There are two major pieces of legislation which are going to have a significant effect on money laundering activities.
The Proceeds of Crime Act 2002
The Proceeds of Crime Act 2002 ("PoCA") comes into force on 24th February 2003 and deals with matters such as:
- establishing an Asset Recovery Agency ("ARA") who will investigate and initiate criminal confiscation and civil recovery proceedings
- allowing a court to restrain a suspect's assets from the beginning of a criminal investigation by strengthening the confiscation legislation
- establishing a civil recovery scheme to allow the ARA to sue in the High Court to recover the proceeds of crime (through interim receiving orders or freezing suspect property) and compel a person to answer questions
- introducing powers for the Police and Customs & Excise officers to seize large sums of cash derived from or to be used in crime
- new powers for tracing the proceeds of crime such as "customer information orders", "account monitoring orders" and strengthening the UK's ability to assist other jurisdictions by the early restraint and confiscation of criminal proceeds
Money Laundering Offences
The PoCA will consolidate, update and expand the money laundering offences in the Criminal Justice Act 1988, the Drug Trafficking Act 1994 and in the Terrorism Act 2000. The major change is that for the first time money laundering offences will extend to the proceeds of any crime and not just serious crimes, drug trafficking offences and terrorist offences. It will be an offence for a person to acquire or possess criminal property, or to provide assistance to any other person to launder the proceeds of any criminal conduct. Tipping off remains an offence under the POCA. Interestingly the extension of predicate offences to all crimes goes further than the requirements of the Second Money Laundering Directive – see below. The crime need only be one that could be committed in the UK. This means that an act committed overseas, which might be legal in the country where the act has been carried out, would nevertheless be regarded as criminal conduct if it was a criminal act according to UK law. So, for the first time, the laundering of the proceeds of offences such as tax evasion that can only be tried summarily in the UK will be subject to the new Act.
Defences
Defences to the acquiring and assisting offences in the PoCA include making an authorised disclosure to a constable, a customs officer or a nominated officer immediately after or before the transaction and getting "appropriate consent" from the authorities to proceed with the transaction. For customer facing staff this will mean submitting a suspicious transaction report ("STR") to the internal money laundering reporting officer ("MLRO") and for the MLRO it will mean reporting the matter to the National Criminal Intelligence Service ("NCIS"). Any employee submitting a STR to the MLRO must follow internal procedures for making STRs; otherwise the employee will not have the protection afforded by making an STR.
NCIS in turn will be expected to give or refuse to give consent to the transaction. If NCIS does not respond within 7 days of an STR the person charged is deemed to have received "appropriate consent" from NCIS. If NCIS refuses to consent there will be a further 31-day moratorium period and if NCIS does not apply for a restraint order within that time it is again deemed to have given "appropriate consent".
Whenever the courts are considering whether a money laundering offence took place they must also consider whether the person charged followed relevant guidance issued by that person's supervisory body which has been approved by the Treasury. Such guidance will include Guidance Notes for the financial sector created by the Joint Money Laundering Steering Group ("JMLSG"). The JMLSG have recently amended their guidance notes to reflect the changes in the new Act and have submitted it to the Treasury for approval.
Regulated Sector
In addition to the "implied" duties to disclose, under the offences referred to above, the POCA broadens the express duty to disclose knowledge or suspicion of money laundering. The obligation to make disclosure falls on nominated officers (MLROs) in both the regulated and unregulated sectors, and on persons employed in the regulated sector. The regulated sector roughly translates to those – mainly financial services – businesses covered by The Money Laundering Regulations 1993 ("the 1993 Regulations"). For those in the regulated sector the suspicion required for the failure to report offence will be based on an objective test so that an offence will be committed if the person ought to have suspected that another person was laundering the proceeds of a crime. This new objective negligence test will mean many more suspicious transaction reports will be submitted and customer-facing staff should be trained to ensure that they are aware of their new enhanced responsibilities to report suspicious transactions. Again, following Treasury approved JMLSG or other industry guidance will go a long way to proving that the failure to report offence was not committed.
