The PoCA has formed new mechanisms to examine and recover any proceeds of crime and now provides for three main offences contained in sections 327-329. The offences are, assisting another to retain the benefits of criminal conduct, concealing proceeds of criminal conduct and acquisition, use or possession of the proceeds of criminal conduct.
Any establishment within the ‘regulated sector’ may as well be found guilty of an offence under s330 of the PoCA if they be unsuccessful to make a disclosure of this information to a money laundering officer which has been nominated within an organisation.
The operation of the PoCA provides for a reporting system which is based on suspicion. The relevant sectors must be more vigilant in their activities as they are constantly on the look out for any suspicious activity which may go unnoticed. The necessity of reporting to NCIS any finding of such ‘suspicious’ behaviour also strengthens an organisations vigilance.
To be liable under this section, three conditions must be met; the person committing the offence must have known or suspected, or had reasonable grounds to know or suspect, secondly, the information must have come to them in the course of business in that sector, thirdly, the offence will be committed if that person does not make a disclosure as soon as was possible. This theory was illustrated in R v Duff, the prosecution and conviction of Jonathan Duff, the first solicitor to be jailed for the offence of failing to report a suspicion of money laundering, has stripped away any last vestiges of complacency over money laundering in the solicitors' profession. For solicitors, the most disturbing aspect of the case is that Duff was not an intentional launderer of criminal funds. Instead, Duff's crime was an act of omission, namely a failure to report, which arose from a genuine misunderstanding of his own legal obligations.
A Money Laundering Nominated Officer must be employed, whose role will include implementing the requirements addressed by the regulations, and also they must decide whether to issue a report further to the National Criminal Intelligence Service (NCIS) which is a government body working on behalf of all UK law enforcement agencies in the fight against organised crime.
Under the 2003 regulations, relevant organisations must also train and make staff aware of the procedures which must be implemented. Any failures in implementing these regulations will lead to the organisations being liable for criminal offences under Regulation 3(2). Deliberate tax evasion will also constitute as a criminal offence and so will a person who knows or even suspects that a specific transaction involves the transferring of proceeds from any crime and fails to disclose this information. Failure to do so will lead to a penalty of up to 5 years imprisonment and/or a fine.
For the purposes of imposing these offences, “Knowing or suspecting” means actually knowing or suspecting, or that it was reasonable to presume that they should have known or suspected. The case of Bowman v Fels 2005, decided by the Court of Appeal on 8 March 2005, is extremely important for tax professional advisers, because it narrows the circumstances in which professional advisers are required to make a suspicious activity report (SAR) under the anti-money-laundering legislation set out in Part 7 of the POCA 2002. The object of this article is to consider whether Bowman v Fels impacts on the obligation of a barrister and solicitor to make a SAR when representing a taxpayer who is seeking to make a voluntary disclosure to HM Revenue & Customs (HMRC) and make a civil settlement, taking advantage of the Hansard procedure.
The Money Laundering Regulations also create the offence of ‘tipping off’ which is informing a person that a disclosure is been made against them or informing that person that there is a laundering investigation is being undertaken against them. The penalty for tipping off will be up to 5 years imprisonment or a fine.
Certain types of business are more vulnerable than others, such as high value dealers which are defined in regulation 2(2) as:
'A person carrying on the activity of dealing in goods of any description by way of business (including dealing as an auctioneer) whenever a transaction involves accepting a total cash payment of 15,000 euros or more.'
Business which are classed as high value goods dealers are now provided with technical requirements such as registering with Customs and Excise along with the anti money laundering procedures set out. A person may not be found guilty of such offences becuase he had no knowledge or suspicion that the funds of the transaction were using the proceeds of any crime. He also needs to provided that the disclosure made was actually authorised disclosure. Therefore if an organisation from a regulated sector makes an internal authorised disclosure to the money laundering officer, then this officer must report to the NCIS.
