Rachel Clark examines money laundering and the role of the gatekeeper.<\/p>\n\n\n\n
In March 2021, the Financial Conduct Authority very publicly initiated criminal proceedings against NatWest Plc.(1<\/a>) The bank faces allegations that it failed to adequately monitor and scrutinise around \u00a3365m of payments to a gold, jewellery and scrap metal dealer.(2<\/a>)<\/p>\n\n\n\n Nonetheless, the company was required to pay \u00a323.8m.(5<\/a>) This is under appeal.<\/p>\n\n\n\n \u2022 Rachel Clark<\/strong> is a barrister at Bright Line Law<\/strong>, specialising in tax investigations (both avoidance and evasion), including those where there is an overlap with POCA 2002. Her email is rc@brightlinelaw.co.uk<\/a>.<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" Rachel Clark examines money laundering and the role of the gatekeeper.<\/p>\n","protected":false},"author":1,"featured_media":702,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[],"class_list":{"0":"post-701","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-april-may-2021-issue"},"_links":{"self":[{"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/posts\/701","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/comments?post=701"}],"version-history":[{"count":1,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/posts\/701\/revisions"}],"predecessor-version":[{"id":703,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/posts\/701\/revisions\/703"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/media\/702"}],"wp:attachment":[{"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/media?parent=701"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/categories?post=701"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/taxinvestigation.co\/new\/wp-json\/wp\/v2\/tags?post=701"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
This is the first such prosecution brought against a bank, and the announcement should be interpreted as a warning to those in the \u2018regulated sector\u2019. The authorities are using the \u2018nuclear\u2019 option, not just against money launderers, but against the gatekeepers who are meant to detect money laundering and halt it in its tracks.<\/p>\n\n\n\n
Who are the money launderers?<\/h1>\n\n\n\n
Fraud and tax offences remain the largest known source of criminal proceeds from offending in the UK.(3<\/a>)
\u2018Dirty\u2019 money can be derived from tax evasion \u2013 whether statutory, e.g. VAT fraud under s.72 Value Added Tax Act 1994, evasion of duty under s.170(2) Customs and Excise Management Act 1979 or evasion under the common law offence of \u2018cheating the public revenue\u2019. It will constitute \u2018criminal property\u2019 under s.340 Proceeds of Crime Act 2002 (\u2018POCA 2002\u2019), and is ripe for money laundering.<\/p>\n\n\n\n
If it is then concealed, disguised, converted, transferred or removed from the country, then those acts will constitute money laundering under s.327 POCA 2002. The separate money laundering offence under s.328 POCA 2002 bites when someone \u201centers 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.\u201d It is also, of course, a money laundering offence to acquire, use or possess criminal property, per s.329 POCA 2002. These are the \u2018core\u2019 money laundering offences.<\/p>\n\n\n\n
Who are the gatekeepers?<\/h1>\n\n\n\n
However, liability under the UK anti-money laundering regime spreads far wider than money launderers and their co-conspirators; it can envelop those in the \u2018regulated sector\u2019. This includes:<\/p>\n\n\n\n
\u2022 credit institutions,
\u2022 financial institutions,
\u2022 auditors, insolvency practitioners, external accountants and tax advisers,
\u2022 independent legal professionals,
\u2022 trust or company service providers,
\u2022 estate agents and letting agents,
\u2022 high value dealers,
\u2022 casinos,
\u2022 art market participants,
\u2022 cryptoasset exchange providers,
\u2022 custodian wallet providers,
\u2022 certain auction platforms.<\/p>\n\n\n\n
Importantly, the definition of a \u2018tax adviser\u2019 has been extended to mean \u201ca firm or sole practitioner who by way of business provides material aid, or assistance or advice, in connection with the tax affairs or other persons, whether provided directly or through a third party, when providing such services.\u201d<\/p>\n\n\n\n
This is broad. As noted by the Solicitors Regulation Authority, it \u201cextends beyond providing advice and includes providing assistance and material aid. Activities known informally by other terms, such as \u2018estate planning\u2019, \u2018tax planning\u2019 and \u2018tax mitigation\u2019 are likely to be in scope of the regulations through this definition.\u201d(4<\/a>) Whilst litigation and dispute resolution services are not generally in scope, the lines have become blurred and must be very carefully considered by those involved in tax investigations.<\/p>\n\n\n\n
Those operating in the regulated sector are obliged to comply with the regulatory framework set out in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended) (\u2018MLR 2017\u2019). These set out a detailed anti-money laundering regime, which includes registering with the authorities, engaging in risk assessments of their business, and conducting due diligence on their customers and transactions (amongst other extensive requirements).<\/p>\n\n\n\n
Under s.330 POCA 2002, they are also obliged to make a Suspicious Activity Report (\u2018SAR\u2019) to the National Crime Agency if, in the course of their business in the regulated sector, they come to know or suspect someone is engaged in money laundering, or they have \u2018reasonable grounds\u2019 to know or suspect as much (even if they do not actually suspect it!).<\/p>\n\n\n\n
What if they drop their guard?<\/h1>\n\n\n\n
Perhaps surprisingly, a failure to comply with these additional requirements can result in severe sanctions, including imprisonment.<\/p>\n\n\n\n
Failing to send a SAR under s.330 POCA 2002 can result in a maximum sentence of 5 years\u2019 imprisonment and\/ or an unlimited fine for the individual who fails to make the required report.<\/p>\n\n\n\n
Further, breach of MLR 2017 can lead to:<\/p>\n\n\n\n
\u2022 Prosecution, leading to a maximum sentence of two years\u2019 imprisonment and\/or a fine.
