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Money laundering regulation

 

Proceeds of Crime Act 2002

 

This page contains:

Introduction

POCA general money laundering offences

  Criminal property

  Criminal conduct

  Suspicion

  Adequate consideration

  Authorised disclosure and appropriate consent

  Other defences

Money laundering offences in the regulated sector

  Regulated sector definition

  Failure to disclose offence

  Tipping off offence

Customer’s rights against bank or other reporting party

Judicial review of SOCA decision

Enforcement

Introduction

The Proceeds of Crime Act 2002 (‘POCA’) provides powers for enforcement authorities in the UK to recover in criminal and civil proceedings money and other assets which are deemed to be the proceeds of crime. It also creates a set of criminal offences intended to combat money laundering (AML offences).

Some of the offences apply generally to all persons, while certain offences apply specifically to persons in the ‘regulated sector’ which covers a range of business and professional activities in the financial, real estate and professional advisory sectors.

POCA offences applying generally

 

The three main money laundering offences of general application are:

* Concealing criminal property: a person commits an offence if he conceals, disguises, converts or transfers criminal property; or removes criminal property from England and Wales or from Scotland or from Northern Ireland. ‘Concealing or disguising’ criminal property includes concealing or disguising its nature, source, location, disposition, movement or ownership or any rights with respect to it. [POCA s.327]

* Arrangements: a person commits an offence if he enters into or becomes 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 person. [POCA s.328]

* Acquisition, use and possession: a person commits an offence if he acquires, uses or has possession of criminal property. POCA s.329] 

Key definitions

The following definitions are key to understanding the scope of the offences:

Criminal property’: property is treated as ‘criminal property’ for the purposes of these offences if:

* it constitutes a person's benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly); and

* the alleged offender knows or suspects that it constitutes or represents such a benefit.

In Geary [2010] EWCA Crim 1925 [2011], the Court of Appeal held the ‘arrangement’ in POCA s.328(1) had to be one which related to property which was criminal property at the time when the arrangement began to operate on it. It did not extend to property which was originally legitimate but became criminal only as a result of carrying out the arrangement.

In Dare v Crown Prosecution Service [2012] EWHC 2074 (Admin), the High Court held that an arrangement which facilitated the future acquisition of criminal property was not within POCA s.338 because the word ‘facilitates’ was in the present tense.

In the recent case of R v GH (Respondent) [2015] UKSC 24, the Supreme Court reversed the decision of the Court of Appeal. A fraudster, B, established four “ghost” websites falsely pretending to offer cut-price motor insurance. In order to carry out this plan he recruited associates to open bank accounts for channelling the proceeds. H was one such associate.
One website was named AM Insurance, which operated from 1 September 2011 to January 2012. Shortly before the website went live, H opened two bank accounts, one with Lloyds Bank and one with Barclays Bank. Subsequently, B took control of these accounts and the related bank cards. In total, members of the public were duped into paying £417,709 into the Lloyds’ account and £176,434 into the Barclays’ account for non-existent insurance cover.
B pleaded guilty to a number of offences. H stood trial at the Central Criminal Court charged with entering into or becoming concerned in an arrangement which he knew or suspected would facilitate the retention, use or control of criminal property, namely the money received into the accounts, by or on behalf of B, contrary to section 328(1) of the Proceeds of Crime Act 2002 (“POCA”).

The trial judge upheld the submission that H had no case to answer, finding that at the time H entered into the arrangement no criminal property existed. The Court of Appeal dismissed the prosecution’s appeal; although it was not necessary for criminal property to exist when B and H came to the prohibited arrangement, the arrangement must relate to property which was criminal property when the arrangement begun to operate on it. In this case, the money was not criminal property when the arrangement began to operate on it, in other words at the moment the money was paid into the accounts. The prosecution appealed to the Supreme Court which reversed the decision of the Court of Appeal, holding that when the money was paid into the accounts, it became criminal property by reason of the fraud perpetrated by B.

[Crown copyright: contains public sector information licensed under the Open Government Licence v2]

Comment: the definition of criminal property is very wide. It is striking that there is no disregard for very minor offences or trivial amounts, nor is there any time limit after which an offence is disregarded.

Criminal conduct’: is conduct which constitutes an offence in any part of the UK or would constitute an offence in any part of the UK if it occurred there.

