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Money Laundering - A New Emphasis?

Author: Stuart J Cairns | Date Added : 13-Apr-05

EU/REGULATORY

MONEY LAUNDERING - A NEW EMPHASIS?

As the onus switches in combating money laundering in the UK, Stuart Cairns discusses some of the pitfalls for employers.

MONEY LAUNDERING - A NEW EMPHASIS?

Essentially, money laundering involves the process by which the identity of illegally obtained money is concealed or disguised in order that the proceeds appear to originate from a legitimate or legal source and can therefore be safely reintegrated into the financial system. It has been estimated that at any one time, the UK's share of the international money laundering market is probably worth in excess of £19 billion.

Although acknowledged for decades as a world-wide problem, it was only following an explosion of tax evasion in the late 1980s (and the resulting impact on government revenue) that concentrated efforts were made on a global scale to try to combat this. More recently, September 11th and an increased concern regarding international terrorism have provided renewed impetus to the crusade to combat this problem.

The Three Phases of Money Laundering

Placement - this is the physical disposal of cash into the financial system. The simplest example is paying a sum into a bank account
Layering - this is the separation of dirty money from its illegal source by, for example cross-border transactions international electronic transfer or placing funds with professional advisers;
Integration - this is the final stage whereby the money re-emerges in an apparently legitimate form as, for example, bona fide business funds.
The Regulations

The level of new regulation that has emerged recently best evidences the renewed drive toward tackling this crime. There are a number of key documents which businesses and advisers should consider when determining how best to meet their respective legal obligations including the Proceeds of Crime Act 2002, Terrorism Act 2000 (as amended), Money Laundering Regulations 1993 and 2001, Financial Services Authority's Money Laundering Rules and the Joint Money Laundering Steering Group Guidance Notes.

In addition, financial entities operating in the United States or servicing US customers should also be aware of the US Patriot Act and, where working internationally, the Organisation for Economic Co-operation and Development's watch list of non-co-operative countries.

It is not possible in this brief article, to discuss all the provisions. However the following are worth noting:

(1) The main features of the Proceeds of Crime Act 2002 are:

the major extension of the scope of money laundering offences;
the introduction of various reporting requirements; and
the establishment of the Assets Recovery Agency under the high-profile leadership of Alan McQuillan.
(2) The Money Laundering Regulations 1993 currently apply to financial institutions and professionals involved in "relevant financial business" (ie, investment activities or regulated activities as defined by the Financial Services and Markets Act 2000). The Regulations now make it a requirement that such businesses:

adopt appropriate identification procedures;
maintain comprehensive record keeping procedures;
implement internal reporting procedures; and
provide employee training.
(3) The Draft Money Laundering Regulations 2003 (which are not yet implemented in the UK) will not only consolidate, clarify and update the existing provisions of the 1993 Regulations, but it is also anticipated that they will provide specific regulations to cover the operations of, for example, estate agents, dealers in high value goods and professionals including external accountants and lawyers (all the above are already subject to general obligations of some sort or another).

(4) The FSA rules apply to regulated activities carried out by authorised persons and require that anti-money laundering arrangements be established and operated. Already in Northern Ireland, the failure by one of the leading local banks to meet its obligations has resulted in a fine of £1.25 million being imposed (one of the highest fines imposed by the FSA on a UK regulated entity under these arrangements).

Responsibility

The law surrounding the detection and prevention of money laundering continues to evolve. Increasingly, the emphasis is moving toward penalising those who facilitate the laundering (whether intentionally or not), as well as the criminals whose money is to be laundered. It is clear that senior management must take responsibility for their business practices and the actions of their employees by implementing strict procedures for dealing with circumstances where they should reasonably have suspected that laundering was taking place. The alternative could be a fine and, as some institutions have recently discovered, a very public dressing down.

Stuart Cairns is an Associate in the firm's Corporate Department. Stuart can be contacted at stuart.cairns@lestrangeandbrett.com

Quote: local banks fine of £1.25m

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Money Laundering - A New Emphasis?