UK Law on Money Laundering

The JMLSG classify money laundering as the procedure whereby criminals try to hide and disguise the correct source and ownership of the proceeds of their criminal performance, thereby avoiding prosecution, conviction and taking away of the illegal money. The different stages adopted to get this are term placement, layering and integration. At placement ‘dirty money’ is inserted directly into the financial system. The layering process then attempts

to divide the income from their illegal source by moving them through a chain of monetary dealings, making it harder to set up the link between the two. The last phase in the money laundering method is integration, whereby the money launderer creates a lawful description for the basis of money, allowing them to be engaged, invested into the lawful

market or used to obtain property.

Money launderers are employing more and more difficult techniques, in the course of a range of dealings and firms in order to legitimise the advantage of crime. The financial services trade provides a significant resources through which ‘dirty money’ can be laundered. New technologies such as the Internet offer speed and ambiguity, potentially given that space between launderer and law enforcement. A dramatic raise in the use of offshore financial centres and less well-regulated jurisdictions places of interest the different ways that can assist the laundering process.

There is clearly scope for the proceed of crime generated from illicit activities abroad to be placed in to the UK economy in order to provide apparent legitimacy to them. Wherever

The predicate crime occurred or by whatever means to proceeds are laundered those concerned with the process will aim to move funds or convert them in such a mode as to place as many stages between the initial criminal activity and the property concerned. [1]

Money laundering, by enabling those who smash the law to advantage from their

Unlawful performance damages humanity. It can also spoil London’s reputation as a main economic centre and thus damage market self-assurance and the UK wealth. It is therefore in the welfare of all to work to decrease its occurrence. In addition, of course, organisations that do not fulfil the needs of the Rules and the Regulations danger criminal prosecution or enforcement action by the FSA, as well as loss of status if they fail to take proper steps to

stop the possibility of being used as a ditch for illegitimate movement.

Money laundering is defined in s 340(11) of the POCA as an act which constitutes an offence under ss 327,328, or 329, or an attempt, conspiracy or incitement to commit any of those offences, or aiding, abetting, counselling, or procuring their commission. Under s 340(11)(d) the crime have not been committed in the UK nor must be criminal offence in the jurisdiction in which it took place , provided that it would be an offence an offence in the UK that satisfies the definition.

The law is mainly found in the Proceed of Crime act 2002 which explain money laundering offences in sections 327 to 339. This act has been amended by the serious organised crime and Police act2005.

Concealing etc the proceed of crime

It is an offence under s 327 of the act can be committed in five different ways conceal, disguise, convert, transfers or removes the criminal property the jurisdiction. Under the section a person commits an offence if he concealing and disguising criminal property its nature , source location, disposition, movement or ownership or any rights with respect to it. If a person conceal or disguise the criminal property and he is found in that offence he will be charged under this act. But there are several defences under s 338 of the act it is not an offence if a person concerned made a protect disclosure under the section. The concerned person gives a reasonable excuse for not doing so. Unfortunately there is no proper definition of reasonable excuse and there is no leading case yet it explains the meaning of reasonable excuse. This law need to more improvement and clarification of definition to prosecute the persons who engage in this crime. Criminal property is defined in s 340(3) . Property is a criminal property if it constitutes a person’s benefit from criminal conduct or it signify such as benefits. The benefit can be direct or indirect or whole or in part. In s 327(2) a deposit taking body that convert or transfers criminal property does not commit an offence it does the act concerned in operating an account which it maintains and the value of the criminal property does not exceed the verge amount . At current the amount has been set out £250. Given the quantity of money being laundered this figure seems ridiculously low. It predictably gives increase to doubt that behind the concealment of hostility planned crime and terrorism the actuality is a objective of minimising illicit tax avoidance. [2]

Arrangements

There is an offence under the s 328 where a person enters into or become concerned in an arrangement which he knows or suspect facilitates the acquisition, retention, use or control of a criminal property by or on behalf of another person. As in s 327 defines there is no offence is committed if a disclosure pursuant to s 338 has been made in respect of the criminal property and the person have the appropriate consent, or if the person intend to make such a disclosure but had a reasonable excuse for not doing so or if the act is done in carrying out function he has relating to the enforcement of the act. The three defences of s 327 can be use in this section. This section also explains if a person make any arrangements of illegal money for him or on the behalf of other person he will be liable under this section. If the allegation is proof the sentence under this section is six months imprisonment or fine.

