Money Laundering 23 September 2014

Contents 1 What is money laundering? 2. The ‘primary’ money laundering offences 3. Failure to report and tipping off 4. The Money Laundering Regulations 2007

1. What is money laundering?

What is money laundering? Concealing the identity of illegally obtained money to make it appear it is from a legitimate source It involves one or more of: ‘placement’, ‘layering’ and ‘integration’

Placement, layering and integration Placement: The disposal of illegal money Layering: Using transactions to conceal the source of the money Integration: Returning the proceeds to the general economy to make them look like bona fide business money

2. The ‘primary’ money laundering offences

The ‘primary’ money laundering offences Sections 327,328 and 329 Proceeds of Crime Act 2003 (‘POCA’) Provisions of POCA apply to all legal persons ‘Criminal Property’ under POCA is any property which constitutes or represents a person’s benefit from criminal conduct

The ‘primary’ money laundering offences An accused must know or suspect the property constitutes or represents a benefit from criminal conduct. Up to 14 years in jail. Unless an employee knowingly engages in money laundering it is unlikely a firm has a significant risk of committing one of the primary offences.

The ‘primary’ money laundering offences If a firm is suspicious it should make a report to the NCA and await consent from the NCA an the proposed course of action. NCA has 7 working days to respond to the request NCA can declare a 31 day moratorium (see Squirell Ltd v Nat West Bank)

Section 327 POCA Concealing, disguising, converting, transferring or removing criminal property from the UK is a criminal offence

Section 328 POCA Becoming involved in an arrangement which you know or suspect facilitates acquisition, retention, use or control of criminal property by or on behalf of another person is a criminal offence.

Section 329 POCA A person who acquires, uses or has possession of criminal property commits an offence This is like a ‘handling’ offence It is a defence if the person who acquired etc did so for adequate consideration.

3. Failure to report and tipping off

Failure to report Section 330 POCA A person who knows or suspects that another is engaged in money laundering must report Knowledge must have been acquired in the ‘Regulated Sector’ Test of knowledge is objective

Failure to report Individuals should report to their MLRO There is a defence of failure to report because of ‘reasonable excuse’. There is a defence of failure to report because of lack of suspicion due to inadequate training.

Failure to report There is a defence to failure to report where information came to a person under privileged circumstances Duty to report only applies if information would help identify the launderer or criminal proceeds.

Failure to report On receipt of a report the MLRO should consider whether a Suspicious Activity Report (‘SAR’) should be made to NCA Report can be made online If a further step needs to be taken then consent of NCA should be sought Penalty is up to 5 years in jail.

Warning signs The misfit client Transactions with no logic Cash Use of client account Cancelled transactions Suspect territories

Tipping off Section 333A POCA Tipping off a client that a disclosure has been made is an offence if you tip off in the regulated sector. The tipping off must be likely to prejudice any investigation. Penalty up to 2 years in jail.

4. The Money Laundering Regulations 2007

Overview of MLR Apply only to ‘relevant persons’ A relevant person must establish and maintain customer due diligence (‘CDD’) measures, internal policies and procedures and supervision and registration. Guidance by JMLSG is helpful here. Failure to comply can lead to civil and criminal sanctions

Customer Due Diligence Regs 5-19 CDD should be undertaken whenever a new business relationship is established or where an ‘occasional transaction’ is proposed or where money laundering is suspected or where there is doubt as to the veracity of information previously obtained

‘Occasional transactions’ Regulation 2(1) “a transaction (carried out other than as part of a business relationship) amounting to 15,000 Euros or more whether the transaction is carried out in a single operation or several operations which appear to be linked”

Customer Due Diligence The customer should be identified on the basis of documentation Firms should take a risk based approach to determining the extent of the verification required CDD should be carried out in advance Simplified or enhanced CDD may carried out under certain circumstances

Customer Due Diligence and a Risk Based approach JMLSG recommended a risk based approach Regulators, e.g. Law Society have also recommended the approach Regulation 4(3) specifically requires ‘relevant persons’ to adopt a risk based approach in determining extent of verification procedures needed

Simplified and Enhanced Due Diligence Simplified due diligence really means carrying out no CDD. Customer, transaction or product must be listed at Regulation 13(2)-(9) Enhanced due diligence applies where there is a higher risk of money laundering or terrorist financing

Third Party Verification A ‘relevant person’ may rely on lawyers, accountants, insolvency practitioners, auditors, credit or financial institutions who have done their own due diligence The person being relied upon must be subject to professional regulations and requirements of/equivalent to those in Third Money Laundering Directive

Internal policies and procedures Regs Firms must keep records of identification evidence and supporting documentation Records must be kept for 5 years All employees must be given training so as to be aware of the law on money laundering and must be trained regularly on how recognise and deal with transactions which may be related to money laundering

Internal policies and procedures Firms must establish and maintain appropriate policies and procedures for reporting obligations A nominated officer (the MLRO) must be identified