[POCA s.340(2)&(3)]

Suspicion: is an ingredient of the 'arrangements' offence. The Court of Appeal has held that the meaning of 'suspicion' under the CJA 1988 (the predecessor of the POCA) is that the defendant must have thought that there was a possibility, which was more than fanciful, that the other person was or had been engaged in or had benefited from criminal conduct. A vague feeling of unease would not suffice. The suspicion so formed should be of a “settled nature”: There is no requirement for suspicion to be reasonable:

.

R v Da Silva [2006] EWCA Crim 1654 (in criminal proceedings);

K Ltd v National Westminster Bank Plc [2006] EWCA Civ 1039 (civil proceedings)

Adequate consideration: the acquisition or use AML offence is not committed if the person acquired, used or had possession of the property for adequate consideration [‘consideration’ means the price or other value given in payment]. A person is treated as acquiring property for inadequate consideration if the value of the consideration is significantly less than the value of the property. A person is treated as using or having possession of property for inadequate consideration if the value of the consideration is significantly less than the value of the use or possession. If a person knows or suspects the provision by a person of goods or services may help another to carry out criminal conduct, any consideration is disregarded. [POCA ss.329(2)(c), 329(3)]

Defences

Certain defences apply which if made out mean that no offence is committed.

The 'authorised disclosure' defence is particularly important in relation to the 'arrangements' AML offence. If the person suspects an arrangement may facilitate the acquisition, retention, use or control of criminal property, he can protect himself by making an 'authorised disclosure' to the relevant authorities.

Authorised disclosures or SARs

No AML offence is committed if a person he makes an ‘authorised disclosure’ (see below) and (if the disclosure is made before he does the act) he has the ‘appropriate consent’ (see below), or he intended to make such a disclosure but had a reasonable excuse for not doing so. Such a disclosure is commonly referred to as a ‘suspicious activity report’ (SAR).

A disclosure is authorised if it is a disclosure to a constable, a customs officer or a nominated officer by the alleged offender that property is criminal property. The disclosure must be made:

* before the alleged offender does the prohibited act; or

* while the alleged offender is doing the prohibited act, he began to do the act at a time when, because he did not then know or suspect that the property constituted or represented a person's benefit from criminal conduct, the act was not a prohibited act, and the disclosure is made on his own initiative and as soon as is practicable after he first knows or suspects that the property constitutes or represents a person's benefit from criminal conduct; or

* if the disclosure is made after the alleged offender does the prohibited act, he has a reasonable excuse for his failure to make the disclosure before he did the act, and the disclosure is made on his own initiative and as soon as it is practicable for him to make it.

[POCA s.338]

Appropriate consent

An appropriate consent is the:

* consent of a nominated officer to do a prohibited act if an authorised disclosure is made to the nominated officer;

* consent of a constable to do a prohibited act if an authorised disclosure is made to a constable; or

* consent of a customs officer to do a prohibited act if an authorised disclosure is made to a customs officer.

A ‘nominated officer’ is a person appointed by the person’s employer, e.g. a Money Laundering Reporting Officer.

A person is treated as having the appropriate consent if he makes an authorised disclosure to a constable or a customs officer, and either:

*  he does not receive notice within the ‘notice period’ from a constable or customs officer that consent to the doing of the act is refused; the notice period is the period of seven working days starting with the first working day after the person makes the disclosure; or

* the ‘moratorium period’ has expired; the moratorium period is the period of 31 days starting with the day on which the person receives notice that consent to the doing of the act is refused.

A working day is a day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day which is a bank holiday in the part of the United Kingdom in which the person is when he makes the disclosure.

[POCA s.335]

Amendments to POCA in the Criminal Finances Act 2017 (“CFA”) allow “senior officers” of authorised law enforcement agencies (or “Applicants” in this context ) to seek an extension to the moratorium period for up to an additional 31 days at a time, up to a maximum of 186 days (see new sections 336A -336D of POCA).

Home Office Circulars

Home Office Circular 29/2008 - Proceeds of Cr ime Act 2002: Obligations to Report Money Laundering – The Consent Regime gives guidance on the existing moratorium period. HO Circular 022/2015 Money laundering: the confidentiality and sensitivity of suspicious ac
tivity reports (SARs) and the identity of those who make them.

Home Office Circular 008/2018 - riminal Finances Act 2017: POWER TO EXTEND MORATORIUM PERIOD was issued to ensure consistency in practice by law enforcement
agencies in the operation of the provisions, and to provide an understanding of the responsibilities of the different agencies when an extension has been sought.
This circular does not constitute legal advice. It is not a statement of law and is not
intended to provide a comprehensive description or interpretation of the power.

