behalf of someone who is directly or indirectly involved in acts of terrorism.

The Money Regulations 2003 applies to those caught by the laundering laws to those who carry on relevant business. This includes conduct which is accepting deposits, dealing in investments, managing investments or safeguarding and administrating assets amongst others. This does not however apply to situations such as accepting deposits under that act, an activity in respect of an exemption order S38 of the Proceeds of Crime Act 2000, an official solicitor when acting as trustee in his official capacity and in the case of arranging and advising on regulated mortgage contracts.  The requirement of these regulations are that firstly the identification of a new client be checked in certain circumstances such as where a single one off transaction exceeds fifteen thousand pounds or were there is a series of connected transactions that exceed that amount. Also were the person dealing with the client has reason to suspect that a one off transaction could be part of a money laundering operation. Documents that can be used to prove identity are passports, driving licences identity cards and references and to prove that the person is a resident utility bills and bank statements would suffice.  

 

The second requirement is to know your client. This will not be achieved unless the person knows and understands the nature of the clients business. This requirement extends to Banks, Financial institutions, Solicitors and Accountants. As determined before a suspicions transaction is required to be reported.. There is no guidance as to what suspicion is but a case law of Hussein v Chong Fook Kam  on the nature of suspicion is stated. The Laundering Guidance Notes states that suspicion is personal and subjective and falls far short of proof based on firm evidence. A legal definition of suspicion was given in the case of Natwest v H M Customs with the SOCA an intervening Party 2006 were LJ Longmore stated suspicion as:

                 “The person must think there is a possibility, which is more than fanciful, that the relevant facts exist.”

Another requirement is systems to prevent money laundering should be used. This may include training employees so that they are capable of spotting transactions that are suspicious and to keep up to date with relevant laws.

And finally internal reporting procedures should be used. This is where all “suspicious” reports should be made to the nominated officer within the firm whose responsibility would be to ascertain whether that report does actual give rise to suspicion and if so to report to the Serious Crime Organised agency. Were a disclosure is made the party involved is immune from being sued for breach of confidentiality.  

Overall looking at the legislation that relates to money laundering some of the law is effective on the issue.  For example the Criminal Justice (International Co Operation Act) 1990 is effective because as we have seen many money laundering methods involve cross border transfers therefore it is vital that international co operation is obtained to tackle this problem. Money laundering is stimulated mainly by drugs as it is a huge problem still. Legislation that had been put into force such as the Drug Trafficking Offences Act 1986 and The Misuse of Drugs Act 1971 does have an effect up to a certain extent. I believe more stringent legislation need to be put into force to tackle the problem.

The regulations that have been put down by the Money Regulations 2003 are not effective to a certain extent. This being because firstly for the requirement of identification problems arise when for example you have documents of a person which is in a foreign language which no one can understand in the firm. Identity theft is also becoming a large problem, and criminals seeking to launder money will have no problem in providing such documents which can easily be obtained.

Another reason as to why Money laundering legislation is not effective because in many firms the employees may not be trained properly in identifying a suspicious transactions therefore how will it be possible to tackle the problem if the employees dealing with the people do not know what they are looking for. There should be experts looking closely at transactions that may appear suspicious.

Question B:

From the 15th of December 2007 the regulations 2003 were replaced by the 2007 regulations which various additional responsibilities have been included.  The third Money Laundering Directive has been incorporated into the UK law by The Money Laundering Regulation 2007.  This guidance focuses on the responsibilities imposed on barristers. This does not apply to al barristers only those who fall within the definition of “relevant persons” which would be barristers in independent practice who assist in the planning or execution of certain transactions.   The requirements imposed upon barristers who conduct relevant business are customer due Diligence, record keeping procedures  and training of staff. These were adopted because professional are often targeted by criminals to assist them in money laundering schemes therefore barristers and other such professions should be aware of the risk that they may face getting caught up in money laundering schemes and they need to understand their legal responsibility in such cases. Failure to comply with these requirements is a criminal offence, punishable by way of fine and/or 2 years imprisonment. As can be illustrated in the case of R v Duff the first solicitor to be jailed for the offence of failing to report a suspicion of money laundering

This regulation also imposes obligation to others such as auditors, accountants, tax advisers and trust or company service providers amongst others.

The customer due diligence requirement consists of identifying and verifying the identity of the customer and any beneficial owner. They are required to undertake ongoing monitoring of their business relationship if it is reasonably believed by the barrister that the client is involved in any type of money laundering. Alternatively the barrister may wish to make an authorised disclosure In order to obtain the appropriate consent to avoid liability for money laundering offences.

Sometimes there will only be a need to carry out a simple due diligence. This will involve monitoring the relationship on an on going basis. Other times there will be a need to carry out an enhanced due diligence in the case of politically exposed persons or when the client had physically not been present when the alleged identification had taken place.

In the obligation of record keeping a barrister must maintain records for at least five years relationship to business relationships and transactions and the subject of customer due diligence. Also evidence of client’s identification should be kept.  

Regulation 21 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 practise. Staff should be notified that if they suspect a transaction involving money laundering on reasonable grounds to inform the individual barrister instructed on the case who must then take appropriate action.

In a situation of UK registered companies the counsel should ask for a certified copy of certificate of incorporation and evidence that the individual has the authority to act on behalf of the company. In the case of a non UK company the counsels should ask for a member of a UK recognised investment exchange or a subsidiary of such a company. The counsel should also obtain identification of the beneficial owner. And also in the case of offshore companies with nominee directors the counsel is required to ascertain whether the company forms part of the trust structure. The counsel should take reasonable steps to ascertain that the company exists for a legitimate purpose.  

 There are a lot of requirements that the counsel are obliged by. Problems may arise in trying to oblige all of the requirements.

---