The judgment of the Court of Appeal in Ali and others [2005] is the most significant decisions of the court in criminal law in 2005. Counsel for HM Customs and Excise prophesied that if the court decided as it did, then this would trigger hundreds of appeals against conviction, all of which would have to be upheld. It would thus undermine the success of past law enforcement efforts against money launderers. This case, in the field of money laundering, could therefore be on a par with the decision by the House of Lords in Preddy [1996], in relation to mortgage fraud, which has achieved landmark status. In any event, the court was not deterred by the prosecutor's plea for restraint in Ali. The Court of Appeal could even have been encouraged.
Ali is also an excellent example of the court paying careful regard to the views of the legal academic community, especially when they dissent from the decisions of the appellate courts. Here, Hooper LJ, who delivered the court's judgment declined to follow previous court authorities, explicitly adopting instead the critique of those authorities.
In addition to the Money Laundering Regulations and the Proceeds of Crime Act, the Financial Services Authority (FSA) has also provided a set of rules for organisations carrying out investment businesses and other ‘relevant’ sectors. The FSA regulates many firms in the UK, which are involved in ‘regulated activities’. This authority of the FSA has been granted by the Financial Services and Market Act 2000. The implementation of which has meant that one of the FSA’s objectives is to reduce financial crimes from occurring and to devise and implement rules which effectively prevent as well as detect money laundering.
For the purposes of these rules, ‘financial crime’ is
‘any offence...involving; A) fraud or dishonesty, B) misconduct in, or misuse of information relating to a financial market or C) handling the proceeds of crime
The FSA's responsibilities may be extended to cover the activities of bureaux de change as well.
These rules have been criticised as some may feel that the FSA has unnecessarily added an extra tier of regulation upon those which are already in place. This was an argument which was supported by Andrew Haynes in the article ‘Money Laundering; the FSA Moves In’. Contrary to this however, it maybe argued that these rules strengthen the legislation already in place, therefore accelerating the efficiency in combating money laundering.
The European Commission believes that not enough is being done by Member States to help each other prevent tax fraud across the EU. As part of a series of initiatives dating back to 2004 the Commission has issued a Communication reference 2006, the objective of which is to 'launch a debate with all the parties concerned on the different elements to be taken into account in an “anti-fraud” strategy at European level'.
The Commission believes that more should be done to tackle tax fraud at Community level, since tax fraud, particularly VAT fraud is increasingly likely to have a cross border dimension. The European Commission notes that the existing legal framework for administrative cooperation in relation to VAT fraud is satisfactory but the provisions are not in practice always used as extensively or productively as they could be. The first part of this article will summarise the current administrative cooperation and information exchange provisions and the Commission's proposals as to how co-operation could be improved. The second part will look at the sources of the information which is likely to pass through information exchange gateways, with a particular emphasis on the anti-money-laundering regime. The article concludes, in Part 3, with a review of the Commission's comments on changes that may be made to the VAT system to remove structural weaknesses which are exploited for fraud.
Although the 2003 regulations have extended the range of organisations which shall be required to adhere to the procedures set out, as well as extending the definition as to what shall amount to the proceeds of crime, it may be argued that this may not be completely effective in combating money laundering, as there is evidence to suggest that the regulations are not without limitations.
These limitations may diminish the effectiveness of the regulations by permitting money launderers to still abuse the system in places where the regulations fail to be efficient in combating laundering.
The prevailing consensus in early 2005 appeared to be that a breach of the reporting obligation under the PoCA 2002, s 330 was a “thought crime”. So if a defendant was subjectively or objectively suspicious about a transaction, a prosecution could be brought without any need to prove as part of the actus reus that the failure to report in fact related to criminal property or put another way that the relevant third party was in fact engaged in money laundering
The editors of Blackstone's Criminal Practice, writing in their 2004 edition, thought, “actual knowledge or suspicion is not required under s 330 or s 331, nor, apparently, need it be proved that any money-laundering took place”.When contemplating a challenge to this established legal thinking in EG and others 2005,a substantial case involving the London arm of an established Columbian financial organisation. Blackstone's view seemed to be widespread; the contrary view appeared to be perceived as unarguable in some respected quarters.
