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Explain the current legislative and regulatory arrangements existing in the United Kingdom in relation to the combating of money laundering

"Changes in the law, new political and social priorities, and a new regulatory framework - have forced anti-money laundering right up the scale of senior management concerns. Rightly, firms now recognise that their financial crime risks, regulatory risks, and risks to their reputation have hugely increased. "

Money laundering is primarily covered under two pieces of UK legislation which are, the Proceeds of Crime Act 2002 (Business in the Regulated Sector and Supervisory Authorities) Order 2003 and the Terrorism Act 2000 (Business in the Regulated Sector and Supervisory Authorities) Order 2003. The specific criminal offences under these provisions will be identified in part one in terms of the required elements for constitution of these crimes and possible defences.
Part two will explain the regulatory arrangements that exist in the UK under the Money Laundering Regulations 2003. This part will explain the provisions applicable to the relevant businesses under the Regulations, systems and training that are to be put in place in order to combat money laundering, legal requirements for the identification of clients, procedures for the keeping of records and the key report procedure.

Part One - Legislative Arrangements

A What is Money Laundering?
1. The Statutory definition
In order to fully understand the breakdown of legislative arrangements that are in place for Money Laundering offences, it is crucial to fully understand the nature of the activity. By definition s 340(11) of the Proceeds of Crime Act 2002 defines the activity as constituting:
"…an offence under ss 327, 328 or 329…an attempt, conspiracy or incitement to commit one of those offences…aiding, abetting, counselling or procuring the commission of one of those offences…any of the…offences if done in the UK… "
Money Laundering therefore constitutes the concealment , arrangement or acquisition, use or possession of criminal property. Criminal Property is also defined as a benefit derived from criminal conduct which is obtainable diectly or indirectly. Therefore property need only have come via the person in order for the actus reus of the criminal offences under the above provisions of the 2002 Act to be satisfied . With regard to the mens rea the provisions of each of the crimes state that the offender must know of or suspect that the conduct is connected with the creation of a benefit from the proceeds of crime

2. Initial Observations

Money Laundering encompasses a huge variety of activities, of which examples constute crimes in relation to everything from the handling of the proceeds of selling the stolen contents of a car, to the mass disposal and source concealment of the annual proceeds of a global drugs trafficking operation . The phenomenon is therefore a very serious one and, within the legislative scope of the PoCA 2002, there is clearly an intention to catch all forms of activity that could possbily relate to the task of Money Laundering. In recent years, the phenomenon has merrited serious attention as a result of September 11, which had itself been funded from illicit resources and a great deal of reform has taken place at the EU level with both a second and a third directive , both of which are unfortunately beyond the scope of this paper. In the UK, the FSA has, since 1 December 2001, been committed to a new statutory objective of combatting the use of firms for the purpose of money laundering as part of financial crime. The precise UK provsions of the PoCA, which refelct this policy, will be explored in Part B in order to illustrate the wide scope as an indication of attempting to criminalize activity that may take as many forms as are permitted by the imaginations of the perpetrators.

B The Proceeds of Crime Act 2002 (PoCA)
The PoCA 2002 has a number of provisions of which only a small proportion are applicable to money laundering and these are located in Part 7 . There are also relevant provisions under Part 8, which contains the offence of prejudicing an investigation.

1. Crimes under Part 7 of the PoCA 2002

In total there are five criminal offences that relate to Money Laundering, which are covered by the 2002 Act and each of these will be explained in full.

(a) Concealing

In accordance with s 327 of the 2002 Act it is an offence to conceal, disguise, convert, transfer or remove criminal property from the jurisdiction of the 2002 Act. With regard to the definition of 'conceal' it is also made clear under s 327(3) of the Act that this includes such acts as disguising the nature, source, location, disposition, movement or ownership. This first offence is interesting from the point of view that there is no need for there to have been evidence of suspicion or knolwedge of any money laundering activity, however it can be said that the nature of the actus reus, concealment, is enough to infer that there is at least suspicion present in the mind of the person who commits the offence. This is backed up by the fact that there is a clear requirement that the items being concealed are a representation or a direct benefit of criminal activity.
An example of the types of perpetrators who could be found guilty of this offence are lawyers, who by moving the property of clients either overseas or by transferring such funds to another location, while suspicious of criminal activity.
Part A revealed that the mens rea for Money Laundering offences required knowledge or suspicion of the nature of the property as the proceeds of crime and this ties in with the defenecs that are available for the crimes under ss 327, 328 and 329 of the 2002 Act. These defenecs are that the offence of concealment is not committed if an authorised disclosure is made under s 338 and appropriate consent is obtained or if there was intention to disclose but this was not carried out and the excuse is reasonable . Finally, there is no offence if the act was in relation to an act that carries out a function that is in relation to a provision of the PoCA . These defences are the staple for crimes under Part 7 of the Proceeds of Crime Act 2002.

