Money Laundering Rules

The government has recently introduced tough new rules to crack down on money laundering and the proceeds of crime.

New legislation has expanded significantly the definition of what has traditionally been considered as money laundering. While the general principles remain: money laundering involves turning the proceeds of crime into apparently ‘innocent’ funds with no obvious link to their criminal origins; the definition now includes the proceeds of any criminal offence, regardless of the amount involved. The two key pieces of legislation are the Proceeds of Crime Act 2002 (The Act) and the Money Laundering Regulations 2003 (The Regulations). The Act re-defines money laundering and the money laundering offences and creates new mechanisms for investigating and recovering the proceeds of crime. The Act also revises and consolidates the requirement for those affected to report knowledge, suspicion or reasonable grounds to suspect money laundering to the authorities. The new regulations came into force on 1 March 2004. The new regime requires many more businesses to introduce procedures to combat money laundering and the criminal activity that underlies it and relates to anyone in what is termed as the ‘regulated sector’ which includes, but is not limited to:-

• Accountants and Auditors

• Tax Advisors

• Dealers in high value goods (including auctioneers) whenever a transaction involves accepting a total cash payment equivalent to E15,000 (around £10,000) or more

• Casinos

• Estate Agents

• Some Management Consultancy Services

• Company Formation Agents

• Insolvency Practitioners

• Legal Advisors

• Bureau de Change

Those businesses that fall within the definition are now required to establish procedures to:-

• Confirm the identity of new clients

• Appoint a Money Laundering Nominated Office (MLNO), and

• Establish systems and procedures to forestall and prevent money laundering.

A wide range of professionals and other businesses are affected by the new legislation. Those affected must comply with the new laws or face the prospect of criminal liability (both fines and possible imprisonment) where they do not.

The definition of money laundering has been extended to include the proceeds of any crime. Those in the regulated sector are required to report knowledge or suspicion (or where they have reasonable grounds for knowing or suspecting) that a person is engaged in money laundering, i.e. has committed a criminal offence and has benefited from the proceeds of that crime.

Reports must be made to the National Criminal Intelligence Service (NCIS). NCIS is a government body that works on behalf of all UK law enforcement agencies in the fight against serious and organised crime. NCIS has an Economic Crime Branch and its most important function is to analyse the suspicious activity reports (SARs) that it receives from those in the regulated sector and disseminate this information to the relevant law enforcement agency.

The government has insisted upon there being no de-minimus limits within the legislation. This means that very small proceeds of crime have to be reported to NICS.

Deliberate tax evasion is likely to be regarded as a criminal offence (of cheating the public revenue). For example, not correcting an error such as claiming input VAT back on a company car when the error is discovered. If the decision not to correct the error results in tax that should be paid going unpaid or a repayment that was due not being made, this is likely to be a reportable offence under the new regime.

Making an error is not itself a criminal offence. It is the decision not to rectify the error that gives rise to the intention to evade tax.

Tipping Off

There is also an offence known as “tipping off” under the Act. This is what would happen if a person in the regulated sector were to reveal that they knew or thought that a suspicious activity report had been made, say for example, to their customer or client. Where this disclosure would be likely to prejudice any investigation by the authorities, an offence may be committed.

The new legislation brings a number of professions and businesses into the regulated sector. Complying with the requirements of both the Act and the Regulations requires those affected to introduce a number of new procedures to ensure that they meet their legal responsibilities.

Please contact our Money Laundering Nominated Officer if you would like more information on money laundering.