Acquisition, Use, and Possession of the proceed

There is another offence under s 329 for someone to acquire, use or come into possession of property representing the proceed of crime. Any person who use or obtain the property for that purpose he will be liable under this section. The main three defences of sec 327 will also be applied here. There is another offence will apply namely where the person obtaining, using or having possession obtained the property for sufficient consideration. This defence protect the traders who buy the goods and are not therefore under the duty to question the source of money. Goods or services provided in replace which are known or suspected to help to another to carry out criminal conduct will not count as consideration. A supplier of gateway car to be used in robbery who is paid from the proceed of an earlier robbery will not be availed by an argument that the vehicle was sold .In any event he may face alternative allegations such as being a co conspirator in the armed robbery itself.

Failure to disclose

It is an offence under the s 330 where some anybody knows or suspects under the logical basis for so doing that someone is busy in money laundering where the information or doubt came into that person’s possession in the course of their business in the regulated sector. The person on whom this legal responsibility rests must either be able to recognize the person concerned or the position of the laundered property. Under this section if someone knows or he has knowledge about the any transaction or the suspected property he must disclose inform to the authorities . The disclosure should consist on of the suspected person identity location of the property related to the knowledge and the source of the information where from he get all should be mentioned to the relevant authorities . It should be also noted that the date on which the crime gave rise to the proceed was committed is relevant. The definition of money laundering includes the possession of criminal property , any advisor who has the knowledge suspicion or reasonable grounds for suspicion that any person is in possession of criminal property is at the risk of prosecution if he does not make the disclosure. [3]

There is also defence of this section where the person related have the reasonable excuse for not making the required disclosure or where he is a professional advisor and if he knows concerned information it is because of information coming into his hands in privileged circumstances. There is another defence where the person is do not have any information that the other person is engaged in activities and the training was not given to the person by their employer. This defence therefore protects an employee who has not receive such training where there circumstances which give rise to reasonable or reasonable grounds for suspecting money laundering. However once employee develop a subjective knowledge or suspicion of money laundering the defence is no longer available.

Failure to report

It is an offence under the s. 331 where the money laundering reporting officer who receives the report which gives the grounds of suspicion of money or property and he does not make a report to the SOCA. The report he receives should consist the identity of the suspicion person and location of the laundered property and he believes that that information’s given to him that all about the suspicion person or the property. If that officer has all information and he does not make the report he will be committed under this section. But there is also an defence in this section as well if that officer has the reasonable excuse for not making the report he will not be charged under this section. There is no wide definition of this. So if a officer has all the information of the relevant person or property and he is not making a report he is doing such offence under this section.

Tipping Off

It is an offence under s. 333 where a person is involved in the regulated sector and they know or suspect that a report to the SOCA or other appropriate person along the lines set out the above has been made and the person then makes a disclosure which is likely to prejudice an investigation which might fallow but only where that person who has done did not know or suspect that exposé was likely to be unfairness. [4] There is a defence a person does not commit the offence if he did not know or suspect that the disclosure was likely to be prejudicial or the disclosure was made in carrying out a function he had relating to the enforcement of any provision of SOCA or act relating to the Criminal Proceed . or If a person is a legal advisor and the disclosure is to a client or his representative in connection with giving by the advisor to legal advice to any person in relating legal proceedings. This defence is not applied where the disclosure was made for the purpose of furthering a crime. [5]