(b) Arrangements

In accordance with s 328(1), an offence is committed if a person enters into or becomes involved in an arrangement for which there is suspicion or knowledge of the acquisition, use or control of criminal property either by or on behalf of another person. 'Entering into an arrangement' carries with it the crucial need for there to be the meeting of two or more minds and this is greatly expressed by Diplock LJ in Mulcahy v R , who stated that:
"…all that is required to constitute an arrangement…is that the parties to it shall have communicated with one another in some way and that as a result of the communication each has intentionally aroused in the other an expectation that he will act in a certain way. "
In a financial context there is therefore a great deal of scope for this crime to be committed within the commercial environment. An example would be the transferring of the proceeds of criminal activity from one bank account into another under a different name, for the purpose of avoiding recognition of the sums as the assets of the former. There are however defences in place and these are found under s 328(2) of the PoCA 2002.
(c) Acquisition, use and Possession
It is an offence under s 329(1) of the 2002 Act to acquire, use or have possession of criminal property. This offence is similar to both concealing and arrangements in that the definition is similarly worded in that there is a clear need for suspicion or knowledge. There is however a problem associated with this offence in that the defintion of criminal property is overtly wide due to the fact that this includes all proceeds that constitute a criminal benefit. The result is that a long paper trail leading back to the source criminal property would still fall under the defnition, thereby catching all those who have handled the property, provided that there is prima facie enough evidence to aver the presence of suspicion or knowledge of the status of the property by those who have acquiesed, used and possessed it.
However, the above observation relating to the wide scope of activity that will constitutte Money Laundering reveals that statutory retaliations to this kind of activity do in their own right require to be extremely broad. There is however a counter measure to the event of absurity of scope, which is accounted for by virtue of the added defence of 'adequate consideration ' and this is additional to the stated defences above. No offence is committed if:
"…he acquired or used or had possession of the property for adequate consideration. "
In order for this defence to be satisfied it is essential that the consideration is not significantly less than would otherwise be given for its acquisition, use or possession . Further to this, the provision of goods or services are not deemed to be adequate consideration.
(d) Failure to Disclose
This is the first of the two further categories of offences that are covered under the 2002 Act and is designed to tie in with the notion of suspicion being satisfactory for the mens rea of the above three offences. Failure to disclose is in its own right is indicative of guilt, and, interestingly, will constitute a separate offence under s 330 of the 2002 Act but only for certain individuals with a positive duty to act.
There are in fact three failure of disclosure offences under the Act which cover three types of individuals. These are, the offence for employees in the regulated sector , nominated officers in the regulated sector and other nominated officers . The offences carry the same mens rea requirements although instead of there being a requirement of suspicion, there is the slightly easier and more objective test of 'having reasonable grounds for knowing or suspecting ' of the items as proceeds of crime although this excludes 'other nominated officers' who merely require to have known or suspected . This easier test is a mere reflection of the existence of a positive duty. The defences are also in keeping with those that are available for concealing and arrangements.
(e) Tipping Off
The final heading under the PoCA 2002 is under s 333(1), which states that it is an offence for someone who is aware of a disclosure under s 337 or 338 to make a disclosure to a third party that would be likely to prejudice any investigations that may result from the disclosure. In relation to the mens rea there has to have been knowledge or suspicion that the disclosure would prejudice an investigation and, of course there is the safeguard of professional privilege for professional advisers under s 333(3) of the Act although there has been confusion over the extent of this provision in previous legislation.

2. Crimes under Part 8

It is an offence under s 342 of the 2002 Act to prejudice an investigation. Where an individual is aware of or is in suspicion of the fact that an appropriate officer is acting in connection with a money laundering investigation , they will commit a crime if disclosure is made that is likely to prejudice the investigation . They will also be guilty of an offence if any falsifications or concealments are made , or the person permits or carries out the destruction of documents that would be relevant to the investigation .
The same defences are applicable as for the above crimes which therefore means that there can be no crime without at least realising the potential importance of the disclosure or the documents . Further to this, exemptions lie in place where there is justification on grounds of professional privilege unless there is clear intention of furthering a criminal offence .