One of the problems which may arise from the regulations is the conflict between conforming to the requirements of the regulations, and upholding client confidentiality. The duty towards client confidentiality has been a long standing matter of high significance in terms of maintaining an effective client-business relationship. In some situations, rather than being seen as a fundamental principle which should be upheld in order to maintain this relationship of trust, it can be seen as more of an encumbrance by law enforcement agencies when attempting to combat money laundering.
There is general reluctance of some organisations to move away from upholding this duty of confidentiality. This reluctance is especially evident in the banking sector where:
“The duty not to divulge information about customers to parties outside the bank except in the interests of banks, occupies Commandment-like status in banking mores.”
In this sector, the duty of confidentiality is considered as of such high significance, as it is seen as a key is maintaining banker and customer relationship. A relationship which banks strongly attempt to uphold.
However:
‘…information received by a lawyer that leads to suspicion of money laundering, which is reported to NCIS in good faith, can never properly be the subject of legal or disciplinary action for breach of confidence, or contract, or professional ethics, as the report is protected by s 337 or s 338 of PCA 2002.’
This illustrates that making disclosures in adherence with the regulations will not constitute as a breach of confidentiality which may be provided by statute or even according to the ordinary rules of contract law. However, this duty to disclose will still be of some trouble to the ethical banker who retains the traditional approach in accepting the banker-customer relationship. Limitations also exist in the identification requirements. The effectiveness of this requirement has been under much scrutiny and it application in doubt. Many criminals can obtain fake identification with relative ease. As considered by Andrew Haynes, it would be quite simple for a person to obtain a passport as a means of identification using a birth certificate which was obtained by using the name of a person who had deceased as a young age.
In conclusion, money laundering an be clearly seen as an on going problem which is endured by the international economy, even though the UK government has provided strict regulations in a attempt to curb this process, money launderers are still being afforded opportunities to launder money. This is offered by advancements in technology and global communications methods, the internet in particular allows an opportunity for laundering as ‘knowing your customer’ approach fails in this situations.
Whilst the regulations are effective in emphasising a stricter approach is required, and that they are effective in clearly setting out the procedures which are required in combating money laundering, the regulations themselves are not without limitations. It can therefore be said, that yes the regulations are effective to a certain extent in combating laundering, but these limitations which care highlighted must possibly be rectified in order to prevent money laundering to operate in this country.
What must be considered is that these regulations have only been in force since last year, only time may tell on how effective they are in reality. In theory, what may appear as effective, does not necessarily mean that its practical application will be positive too. As illustrated in the following extract:
‘only time will tell whether this will have the hoped-for effect, or whether it will be another example of unnecessary , expensive and ultimately ineffective impositions on busy professional people.’
The new regulations will make a difference to an extent, in that the stricter procedures required will increase awareness of those in the relevant sectors as to the growing need to be more vigilant in dealing with transactions.
However, the process of money laundering will inevitably keep changing its modes of operation in order to avoid new improved legislation which governments implement. Realistically, no matter what governments implement, money laundering can never be abolished totally, all that governments can do it make the process as difficult as possible for launderers. It is inevitable that money launderers will continuously adopt newer methods of laundering, therefore the regulations constantly need addressing.
It would appear that the application of this strengthened legislation would suggest that money laundering is being combating in the UK. However, this may be a rather simplistic notion as money laundering is a continuously faced problem. Governments must not become too complacent with this legislation however, the limitations which have been identified must be addressed in order to ensure that the legislations are as effective as possible in light of the seriousness of money laundering methods.
B.
Consider the reasons for the Money Laundering Regulations 2007 being passed and whether their passing will be of any consequence
The UK government has published implementing the Third Money Laundering Directive; a Consultation Document, July 2006. It is obliged to introduce domestic law in compliance with the Third Money Laundering Directive 2005/60/EC, on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing by 15 December 2007. The current consultation is on the principles underlying the proposed approach to implementation; the deadline for responses is 20 October 2006. In the preamble, the government is at pains to point out that it does not intend to “gold plate” the implementation, which may come as a surprise to those acquainted with the introduction of the Second Money Laundering Directive 2001/97/EC via the Proceeds of Crime Act 2002, and the Money Laundering Regulations 2003. It claims to be devoted to a high-level, risk-based approach, which leaves as much regulatory discretion as possible to individual businesses.