Penalties

The penalties for the principal offences in s. 327 to 329 are on summary conviction up to six month imprisonment and or the fine not exceeding the statutory maximum, and on indictment fourteen years imprisonment or a fine or both. For offences under the failure to disclose and tipping off provision s.330 to 333 the sentences on summary conviction are the same although the maximum sentence of imprisonment on indictment is five years. [6]

The Money laundering Regulations 2007

The Money Laundering Regulations covers the independent legal professionals, credit institutions, auditors, insolvency Practioners, external accountants and tax advisors and also includes the company services provider estates agents high value dealers and casinos. [7]

These institutions require the identity of the new client be checked in any of the following situations. When starting a new business, to carrying out an occasional transaction or any suspicious money laundering operation and where the suspicion is being raised as to reliability or competence of documents, facts or information before obtained for the purposes of recognition or proof. It would be wise for most financial services firms to require that all new clients have their identity checked at outset. Failure to do so give rise to the risk of someone using the firm on an incremental basis and then getting round the identity checking requirement because the relevant person does not remember to do so once the threshold is crossed. Client’s identity should be checked at the outset but the regulation does the permission some variation in this. Where the nature of the contracts with client is not possible. If the business is with another country the client’s identity should be taken in the first transaction and he is dealing with the financial institutions the person identity should be checked at the same way. So it is important when before doing the new transaction the client’s identification must be obtained to overcome on this crime. That is the first step by using which suspicion transaction can be stopped.

Due diligence and identification procedures.

These procedures are very simple and straightforward where the person concerned consists of accepting the two identities. One relating to the person faces to their name for example the new style driving licence. The second identity should relate to the person name to an address for example a utility bill. That was the example of an individual person doing the business transaction.

In case of the company client there are certain requirements for the company to check the group of the company directors and the ownership of the company. It can be checked on company list. The regulation requirement is to check the person identity with the claiming. Where he is claiming should be check is the proof of identity is the same with his address. Once the identification have bee checked it should be file for the record. But in practically criminals can create much identification with the same name on different premises.

The level of identification checking required is that due diligence should be carried out. This is defined as.

Identifying the customer and verification the customer’s identity on the basis of documents, data or information obtained from a reliable and independent source.

Identifying, where there is a beneficial owner who is not the customer, the beneficial owner and taking adequate measure, on the risk sensitive basis, to verify his identity so that the relevant person is satisfied that who knows the beneficial owner is including in the case of legal person trust or similar legal arrangement measures to understand the ownership and control structure of the person trust or arrangement

Obtaining on the purpose and intend nature of the business relationship.

Enhanced customer due diligence and ongoing monitoring

This must be applied in any situation which by its nature can present a higher risk of money laundering or terrorist financing.

Where the person has not been actually present for classification purposes a related person must take particular process to compensate for a higher risk .

History Of Anti Money Laundering Laws in USA

Money laundering is the method of making illegally-gained earnings appears legal. Usually, it involves three steps: placement, layering and integration. First, the illegal funds are secretly introduced into the legitimate financial system. Then, the money is moved around to generate confusion, sometimes by shifting or transferring through various accounts. Finally, it is integrated into the financial system through additional transactions until the “dirty money” appears “clean.” Money laundering can facilitate crimes such as drug trafficking and terrorism, and can negatively impression on the world economy.

In its mission to “safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering and other illegitimate movement,” the Financial Crimes Enforcement Network acts as the nominated administrator of the Bank Secrecy Act (BSA). The BSA was established in 1970 and has become one of the most important tools in the fight against money laundering. Since then, several other laws have improved and amended the BSA to provide law enforcement and regulatory agencies with the most effective tools to combat money laundering. An index of anti-money laundering laws since 1970 with their relevant needs and aims are listed below in chronological order.

Bank Secrecy Act (1970)

The main aim of the act was to establish the maintenance of record keeping by the private individuals, banks and other financial institutions.

The basic aim of the act was to keep an eye on the activity of the transferred money by the private and other financial institution out of the USA. The banks were required to report the any transaction over $10000 by using currency transaction report. [8]

In the report there should be identification of the person who is transferring the money and also maintain the paper record by the banks and other financial institutions.

