The UK Proceeds of Crime Act 2002 –What is the Relevance??
What is the Proceeds of Crime Act?
This Act consolidates, updates, extends and replaces all previous money laundering deterrence legislation. It makes it an offence for ANY person to acquire or possess criminal property, or to provide assistance to another person to obtain, conceal, disguise, retain or use criminal property. Assistance can be punished by up to 14 years in prison and ignorance of the rules will not be a defence.
What is a defence is reporting a suspicion to the appropriate person with a firm and then onward to the regulators.
So What is New?
This article is only intended to introduce you to a very complex piece of legislation. Detailed guidance should be taken from the Joint Money Laundering Steering Group (for financial institutions) or from the Institutes whose members are now likely to be caught within this complex framework
The first thing is there is no minimum amount that counts within the legislation. Previous legislation always had a de minimis amount, but this has been deliberately removed, due to the concern that a series of small amounts could disguise criminal activity.
The next is the extension of the legislation to a broader range of events. Whilst I stated earlier this replaces money laundering deterrence legislation, most of the previous legislation had drug related issues at their heart. This is no longer the case and criminal conduct (giving rise to criminal property) includes any conduct that would be a criminal offence. So added to drug trafficking and terrorism we have tax evasion, theft and corruption, for example. It is this broadening of the definition to apply without a de minimis level that makes this such an important piece of legislation.
Another issue is that now the offender does not need to take positive action to hide the proceeds to be counted as a money launderer, purely retaining the funds will be sufficient in itself.
The Proceeds of Crime Act 2002 make it an offence for any person within the regulated sector to fail to report their knowledge, suspicion or reasonable grounds for knowing or suspecting. This itself carries a potential 14 year imprisonment term.
Who is Caught by the Rules?
Essentially all those firms that were currently caught within the previous money laundering regulations. This however is to be extended through the implementation of the EU Money Laundering Directive, which will extend these provisions to cover all professional services, and not just investment based activities.
This is consistent with the complaint regularly made by government and the Serious Fraud Office that suspicions are mostly made by a few financial institutions. Extending these requirements to all professionals has the aim of increasing reporting from accountants and other professionals.
What is Suspicion?
This is extremely subjective and does not require proof. As such the closer the relationship with the potential offender, the harder it will be to claim that there were not grounds for suspicion. As always when things go wrong and you end up in court, you will need to show why you did not have a suspicion that has “a degree of satisfaction and not necessarily amounting to belief but at least extending beyond speculation as to whether an event has occurred or not”.
Any the wiser? Probably not, but what you will need to ensure is that you have sufficient policies and procedures, together with training to provide some form of protection in case of difficulties.
How to Recognise Suspicions
Training seeks to make staff aware so that they would not negligently fail to have a suspicion. Nobody wants their institution or firm dragged through the courts associated with laundering, so many firms have such training already. What you are looking for is some form or business relationship that appears to be inconsistent with your knowledge of the customer. This includes transactions whose economic purpose is unclear, where a transaction appears strange either in nature or size, where a customer refuses to provide information, or where a third party is used without an obvious reason.
There may be good reasons for all of this and these reasons may already be known to you. Formally record these reasons for they will be part of any subsequently needed defence.
The extent of actual know your customer recording and monitoring will need to be assessed taking full account of all the relevant risks.
What Should Firms do Now?
For firms that are already in the regulated sector, they will need to change their existing policies and procedures to reflect these changes. The important thing will be to have a better understanding of the nature of the activity carried out by a client. In July 2002 a solicitor was sentenced to six months imprisonment for failing to report even though the court accepted he misunderstood the law, rather than intending to flout it.
So training will be needed and new procedures. Staff need to understand the extension to all forms of crime and policies will need to indicate how reporting should be conducted. The issue often becomes how to make enquiries to ensure that a suspicion is not pure speculation without tipping off a client – which remains a criminal offence. Hence the importance of real training, probably including case studies directly relevant to the situation that your staff may find themselves in.
For firms being caught by the rules for the first time, including accountants and other professionals they will need to start to identify their clients and keep records of client identity and transactions handled. They will need to implement training and procedures to provide a backstop. It is pleasing to see that the Institute of Chartered Accountants in England and Wales is seeking to introduce a Practice Review scheme encompassing some of these issues because firms will be better starting the process now, than waiting for the inevitable problems.
Firms will need to have an appropriate person appointed to initially consider any report. Such a person is typically going to be the Money Laundering Reporting Officer, using Financial Services Authority speak. They will be responsible for reporting to NCIS and then normal business will continue with the customer. The firm does not do further investigation since they then run the risk of tipping off the client. NCIS will take actions, if appropriate, and they will eventually either clear the customer or take appropriate action.
The biggest issue for me remains the absence of a de minimis amount. Can you imagine trying to identify a de minimis for tax evasion, for example? Say you have a client in the cash based economy – is that sufficient to raise the profile of a suspicion? The last thing the National Criminal Intelligence Service (NCIS) requires is for all of these items to be reported to it – but there it is. Hopefully more guidance will be forthcoming, since compliance with guidance is a safe harbour under these regulations.
This is only the briefest of introductions to a lengthy piece of legislation. In preparing this article, our objective has been to raise awareness of the new legislation and to anticipate future EU changes. In all areas firms affected should make reference both to the legislation and to detailed relevant guidance.
