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The Actuary The magazine of the Institute & Faculty of Actuaries

Dirty money?

It has been difficult to avoid the recent reports, in the national and financial press, about the government’s desire to crack down on organised financial crime. In the past, professionals have, in large part, allowed their practices to continue largely oblivious to the efforts of the Serious Fraud Office and the Financial Services Authority. Not any more.

New regulations
The chosen avenue of attack has been to focus on the maxim used by investigators all over the world: follow the money. The Proceeds of Crime Act 2002 (the Act) and the Money Laundering Regulations 2003 enable the authorities to use the network of individuals and institutions within the regulated sector as their listening posts so as to identify ‘dirty’ cash which, it is hoped, will lead to the principals behind major organised crime.
Under earlier legislation, money-laundering offences were largely aimed at the criminal who obtained the criminal proceeds, and others who dealt with the property for the criminal. The new offences are aimed at the knowledge or suspicion of a person in their handling of criminal property and not an individual’s knowledge about the person who had benefited from the criminal conduct.

Types of offence
The definitions of money-laundering are broad, and the sentences severe, so complying with the regulations is essential. There are five different types of money-laundering offence.
– Dealing with proceeds of criminal property.
– Making arrangements with a criminal in relation to his proceeds of criminal conduct.
– Offences relating to the acquisition, use, or possession of criminal property.
– Failing to disclose knowledge or suspicion of money-laundering.
– Tipping-off offences (ie warning people that they may be reported).
The definitions of ‘dealing’ and ‘arrangements’ are sufficiently wide to include any commercial transaction involving criminal property, including what may appear to be perfectly valid transactions involving tainted property.

What is criminal property?
The definition of ‘criminal property’ needs to be understood. Criminal property includes property which:
– constitutes a person’s benefit from criminal conduct; or
– represents such benefit in whole or part (ie converted property); and
– the alleged offender knows or suspects is, or represents, such benefit.
Importantly, the definition is wide enough in the third bullet point to mean that even if a person wrongly suspects that they are laundering the proceeds of crime, that person is still guilty of an offence.
In the event that anyone is in the invidious position of having a suspicion that they are involved in a money-laundering issue, all is not lost. The Act does offer some protections to people working within the regulated sector. In particular, a person has a defence if disclosure is made to a constable (or a firm’s nominated money-laundering reporting officer, where one is appointed) prior to the transaction being carried out.

Making a report
It is important to note that the making of the report does not in itself give protection, and having made a report, nothing should be done to further the suspect transaction. The transaction can be completed only if appropriate consent is received from the authorities, which will take one of three forms.
– Express consent from the constable for the transaction to proceed.
– No notice is received from the officer to whom the report was made within seven working days of the date the report was made.
– Notice is received refusing consent (within seven days) but then no further contact is received within 31 days of the refusal.
While the disclosure provisions offer some assistance, they also cause problems. In particular, having determined that you have a suspicion and having made a report, what can you explain to your client about a delay? These problems become particularly acute if consent is initially denied and you are asked by your client why there is a delay pending the 31-day moratorium period. The short answer is that you usually are not able to tell your client anything and if you do you are liable to have committed a further criminal offence (of tipping off) subject to a five-year prison sentence. It is very difficult to provide any general advice about how to explain any delay, particularly when professionals have a fiduciary relationship with their clients to act in good faith. In those circumstances it would be wrong to lie, but equally the law prevents you from being open with your clients.
The regime is deliberately draconian as a consequence of the perception that earlier legislation failed in its attempts to persuade professionals of their obligations to report money-laundering to the authorities. Accordingly, there is every prospect that prosecuting authorities will use their new powers with a view to frightening everyone into compliance.