After this act Money Laundering Control Act was introduced in 1986. The basic aim of this act was also to control illegal money transferred out of USA. In this Act money laundering is defined as federal crime banned dealings to escape CTR filing and also introduced the civil and criminal penalties for BSA violations. There are also directions given to the banks to make the procedures to monitor compliance with reporting and record keeping requirements of the BSA.

In 1988 another act was passed as Anti Drug Abuse Act. This act gives more powers to overcome on laundering money. The definition of financial institution was expended in which the business of cars and estate agents was included in the definition. If any big transaction is take place in this field they also report of this big transaction. If any transaction is take place over $3000 they are required to take the personal identification.

There was another act was introduced in 1992 to give more powers to the BSA violations and also introduced the suspicious activity and criminal form and there should be proper record keeping of the wired transactions. To give the more strengthened to the banks, Bank secrecy Act Advisory Group was also established.

Money Laundering Suppression Act (1994)

In this act there were some requirements procedures were implemented to the banking sector and agencies that they should give the proper training to the staff and adopt the procedures to control the money laundering activities. There were also increases the banking agencies requirement to give the case referencing to the law enforcement authorities. There was also requirement for the businessmen to register with money services business. The person who is doing the business as an agent should be on the list of money services business. On arrival of this act anti money laundering act have more powers on each sector of the business. And it gave extra power to the banking sector also. There should be criminal offence if the business was not registered with the money services business.

Money Laundering and Financial Crimes Strategy Act (1998)

In this act there was also requirement for the banking agencies to improve the ant money laundering for examiners and also adopted requirements on the department of treasury to develop the national money laundering strategy. There were power given to task forces to overcome on the money laundering activities in the federal state and the local zones. HIFCA may be defined geographically or they can also create to address money laundering in an industry sector or a financial institution. [9]

USA PATRIOT ACT

In 2001 this was introduced. The basic aim was also to protect the United States from money laundering and terrorism. Make the different classes of institutions and give the powers to overcome on this big problem. To strengthen measures to save the states from the corrupt bodies who steal the assets who belongs. The following are the important sections relating to the money laundering laws now I shortly explain these sections.

Section 311: special measures for jurisdiction, financial institutions or international transactions of Primary Money Laundering Concern

This section basically deals with personal identification of the customer who is transferring the money by bank accounts. The financial institutions should have all his information where he is transferring the money.

Below is a brief, non-comprehensive overview of the sections of the USA PATRIOT Act that may affect financial institutions.

Sec312: Special Due Diligence for correspondent Accounts and Private Banking Accounts

In this section there are some changes in the bank secrecy act imposing due diligence and enhanced due diligence requirements by doing this it is implement on these institution to maintain the proper bank accounts for the foreign financial institution or the private bank account of the foreign national persons.

Section 313 is about prohibition on US correspondent accounts with foreign sell banks.

This law is against the foreign banks who are not usually not subject to the regulation to present a risk of money laundering and terrorist financing having access to the US financial system. The banks and dealers are not allowed to do any correspondent accounts which do not actually exist in any country. They are also required to take reasonable steps to ensure that their correspondent accounts are not using indirectly to provide correspondent services.

Sections 314 of US patriot act also help to the enforcement authorities and other financial institutions to discourage the people who are involved in the terrorist activities. It also gives mutual co operation to the financial institutions and regulators to exchange the information between them to overcome on the money laundering and terrorist activities.

If we compare the US and UK laws about the money laundering the both countries maintain special measures that restraint the banks and other financial authorities to do the transactions with the target individuals and entities. In the US, the secretary of the treasury imposes the special measures against the specified foreign jurisdictions. In United Kingdom money laundering regulations target both individuals and entities as necessary. There is no precise equalling to the US sec 311 special measures provisions.