C The Terrorism Act 2000

In addition to the PoCA 2002, the Terrorism Act creates its own crime associated with money laundering. This is found under s 18 of the Act whereby it is an offence for a person:
"if he enters into or becomes concerned in an arrangement which facilitates the retention or control by or on behalf of another person of terrorist property, (a) by concealment, (b) by removal from the jurisdiction, (c) by transfer to noiminees, or (d) in any other way"
This offence is very similar to those under the PoCA 2002 in that actual possession of criminal property is not required and the mere conspiracy, aiding and abetting by facilitating advice is enough to constitute the crime, subject to the same mens rea requirements as for the PoCA 2002. The offence also carries the same defences although the notion of 'no reasonable cause to suspect that the arrangement related to terrorist activity' would suggest that the defence will be assessed objectively. Since the enactment of the Human Rights Act 1998, such defences would however contravene Article 6(2) of the ECHR, which ensures the right to a free trial via the presumption of innocence. Therefore objective assessments of criminal defences intefer with this right. Hopefully this defence will be measured on the basis of prima facie evidence to the contrary of the defendant's submissions. This is a compromise that would satisfy the requirement under s 3(1) of the Human Rights Act 1998, which is to interpret primary legislation so that it is in keeping with the ECHR.
Similar controversy exists for s 21A of the 2000 Act, which includes an objective test for those carrying on a business in the regulated sector. Therefore, those with knowledge or suspicion or reasonable grounds for knowing or suspecting are also caught by the offence. 'Regulated sector' falling in line with 'relevant business' under the Money Laundering Regulations 2003, which are discussed in part two below.
Part Two - Regulatory Arrangements of the Money Laundering Regulations 2003
A. Scope of applicability
The regulatory arrangements of the Government's anti Money Laundering Campaign are encompassed in the Money Laundering Regulations 2003 , which implemented the Second European Money Laundering Directive . These regulations state that persons who carry on a relevant business must adopt procedures to combat Money Laundering. The relevant business is defined extensively under regulation 2(2) as all service providers in the field of participation in financial and real property transactions. This therefore includes accountancy firms, insolvency practitioners, tax service providers and all mannor of financial service providers that are regulated by the FSA. The regulatory obligations under these 2003 regulations therefore only apply to business that are possibly vulnerable to the expoits of money launderers.
B. Key obligations under the Regulations
In accordance with part II, there are to be procedures adopted by relevant business in relation to training , identification procedures , record keeping procedures and internal reporting procedures . With regard to training, under regulation 3(1) this must be undertaken for relevant employees, which Rafael clarifies as all individuals that come into contact with any forms of financial aspects of the relevant business . The Regulations state that the training must entail education on becoming aware of the obligations under the Regulations, Part 7 of the PoCA 2002 and ss 18 and 21A of the Terrorism Act 2000.
For idenification procedures, Regulation 4 states that the means of establishing identity of a client must be objectively satisfactory and must subjectively carry out the task of making that identification successfully.

Under the heading of keeping records, in accordance with regulation 5, records of identity ought to be retained for at least five years from the date of the end of a business relationship and, in the case of a one off transaction, at least five years from the completion of all activities associated with it . It is considered by Richards that it would be best practice to retain identification documents and transactional documents in separate locations.
Finally, with regard to internal reporting procedures, regulation 7 states that all reports should be made to a nominated officer of the releant business who would have a duty to monitor activites and report as soon as practicable to the NCIS .
The overall problem with this Regulation is that it is the imposition of a policelike duty on the daily tasks of businesses classified as relevant under the provisions of the regulations. The invasiveness is extreme as failure to set up regulatory regimes that are in accordance with the regulations will constitute a criminal offence for which senior company members can be imprisoned on indictment for a period of up to two years and/or be subjected to a fine of up to £5000 , which alone stands as the penalty on summery conviction!

Conclusion
It is clear that parliament's intention with regard to the PoCA 2002 and the Terrorism Act 2000 was to tackle all activities associated with the handling and 'laundering' of the proceeds of crime, which means that the Government is more than aware of the wide scope of activities to which this type of crime is applicable. Cleverly, the wide scope accounts for typical acts such as concealment, use, arrangement and any other form of handling of criminal proceeds and also takes into consideration those who would also conspire, aid abett, counsel and procure. Additionally, the ability to turn a blind eye is vividly removed, which for all persons creates a duty to inform when suspicion arises and for those falling under ss 330, 331 and 332, a criminal offence is actually committed where there is actual failure to make a disclosure. This Act therefore covers all bases.
By contrast, there is an eery invasiveness and punitive shadow over the Money Laundering Regulations, which have created a criminal offence for failure to adopt the stated regulatory procedures. The irony is that the offence is committed even where there were no Money Laundering activities whatsoever! The result will clearly be a marked reluctance to take on this role within the adsministrative fabric of any 'relevant business'.

Bibliography
Primary Legislation
Second Money Laundering Directive 2001/97/EC
Third Money Laundering Directive 2005/60/EC (OJ 2005 L309/15)
Criminal Justice Act 1988
Drug Trafficking Act 1994
Human Rights Act 1998 (including the schedule encompassing the European Convention for the Protection of Human Rights and Fundamental Freedoms
Data Protection Act 1998
Terrorism Act 2000
Anti-terrorism Crime and Security Act 2001
Proceeds of Crime Act 2002
Secondary Legislation
Money Laundering Regulations 2003 SI 2003/3075,

Case Law
R v Causey (18 October 1999, unreported)
Mulcahy v R (1868) LR 3 HL 306
C v S [1999] 1 WLR 1551
Bank of Scotland v A Ltd [2001] 1 WLR 751

Text Books
Graham. T, Bell E, and Elliot, N., 2004, Money Laundering, Butterworths Compliance Series
Bazley. S. & Foster. C., 2004, Money Laundering: Business Compliance, Lexis Nexus UK, London
Camp. P., 2004, Solicitors and Money Laundering, A Compliance Handbook, The Law Society, London

Government Publications
UK's Anti-Money Laundering Legislation and the Data Protection Act 1998, Guidance Notes for the Financial Sector, HM Treasury, April 2002

Video Resource
College of Law, Programme 1028 Practice Management: The Money Laundering Regulations 2003, Legal Network Television (Video)

Web Resource
National Criminal Intelligence Service (NICS): www.ncis.co.uk

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