\u2022 An unlimited civil penalty (a fine).
\u2022 Being publicly censured.
\u2022 Suspension or removal of authorisation to operate in the regulated sector, or a prohibition on management.<\/p>\n\n\n\n
Crucially and startlingly, it is not a pre-requisite that any underlying money-laundering offence has actually taken place. In other words, the \u2018mischief\u2019 being addressed is simply that a risk of money laundering has been created.<\/p>\n\n\n\n
In January 2021 HMRC announced that it had issued its largest ever fine against a money-service business, which had failed to comply with anti-money laundering procedural requirements.<\/p>\n\n\n\n
The Revenue noted that \u201c[b]usinesses who fail to comply with the money laundering regulations leave themselves, and the UK economy, open to attacks by criminals\u201d, but did not point to any specific laundering in that case. <\/p>\n\n\n\n
Similarly, the Financial Conduct Authority\u2019s 2020\/21 business plan states that it will take enforcement action \u201cparticularly where there is a high risk of money laundering\u201d.(6<\/a>)<\/p>\n\n\n\n
However, even this should be treated with caution \u2013 the legislation does not require a \u201chigh risk\u201d threshold to be met. Even a seemingly \u2018benign\u2019 breach could have serious consequences.<\/p>\n\n\n\n
Practical tips<\/h1>\n\n\n\n
The rigorous approach to enforcement seems unlikely to wane; quite the opposite.<\/p>\n\n\n\n
The National Crime Agency\u2019s website page on money laundering leads with the statement that money laundering \u201chas the potential to threaten the UK\u2019s national security, national prosperity and international reputation\u201d.(7<\/a>) As the government\u2019s resources remain stretched (particularly post COVID-19) it will want to put even more pressure on those in the regulated sector, in order to leverage their help in the fight against crime.<\/p>\n\n\n\n
Firms in the regulated sector, and their advisers, will need to be on their guard.<\/p>\n\n\n\n
Practical steps that should be taken include:<\/p>\n\n\n\n
\u2022 Establishing anti-money laundering policies and procedures from the start, and ensuring they are clearly documented. These must be updated regularly, including to reflect any changes to the way business is done post lockdown. Such policies should also incorporate procedures to prevent the facilitation of tax evasion and bribery, thus also protecting against corporate liability under the Criminal Finances Act 2017 and Bribery Act 2010, and killing several birds with one stone.
\u2022 Ensuring those policies and procedures are implemented, and that this itself is thoroughly documented.
\u2022 Considering self-reporting to the authorities if a breach occurs, and assessing the degree of co-operation you are comfortable with, if approached by the authorities first.<\/p>\n\n\n\n
In 2017 through \u2018extraordinary\u2019 co-operation with the authorities, Rolls Royce managed to secure a deferred prosecution agreement in relation to criminal conduct spanning three decades, seven jurisdictions and three business sectors. Legal advice should be sought early on to guide you through the options and how to set the right tone, as well as to secure legal advice privilege.<\/p>\n\n\n\n
By definition, money laundering can only arise once an underlying offence has first generated the \u2018dirty\u2019 funds to be laundered. This means it can often take firms and their advisers by surprise \u2013 they are too busy focusing on the original offence, and money laundering can feel like a secondary concern, as can compliance with the myriad of regulatory requirements.<\/p>\n\n\n\n
However, in choosing to prosecute NatWest Plc, the authorities have made their intentions clear \u2013 those in the regulated sector have a serious responsibility to act as gatekeepers.
Woe betide anyone who sleeps on their watch.<\/p>\n\n\n\n