In both countries banks are required to conduct customer due diligence and identification using risk based assessment. The verification method and identification of documents way is also same in the both countries. There are some differences between customer diligence requirements of the both regimes. In the UK the money regulation 2007 prescribe the three approach to customer due diligence, where by steps of due diligence required is examined by the reference to the money laundering risk present by the client. The standard measures require by UK bank to identify and verify the customer identification, collect the information what kind of business they have and also identify the beneficial owner. In US the customer identification is defined in sec 326 of patriot act. When the opening a new customer account get all the information’s about the individuals with authority including authorised beneficial owners.

The two countries need enhanced due diligence to be applied in conditions which by their nature present a higher threat of money laundering or support for terrorist financing.

Both regimes also defines precise situation in which enhanced customer due diligence must be applied. Banks in both the United States and the United Kingdom must apply enhanced customer due diligence with respect to (i) correspondent accounts for certain categories of higher-risk foreign bank, and (ii) politically exposed persons (PEPs). Unlike the US legislation, the UK regulations do not prescribe the enhanced due diligence measures.

Both the US and UK anti-money laundering regimes require banks to verify the identity of their private banking clients. [10]

In the United States, specific due diligence requirements apply to ‘private banking accounts’ for non-US individuals with a minimum aggregate deposit of funds or assets of not less than $1 million.

The two countries have same minimum due diligence needs for private banking accounts

establishing the identity of beneficial owners; ascertaining the sources of funds, monitoring the account on an ongoing basis.

However, in the United Kingdom, the 2007 regulations permit banks, in certain circumstances, to apply simplified customer due diligence measures, which in practice means not having to undertake customer due diligence with respect to the particular client, other than verifying that the client qualifies for simplified measures. [11]

The both countries have also defined the methods for reporting the suspicious activities. In UK banks make a report of any suspicious activity accrue during their business transactions. They have also reasonable grounds of money laundering money or terrorist offence. But in the US suspicious activity procedure are more limited it usually applies involving funds or assets meeting specified dollar threshold.

Both countries have prescribed procedures for reporting suspicious activity. In the United Kingdom, banks are required to make a report in respect of information that comes to them within the course of their banking business in circumstances where they know or suspect, or have reasonable grounds to know or suspect, that another person is engaged in a money laundering or terrorist financing offence.

Banks with offices and branches in both the United States and the United Kingdom will need to ensure that employees who work with dual clients are aware of the wider scope of the UK reporting obligations, and should consider implementing intra-group reporting procedures for group clients so as to ensure that the appropriate regulatory authorities are notified of suspicious activities in accordance with local jurisdictional requirements. [12]

Conclusion

Money laundering is the method of making illegally earnings converts into legal money. Now days this problem is all over the world. UK and US also facing money laundering and terrorism problems. The both countries have the laws anti money laundering laws. Mostly their procedures are same.

The US and UK anti-money laundering laws and regulations compare favourably. However, there are areas where the two regimes differ and banks with group companies in both the United Kingdom and the United States should consider implementing group anti-money laundering policies that are consistent with the more rigorous of the two regimes, particularly with respect to customer due diligence and administering financial sanctions in relation to targeted individuals and entities.

Reporting and information-sharing processes must nevertheless follow local laws and procedures, and banking institutions should develop appropriate procedures to ensure that the requirements of both regimes are met, especially with respect to group clients and in situations where systems and controls are outsourced to another group company.

BIBLOGARAPHY

Blackstones’ guide to the proceeds of crime act2002

2 Blackstones’ guide to the proceeds of crime act2002

3 Blackstone’s’ guide to the proceeds of crime act2002

4 Money laundering by Toby Graham, Evan Bell, Nicholas Elliot

5 Hand out by professor Andrew Haynes

6 Money laundering by Toby Graham, Evan Bell, Nicholas Elliot

7 Blackstone’s’ guide to the proceeds of crime act2002

8 Hand out by professor Andrew Haynes

9 Hand out by professor Andrew Haynes

10 www.fincen.gov/news

11 www.fincen.gov

12www.fincen.gov