The Second European Money Laundering Directive, upon which the UK's Proceeds of Crime Act 2002 (POCA 2002) and Money Laundering Regulations 2003 are based, was itself framed in an attempt to implement the 40 recommendations of the Financial Action Task Force (FATF).Multi-national standing body appointed by the Organisation for Economic Co-Operation and Development.
In June 2003 and October 2004, the FATF published substantial amendments to those 40 recommendations. This, in turn, brought forth a Third European Directive (2004/0137) to implement the revisions. This was officially approved on 7 June 2005 by the Council of Economic and Finance Ministers. It is expected to be brought into force later this year, and will need to be implemented within two years of that date by the UK government. When in force, it will replace its two predecessors.
The Third Directive reproduces much of the Second Directive but it is significantly more detailed and increases the scope of the regulated sector. Its main changes from the 2nd Directive are it explicitly covers terrorist financing. It introduces new definitions such as for politically exposed persons, beneficial owner, and business relationship. It provides more detailed customer due diligence requirements, in particular by providing examples of when enhanced and simplified due diligence should be undertaken. It also enshrines all of the due diligence requirements with a risk based approach. The Third Directive specifically covers how institutions should deal with third parties. It introduces the requirement for money service businesses, trust and company service providers and casinos to be licensed or registered under a fit and proper test. For the UK this means licensing or registering trust and company service providers and including a fit and proper test for both them and money service businesses. It introduces the requirement for the entire regulated sector to be monitored or supervised. For the UK this means estate agents and trust and company service providers need to be monitored or supervised. It introduces the comitology power for the commission to work on implementing measures for certain articles
However the following provisions remain unchanged. The requirement for training and appointing a nominated officer, also predicate offences underlying money laundering and the reporting requirements.
There were many last minute amendments to the draft, some of which addressed concerns that had been raised by the Council of the Bars and Law Societies of Europe (CCBE). The Law Society had actively associated itself with that body's objections.
Implementation of the Third Directive will mean that the 2003 Money Laundering Regulations will need to be updated. Amendments may also need to be made to the Proceeds of Crime Act. The Third Money Laundering Directive will directly affect the regulated sectors to which its provisions will apply.The regulated sector comprises the following institutions/professions, credit institutions, other financial institutions, auditors, external accountants and tax advisors. They also compromise, notaries and other independent legal professionals, trust and company service providers, estate agents, money service businesses, including bureaux de change, dealers and auctioneers in high-value goods, whenever payment is made in cash, and in an amount of €15,000 or more and Casinos.
The Directive also affects the duties of supervisory bodies and law enforcement agencies that come into contact with the regulated sector. In terms of benefits it affects the general public through its impact on crime and the proceeds of crime.
are Proceeds of Crime Act 2002
(OJ L166, 28.6.91, p 77),
(OJ L344, 28.12.2001, p 76
2(3)(h) Money Laundering Regulations 2003
2(3)(i) Money Laundering Regulations 2003
G. Grant, Tax Journal, Issue 843, 21 26th June 2006
Criminal Justice Act 1998
Drug Trafficking Act 1994
This information was found in ‘Taxation’, 13 Jan 2005, 340 13th January 2005
Expressed by Professor Ormerod in his case note in the Criminal Law Review in April 2005
A. Haynes, “Butterworths Financial Services Law Guide” 2nd Edition, Butterworths, London.
Andrew Haynes, Money Laundering; the FSA Moves In, Journal of Money Laundering, Vol. 4, No.3 2001 at p230
Tax Journal, Issue 836, 9 8th May 2006
M. Levi, Customer Confidentiality, Money Laundering and Police-Bank Relationships: English Law and Practice in a Global Environment, Police Foundation, 1991, pg.7
David Winch, Money laundering made simple, NEW LAW JOURNAL 19 November 2004,
Andrew Haynes “Anti-Money Laundering Law”, in “International Tracing of Assets” 1997
Robert Rhodes and Serina Palastrand, a guide to money laundering legislation, Journal of Money Laundering Control, Vol 8 No1 2003.