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Money Laundering - The New Legislation

by Bart Casella 

The Proceeds of Crime Act 2002 (the Act) and the Money Laundering Regulations 2003 (the Regulations) will affect a substantial number of commercial, criminal and family solicitors' firms. Those firms affected by the legislation will be obliged to educate and train staff in the detection of money laundering, adopt new procedures in order to ascertain the true identity of their clients, appoint a Money Laundering Reporting Officer and report suspicious activity. Those solicitors firms that conduct criminal defence work will potentially encounter many more professional lay clients that require advice and assistance as the definition of "the regulated sector" is broadened. The Act will also replace a lot of the present drug trafficking and criminal justice confiscation legislation and creates a new government agency, the Assets Recovery Agency (the ARA), to deal with the confiscation of criminal's assets.

This article attempts to summarise some of the main aspects of the new legislation.

The Proceeds of Crime Act 2002 - Confiscation Orders

Part Two to the Act will replace a lot of the present drug trafficking and criminal justice confiscation legislation and will widen the scope of offences covered. A number of the provisions are similar to the present drug trafficking and criminal justice legislation.

Under the Act, a Crown Court may consider making a confiscation order of its own motion and must consider making an order when requested to do so by the prosecutor or Director of the ARA. A confiscation order will be made in relation to the defendant's 'benefit from his general criminal conduct'. The amount to be confiscated and the way in which the figure is arrived at will vary according to whether the Court finds that the defendant has a 'criminal lifestyle'.

A defendant has a 'criminal lifestyle' if convicted of one of the specified offences under Schedule 2 to the Act (includes drugs offences, money laundering, people/arms trafficking, counterfeiting, living off immoral earnings, blackmail etc) or if the offence or any of the offences of which he is convicted 'constitutes conduct forming part of a course of criminal activity' (see Sections 75 and 76 to the Act). The consequences of a finding that the defendant has a 'criminal lifestyle' within the meaning of Section 75 to the Act are draconian. Any property transferred to the defendant within the preceding six years and any property held by him after conviction will be assumed to have been obtained as a result of his general criminal conduct and be liable to confiscation. The amount to be confiscated under the confiscation order will also include an amount representing the amount of any expenditure made by the defendent in the preceding six years.

In those cases said to be 'non-lifestyle' cases (as cases not falling within the above definition of 'criminal lifestyle') the Court is only required to look at the particular criminal conduct concerned (see Section 76).

Having decided whether the case is a 'criminal lifestyle' case or a 'non-lifestyle case' the Court will make an order for a specified amount to be recovered. This is known as the 'recoverable amount'. A term of imprisonment in default of payment will be ordered by the Court.

A number of ancillary powers to assist in prosecutions will be enacted. In order to acquire more information the prosecution may apply to the Court to exercise its powers under Sections 345 - 351 to the Act, requiring a person that appears to be in possession or control of material to produce it, or under Sections 357-263 which require the person (to whom the order relates) to answer questions, provide information or produce documents specified in the order. There are specific orders relating to institutions such as the 'customer information order' requiring an institution to divulge information in relation to a specified customer. There is also the 'account monitoring order' under Sections 370-375 for financial institutions to provide account information in relation to a specified account held with them. Search and seizure warrants may be ordered by a court under Sections 352-356 to the Act.

Proceeds of Crime Act 2002 - The New Money Laundering Offences

New Money Laundering offences are created under Part 7 of the Act. The Act focuses on knowledge of the illegitimacy of funds being dealt with by persons. Significantly it introduces an objective test of "knowledge or suspicion" in respect of offences of 'failing to report' under Section 330 (see below).

Sections 327 to 329 of the Act relate to the laundering of property that is or represents another's benefit from criminal conduct. Under Section 327 of the Act it is an offence to conceal, disguise, convert, transfer criminal property or remove it from the UK. Under Section 328 it is an offence for a person to become concerned in an arrangement which, he knows or suspects, facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another. Under Section 329 it is an offence for a person to acquire criminal property, use criminal property or possess criminal property. For the purposes of these provisions criminal property is widely defined as property which "is or represents, in whole or in part, a persons benefit from criminal conduct". Criminal conduct is conduct which "is an offence in any part of the UK or would be if it occurred in the UK". The offences carry a maximum penalty of 14 years imprisonment and/or a fine (on indictment).