The Money Laundering Regulations 2003
The Money Laundering Regulations 2003 ("the 2003 Regulations") will implement the Second Money Laundering Directive (2001/97/EC). The 2003 Regulations must come into force by 15th June 2003 and will replace the 1993 Regulations which were themselves amended by the Money Laundering Regulations 2001 to include the regulation of money service businesses.
The anti-money laundering obligations in the 1993 Regulations are largely replicated in the 2003 Regulations but there is also much that is new in the 2003 Regulations. The Treasury has recently issued a consultation paper and the draft regulations. It is inviting comments on the changes proposed and the consultation period will close on 14th February 2002.
The Second Money Laundering Directive widens the predicate offences for which STRs are required to serious criminal conduct but as we have seen the PoCA goes much further than this. The Directive also increases the range of businesses within the regulated sector that are expected to comply with the obligations that are currently in the 1993 Regulations. The regulated sector will now include:
- Auditors, external accountants and tax advisors
- Real estate agents
- Notaries and other legal professionals acting for clients in any financial or real estate transactions
- Dealers in high-value goods where a cash payment of £15,000 or more is made
- Casinos
Lawyers, Auditors, Accountants and Tax Advisors
Many professional firms already comply with the 1993 Regulations because they engage in financial and investment activities on behalf of clients, but for other professionals the 2003 Regulations will mean the introduction of a whole new set of anti-money laundering systems and controls.
The Treasury consultation paper sets out three options for the regulation of lawyers, auditors, accountants and tax advisors. One option is to regulate those professionals who are members of a professional body. The obvious difficulty with this is that there are many accountancy and foreign firms which do not belong to a professional body. To address this shortcoming the consultation paper sets out a dual system of regulation: firms that belong to a professional body will be regulated through that body; and firms that don't belong to a professional body will be regulated by a newly set up body established specifically to regulate such professionals.
Estate Agents
In the UK estate agents do not handle client money and the risk of money laundering is small. The Treasury therefore does not intend to set up a system of registration of estate agents to ensure compliance with the 2003 Regulations. The industry bodies for estate agents will, however, be expected to raise awareness of money laundering risks across the sector and develop Treasury approved guidance notes. The guidance notes will be required because estate agents will still be within the regulated sector for the purposes of reporting money-laundering suspicions and will still be subject to the substantive obligations in the 2003 Regulations.
Casinos
UK casinos already maintain anti-money laundering procedures in line with an industry code of practice. The only new requirement from the Second Money Laundering Directive is that casinos will be expected to confirm the identity of any person who purchases chips of €1,000 or more.
Dealers in High Value Goods
Although the main aim of the Second Money Laundering Directive is to catch proceeds of crime being laundered through the purchase of luxury goods it is open for member states to decide the definition of "dealers in high value goods". The Treasury has stated that it expects all businesses that deal in goods of any description that involve a cash payment of €15,000 or more to register with Customs & Excise and to comply with the 2003 Regulations. The number of businesses that will now have to register and comply with the 2003 Regulations will increase dramatically. It will mean, for example, that businesses such as car dealers who accept deposits of €15,000 or more will be expected to register with Customs, appoint a money laundering reporting officer, train staff and maintain identification, record keeping and suspicious transaction procedures for cash payments over €15,000.
Regulation 8 Concession
As previously commented the Treasury intends to remove the regulation 8 concession in the 1993 Regulations ("Proposed removal of Regulation 8 of the Money Laundering Regulations 1993") To view article click here. The Treasury has not yet confirmed whether or how its expects firms to re-confirm the identity of existing customers who have benefited from the regulation 8 concession.
Civil Penalties
The Treasury paper also talks of civil penalties for breaches of the 2003 Regulations as it believes such penalties are more flexible and easier to impose. The draft regulations do not reflect this new enforcement regime but they have not been ruled out.
further information please contact Mayoor Patel at mayoor.patel@cms-cmck.com or on +44(0)20 7367 2984, Tony Marks at tony.marks@cms-cmck.com or on +44(0)20 7367 2508, or contact Paul Edmondson at paul.edmondson@cms-cmck.com or on +44(0)20 7367 2877.