Other defences

Defence if crime not or believed not committed in UK

An AML offence is not committed if:

* he knows, or believes on reasonable grounds, that the relevant criminal conduct occurred in a particular country or territory outside the United Kingdom,

* the relevant criminal conduct was not, at the time it occurred, unlawful under the criminal law then applying in that country or territory; and

* is not of a description prescribed by an order made by the Secretary of State [currently the offences prescribed are an offence under the Gaming Act 1968 and under the Financial Services and Markets Act 2000 s.23 & s.25].
[POCA ss.327-329; Proceeds of Crime Act 2002 (Money Laundering: Exceptions to Overseas Conduct Defence) Order 2006]

Defence of official function

Each of the three AML offences are also not committed if the act the person does is done in carrying out a function he has relating to the enforcement of any provision of POCA or of any other enactment relating to criminal conduct or benefit from criminal conduct. [POCA ss.327(2)(c), 328(2)(c), 329(2)(d)]

Money laundering offences in the regulated sector

 

In addition to the general money laundering offences, certain money laundering offences apply only in the regulated sector.

Regulated sector

The ‘regulated sector’ is defined in a complex set of definitions in POCA s.330/sched.9 but in brief includes:

* banks and credit institutions;

* stock brokers and investment trading and advisory firms;

* insurance companies and * insurance intermediaries

* managers of money, securities or other assets of clients;

* company auditors

* accountancy service providers;

* tax advisers;

* real property dealers;

* estate agency work ( as defined in the Estate Agents Act 1979 s.1 but so that disposing of or acquiring an estate or interest in land outside the United Kingdom is included u);

* opening or managing of bank or securities accounts;

* organising company fund raising;

* creation, operation or management of trusts, companies and similar entities;

* provision of legal or notarial services;

* trading in goods (including dealing as an auctioneer) whenever a transaction involves the receipt of a payment or payments in cash of at least 15,000 euros in total, whether the transaction is executed in a single operation or in several operations which appear to be linked, by a firm or sole trader who by way of business trades in goods;

* operating a casino under a casino operating licence within the Gambling Act 2005 s.65(2);

* auctioning by an auction platform of two-day spot or five-day futures, or bidding directly, on behalf of clients, in auctions of emissions allowances in accordance with the Emissions Trading System (‘ETS’) under Commission Regulation (EU) No 1031/2010 of 12 November 2010.

Exceptions: there are certain exceptions to the above, including among others:

* issuing of withdrawable share capital and acceptance of deposits by Industrial and Provident Societies within statutory limits;

* businesses which meet the following conditions:

- total annual turnover in respect of the financial activity does not exceed £64,000;

- the financial activity is limited in relation to any customer to no more than one  transaction exceeding 1,000 euros, whether the transaction is carried out in a single operation, or a series of operations which appear to be linked;

- the financial activity does not exceed 5% of the person's total annual turnover;

- the financial activity is ancillary to the person's main activity and directly related to that activity;

- the financial activity is not the transmission or remittance of money (or any representation of monetary value) by any means;

- the main activity of the person carrying on the financial activity is not an activity mentioned above); and

- the financial activity is provided only to customers of the person's main activity and is not offered to the public.

Regulated sector money laundering offences

The money laundering offences which apply only in the regulated sector, are as follows:

* Failure to disclose: a person commits an offence if four conditions are satisfied:

(i) he knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering;

(ii) the information or other matter on which his knowledge or suspicion is based, or which gives reasonable grounds for such knowledge or suspicion, came to him in the course of a business in the regulated sector;

(iii) he can identify the other person mentioned in paragraph (i) or the whereabouts of any of the laundered property, or he believes, or it is reasonable to expect him to believe, that the information or other matter mentioned in paragraph (ii) will or may assist in identifying that other person or the whereabouts of any of the laundered property; and

(iv) he does not make the required disclosure.

The disclosure must be to a ‘nominated officer’ [e.g. a Money Laundering Reporting Officer] appointed by the person’s firm or an authorised official of the National Crime Agency.

The disclosure must be made as soon as is practicable after the information or other matter mentioned in paragraph (ii) comes to him.

The person must disclose, so far as he knows it, the identity of the other person mentioned in paragraph (i) whereabouts of the laundered property and the information or other matter mentioned in paragraph (ii).

There are exemptions in relation to the offence in certain circumstances for certain professional legal and other advisers who have privileged information.