It is a defence to any charge under those provisions to make an 'authorised disclosure' to either a police constable, an officer of HM Customs and Excise or other nominated officer either before or after a 'prohibited act' (see Sections 338 and 339 to the Act).

Sections 330 to 333 to the Act have caused significant interest amongst lawyers as those provisions have potentially far reaching consequences. One of the most important provisions is that contained within Section 330 of the Act. Section 330 of the Act applies to persons carrying on business within the "regulated sector" (defined in Schedule 9 to the Act) when dealing with clients/potential clients. A person will commit an offence under Section 330 of the Act if he knows or suspects, or has reasonable grounds for knowing or suspecting, that his client/potential client is engaged in money laundering and he does not disclose this as soon as is practicable. Firms within the "regulated sector" will appoint a person to receive the disclosure (known as the Money Laundering Reporting Officer or MLRO). Under Section 331 to the Act the MLRO will commit an offence if he knows or suspects, or has reasonable grounds for knowing or suspecting, that another is engaged in money laundering and he does not disclose this as soon as is practicable to the authorities.

Once a disclosure has been made to the authorities the client/potential client cannot be informed. To do so would risk committing an offence under Section 333 to the Act in relation to 'tipping off'. Under this section to the Act if a person makes a disclosure to another which is likely to prejudice any investigation which might be conducted he commits an offence.

A person who commits an offence under one of these sections (Sections 330 - 333) is punishable with up to 5 years imprisonment and/or a fine (on indictment).

Money Laundering Regulations 2003

It was previously thought that the legislation that sought to prevent money laundering of the proceeds of criminal activity was too limited in its scope. It was aimed at the regulation of professionals in the financial and investment sector. It has long since been recognised that those involved in criminal conduct were sophisticated in finding a wider range of business and professional activities that were vulnerable to being used in order to legitimise proceeds from criminal activity. Those businesses/professionals were seen as more vulnerable because they were not trained/regulated in systems designed to prevent the use of their services to launder the proceeds of crime.

The new legislation will seek to tackle the problem in two ways. Section 330 of the Proceeds of Crime Act, dealing with failures to report suspected money laundering, is applicable to businesses in the "regulated sector" as defined in Schedule 9 of the Act (see above). The present definition of which businesses fall within the "regulated sector" is narrow and does not encompass most solicitors' firms. The importance of the Act has been significantly increased by the proposed amendment of this definition. It is anticipated that Schedule 9 to the Act will be amended in due course to bring a significant number of solicitor's firms (including those dealing with the purchase/sale of property and formation of companies for clients) within the definition of the "regulated sector". It is anticipated that this amendment to Schedule 9 will be implemented in tandem with the passing of the Money Laundering Regulations 2003. The new legislation will also affect other professions such as accountants, estate agents etc.

The second change involves the passing of the Money Laundering Regulations 2003 ("The Regulations"). It is anticipated that the Money Laundering Regulations 2003 will come into force on 1st June 2003. The Regulations will impose obligations on solicitors/other professionals to obtain sufficient knowledge of new clients, to ensure record keeping of transactions, to have in place internal procedures to report money laundering and to educate and train of staff in relation to recognising potential money laundering activities by clients and potential clients. There is then a requirement that once suspicious activity has been reported for the solicitor/other professional to co-operate with the authorities in the investigation.

Every person who carries on a "relevant business" must comply with the requirements of regulation 3 (training of staff) regulation 4 (identification procedures), regulation 6 (record-keeping procedures) and regulation 7 (internal reporting procedures). Any person found guilty of breaching any of the regulations is liable to a term of two years imprisonment and / or a fine (on indictment). The definition of "relevant business" is very wide (see regulation 2).

Those persons who will have to work within the framework, whether because they will have to implement new working procedures into their firms or have to advise suspects of the new legislation, will not only have to familiarise themselves with the legislation but will also have to consider any 'relevant guidance' issued by a supervisory body or any other appropriate body approved by the Treasury and published in a manner approved by the Treasury. Courts considering offences under Section 330 to the Act and under the Regulations are bound to consider any such guidance when deciding if an offence has been committed.

This article has attempted to provide the reader with a brief insight into the workings of these new far-reaching and significant pieces of legislation. In reality such an article can only scratch at the surface of this subject. What is clear is that there are many lawyers who are potentially affected and who will have to familiarise themselves with the legislation and its application in the months to come.

12 March 2003

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