Money Laundering

Money laundering is the process by which criminal funds are turned into clean money which appears to have been obtained from a legitimate source. The process is commonly used by drug traffickers, terrorists and organised crime syndicates. The process involves three key stages:

·         placement of the proceeds of crime into the financial system;

·         layering to separate the money from its origins;

·         integration, where the funds are integrated back into the economy to appear legitimate in order that the launderer can use the funds.

Money Laundering Regulations

In the UK, certain types of business are currently regulated by the Money Laundering Regulations 2003. These businesses are known as "relevant businesses" and include banks, check cashing businesses, money transmitters, accountants, solicitors, casinos, estate agents, bureaux de change and dealers in high value goods.

Regulation 4 of the Money Laundering Regulations 2003 requires relevant businesses to identify their customers under certain circumstances. Regulation 6 requires relevant businesses to retain copies of identification evidence for 5 years

REGULATION 4 - IDENTIFICATION PROCEDURES

(1) In this regulation and in regulations 5 to 7 -

a. "A" means a person who carries on relevant business in the United Kingdom; and

b. "B" means an applicant for business.

(2) This regulation applies if -

a. A and B form, or agree to form, a business relationship;

b. in respect of any one-off transaction -

i. A knows or suspects that the transaction involves money laundering; or

ii. payment of 15,000 euro or more is to be made by or to B; or

c. in respect of two or more one-off transactions, it appears to A (whether at the outset or subsequently) that the transactions are linked and involve, in total, the payment of 15,000 euro or more by or to B.

(3) A must maintain identification procedures which -

a. require that as soon as is reasonably practicable after contact is first made between A and B -

i. B must produce satisfactory evidence of his identity; or

ii. such measures specified in the procedures must be taken in order to produce satisfactory evidence of B's identity;

b. take into account the greater potential for money laundering which arises when B is not physically present when being identified;

c. require that where satisfactory evidence of identity is not obtained, the business relationship or one-off transaction must not proceed any further; and

d. require that where B acts or appears to act for another person, reasonable measures must be taken for the purpose of establishing the identity of that person.

REGULATION 6 - RECORD-KEEPING PROCEDURES

(1)   A must maintain procedures which require the retention of the records prescribed in paragraph (2) for the period prescribed in paragraph (3).

(2)   The records are -

a.      where evidence of identity has been obtained under the procedures stipulated by regulation 4 (identification procedures) or pursuant to regulation 8 (casinos) -

                                             i.      a copy of that evidence;

                                            ii.      information as to where a copy of that evidence may be obtained; or

                                          iii.      information enabling the evidence of identity to be re-obtained, but only where it is not reasonably practicable for A to comply with paragraph (i) or (ii); and

b.      a record containing details relating to all transactions carried out by A in the course of relevant business.

(3)   In relation to the records mentioned in paragraph (2)(a), the period is -

a.      where A and B have formed a business relationship, at least five years commencing with the date on which the relationship ends; or

b.      in the case of a one-off transaction (or a series of such transactions), at least five years commencing with the date of the completion of all activities taking place in the course of that transaction (or, as the case may be, the last of the transactions).

(4)   In relation to the records mentioned in paragraph (2)(b), the period is at least five years commencing with the date on which all activities taking place in the course of the transaction in question were completed.

(5)   Where A is an appointed representative, his principal must ensure that A complies with this regulation in respect of any relevant business carried out by A for which the principal has accepted responsibility pursuant to section 39(1) of the 2000 Act.

(6)   Where the principal fails to do so, he is to be treated as having contravened regulation 3 and he, as well as A, is guilty of an offence.

(7)   "Appointed representative" has the meaning given by section 39(2) of the 2000 Act and "principal" has the meaning given by section 39(1) of that Act.

FINANCIAL SERVICES AND MARKETS ACT 2000

As a result of the Financial Services and Markets Act 2000 (FSMA) assessing for compliance with the Money Laundering Regulations is now a function of the Financial Services Authority and as such has the power to inspect MSB services operated in FSA regulated investments:

Section 146 of the FSMA states that "The Authority may make rules in relation to the prevention and detection of money laundering in connection with the carrying on of regulated activities by authorised persons"

Section 6: Reduction of Financial Crime

(1) The reduction of financial crime objective is: reducing the extent to which it is possible for a business carried on-

(a) by a regulated person, or

(b) in contravention of the general prohibition, to be used for a purpose connected with financial crime.

(2) In considering that objective the Authority must, in particular, have regard to the desirability of-

(a) regulated persons being aware of the risk of their businesses being used in connection with the commission of financial crime;

(b) regulated persons taking appropriate measures(in relation to their administration and employment practices, the conduct of transactions by them and otherwise) to prevent financial crime, facilitate its detection and monitor its incidence;

I regulated persons devoting adequate resources to the matters mentioned in paragraph(b).

(3) "Financial crime" includes any offence involving-

(a) fraud or dishonesty;

(b) misconduct in, or misuse of information relating to, a financial market; or

I handling the proceeds of crime.

(4) "Offence" includes an act or omission which would be an offence if it had taken place in the United Kingdom.

(5) "Regulated person" means an authorised person, a recognised investment exchange or a recognised clearing house.

The FSA have published a Money Laundering Sourcebook which provides detailed rules for those businesses regulated by the FSA (such as banks). A copy of this is available at the FSA website, www.fsa.gov.uk

PROCEEDS OF CRIME ACT 2002

The Proceeds of Crime Act 2002 (PCA) has strengthened the law on money laundering and sets up an Assets Recovery Agency to investigate and recover assets and wealth obtained as a result of unlawful activity. The Act consolidates various other pieces of anti-money laundering legislation which deals with the laundering of funds which are obtained through drug trafficking, terrorism and other crimes so that they are dealt with under one umbrella piece of legislation. Part 7 of the Act relates to money laundering. The Act extends the requirement for reporting suspicious transactions to cover all criminal conduct and not merely money laundering, drug trafficking or terrorism and is discussed in greater detail in the chapter relating to investigations in private actions.

ANTI-TERRORISM, CRIME AND SECURITY ACT 2001

Terrorists commonly launder money to raise funds for their activities. The Anti-Terrorism, Crime and Security Act (ACSA) ensures that investigative and freezing powers are available when it is suspected that funds could be used for terrorism. A new power is introduced which allows account monitoring orders to be granted to the police, enabling them to require financial institutions to provide information about accounts for up to 90 days.

The ACSA provides greater powers for the treasury to make a freezing order in respect of terrorists' bank accounts.

Section 4: Power to Make Order

(1) The Treasury may make a freezing order if the following two conditions are satisfied.

(2) The first condition is that the Treasury reasonably believe that-

(a) action to the detriment of the United Kingdom's economy (or part of it) has been or is likely to be taken by a person or persons, or

(b) action constituting a threat to the life or property of one or more nationals of the United Kingdom or residents of the United Kingdom has been or is likely to be taken by a person or persons.

(3) If one person is believed to have taken or to be likely to take the action the second condition is that the person is-

(a) the government of a country or territory outside the United Kingdom, or

(b) a resident of a country or territory outside the United Kingdom.

(4) If two or more persons are believed to have taken or to be likely to take the action the second condition is that each of them falls within paragraph (a) or (b) of subsection (3); and different persons may fall within different paragraphs.

Terrorist cash is defined by the ACSA as: "cash which is intended to be used for the purposes of terrorism, cash which consists of the resources of a proscribed organisation of cash which is or represents property obtained through terrorism"