London’s eagerness to attract foreign wealth has made the city vulnerable to the activities of money launderers to the point where it has been called a laundromat for criminal finances. Money laundering risk is something which all businesses, especially those providing financial services or handling assets or funds for other people, need to assess and control in order to avoid allegations that they have been involved in money laundering. Such allegations can ruin reputations, lead to regulatory intervention as well as criminal prosecutions for offences that can carry severe penalties.
Anti-money laundering law is aimed at detecting and disrupting the conversion of proceeds of crime into assets and funds that disguise their true origin. It also provides for seizure, forfeiture and confiscation of criminal property. It creates criminal offences for money laundering and for failing to comply with legal obligations to report suspicions of money laundering, tipping off others to prejudice a money laundering investigation, or failing to implement required systems and procedures to identify misuse of services by money launderers.
The relevant part of the Proceeds of Crime Act 2002 (POCA) came into force on 24th February 2003 and applies to money laundering on or after that date. POCA replaced earlier legislation that continues to apply to money laundering offences committed before that date. The Terrorism Act 2000 contains similar offences in respect of terrorist finances.
S327 and 328 POCA create offences relating to concealing, disguising, converting, transferring or removing criminal property, or helping to facilitate the acquisition, retention, use or control of criminal property. Broadly speaking, criminal property can be the proceeds of crime committed anywhere in the world. A person can only be convicted if all the core elements of the offence can be proved beyond reasonable doubt. The prosecution must prove that the property is actually “criminal” property and that the person knew or suspected that the property they were dealing with was criminal property.
POCA describes certain circumstances in which a person cannot be found to have committed an offence under ss327 or 328. These include when the person made an “authorised disclosure” under s338 to a money laundering officer within their organisation or to the police or HMRC and they had the necessary consent to carry out the transaction they disclosed. Detection and disclosure processes within organisations are therefore vital to safeguard services from misuse, and to ensure that reports are made promptly to avoid prosecution in any circumstances where grounds for suspicion arise.
Failing to Report and Tipping Off
POCA contains offences of failing disclose a suspicion of money laundering as soon as possible. S.330 and s.331 POCA are directed at the Regulated Sector (broadly those working in a range of financial and professional services, high-value dealers and casinos). In cases of non-disclosure in the regulated sector, there is no need to prove that a person had actual knowledge or suspicion of money laundering; proof that they had reasonable grounds to know or suspect is sufficient.
S.330 applies to businesses and people working in the regulated sector who fail to disclose suspicions of money laundering internally to a money laundering officer or externally to the NCA or HMRC.
Some exceptions are available. These include where a person has a reasonable excuse, or where disclosure was received in legally privileged circumstances, or where an employee lacked adequate training, or, in overseas cases, the person makes a mistake about the type of offence for which disclosure is required.
S331 POCA creates an offence for money laundering officers who receive information that gives rise to grounds for suspicion but fail to make an external disclosure.
In non-disclosure cases under s330 and s 331, account will be taken of whether the person followed any relevant guidance approved by HM Treasury.
S332 creates an offence for persons in non-regulated sectors. A key difference is that a person in the non-regulated sector can only be convicted of a s332 offence if they had actual knowledge or suspicion which they failed to disclose.
The non-disclosure and tipping off offences can attract penalties of fines and/or imprisonment of up to 5 years.
The Money Laundering Terrorist Financing and Transfer of Funds Regulations 2017
The Money Laundering Terrorist Financing and Transfer of Funds Regulations 2017 impose requirements on businesses in the regulated sector to organise their business in a way that will help to prevent and detect money laundering. Businesses are required to assess money laundering and terrorist financing risk, have specified policies and controls, train employees about the law of money laundering and terrorist financing and how to recognise and deal with transactions that may be related to money laundering or terrorist financing and to have systems and controls to ensure that clients are properly identified and the source of their funds established, including systems for training and internal reporting, to comply with ownership and management regulations and to apply customer due diligence and comply with record keeping requirements. Civil penalties or public censure can be imposed for breaches of the regulations, but contravention is also a criminal offence. There are also offences of prejudicing an investigation into regulation breaches or providing false or misleading information.
Prosecutions for money laundering offences may be brought by a range of agencies, including the Crown Prosecution Service, Serious Fraud Office, Financial Conduct Authority and HMRC. They can only be brought if the prosecutor considers there is sufficient evidence and also that it is in the public interest. Public interest tests can be especially relevant where alleged offences and culpability are considered to be at the lower end of the scale and also where consideration can be given to alternatives including civil penalties, where available.
For companies, a deferred prosecution agreement (“DPA”) is available as an alternative to prosecution for the substantive offences, non-disclosure and tipping off and breach of the 2017 Regulations.
DPA’s allow companies to draw a line under what can be long running expensive and disruptive investigations. However, they are only available to companies and therefore individual employees who may have been caught up in a money laundering investigation leading to a DPA for their employer will remain liable for prosecution. It is therefore important that they are separately advised and represented at a very early stage of an investigation so that they can make the best choice about how to engage.
This article was written by Katie Wheatley and Edward Hodgson. If you need assistance on this topic please get in touch with the team.