In deciding whether a failure to disclose offence has been committed, the court must consider whether he followed any relevant guidance which is issued by a supervisory authority.

Comment: The Crown Prosecution Service guidance on POCA states: “The "reasonable grounds for knowing or suspecting" standard (i.e. a "should have known" or negligence test) is new. The rationale for this is that a higher standard of diligence is expected in anti-money laundering prevention in the regulated sector, where comprehensive preventive systems (in line with international standards), are required to be in place. These include requirements to have in place internal systems for reporting and control, and education and training programmes.”

[POCA s.330]

* Failure to disclose: nominated officers: an offence similar to the s.330 offence is committed by a nominated officer who fails to disclose money laundering to the National Crime Agency. [POCA s.331]

* Tipping off: a person commits an offence if he discloses any matter within a money laundering disclosure he has already made, or if he discloses that an investigation into allegations of a money laundering offence is contemplated or being carried out and:


- the disclosure is likely to prejudice any investigation that might be conducted following the disclosure; and


- the information on which the disclosure is based came to the person in the course of a business in the regulated sector.
[POCA s.333A]

Customer’s rights against bank or other reporting party

The courts have held that if the bank makes a suspicious activity report (SAR) to the AML authorities in the form of an ‘authorised disclosure’ as set out in POCA, the bank’s refusal of a bank to honour a customer’s instructions (during the time when the bank has made an authorised AML disclosure and the notice period or moratorium period has not expired) is not a breach of contract nor is it in breach of the customer’s rights under the European Convention on Human Rights. Nor can the bank be compelled to give the reasons for its actions.

Squirrell Ltd v National Westminster Bank PLC [2005] EWHC 664 (Ch)

K Ltd v National Westminster Bank Plc [2006] EWCA Civ 1039

Comment

The cases referred to above show that the customer will generally have no remedy against the bank however innocent the customer may be. The combined effect of the waiting period in the ‘appropriate consent’ procedure of 7 working days or 31 days (as the case may be) and the ‘tipping-off’ offence can be very serious for a business.

This was highlighted in the case of R (on the application of UMBS Online Ltd) v Serious Organised Crime Agency [2007] EWCA Civ 406. In that case, the Court of Appeal observed that:

“The operation of [POCA] certainly has given us a great deal of concern. [The bank’s customer] complain, and there is force in the complaints, that, for example: (1) the blocking of an account is triggered by no more than suspicion, not even reasonable suspicion; (2) the cardinal freedom of the individual to be presumed innocent until proved guilty is blown away; (3) incalculable harm may be done to the person under investigation as the account can be frozen for 40 days in all (non-working days being excluded from the initial period); (4) there is consequently prejudice to clients and customers of the person under suspicion: they too can face ruin; (5) SOCA may be amenable to judicial review but the difficulties of proving an abuse of its power are huge and more often than not the theoretical remedy is in reality worthless. To add to the difficulties, recovery of damages for any loss suffered may not be straightforward in a case like this.”

Judicial review of SOCA or NCA decision

It appears that in some circumstances, a decision of the Serious Organised Crimes Agency (SOCA) (from October 2013 replaced by the National Crime Agency) to refuse consent to a transaction may be challenged in judicial review proceedings

In R (on the application of UMBS Online Ltd) v Serious Organised Crime Agency [2007] EWCA Civ 406, the Court of Appeal held that SOCA had to give the requesting bank consent for the transaction to proceed when there was no longer any good reason for withholding it. The bank’s customer as well as the bank itself was entitled to ask SOCA to review the matter and SOCA was obliged to do so.

Comment: the practical difficulty faced by a customer in the position of UMBS Online is that it will typically be presented by the bank’s refusal or failure to make a payment or accept a receipt of money, yet the bank will not and cannot explain to the customer that the bank has made an AML disclosure to the National Crime Agency and that either the 7 working day notice or the 31 day moratorium period has not yet expired. See further the comment below.

Enforcement

Criminal enforcement: a person guilty of any of the general money laundering offences is liable on conviction on indictment, to imprisonment for a term not exceeding 14 years or to a fine or to both.

A failure to disclose offence in the regulated sector is punishable on conviction on indictment by imprisonment for a term not exceeding five years or a fine or both.

A tipping off offence is punishable on conviction on indictment by imprisonment for a term not exceeding two years, or a fine, or both.

[POCA ss.334, 333A]

[Page upated: 20/02/2018]

 

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