8 October 2001
31 October 2013
24 January 2014
24 January 2014
M&A Weekly Update: fraud, bribery and money laundering sentencing guidelines; limited liability partners as workers; and more
2 June 2014
21 February 2014
The terrible events of 11 September led to an immediate declaration of war on "economic crime" on both sides of the Atlantic. So far action has been swift. Less than a week after the attacks in New York and Washington, Barclays agreed to freeze an account in its Notting Hill branch suspected of being used as a conduit for terrorist funds. The government is already believed to have frozen £47m of assets since the UN imposed sanctions on the Taliban regime earlier in the year and that figure was reported to have hit £70m in the wake of last month's tragedy.
Ministers immediately flagged up the possibility of tightening up the laws against money laundering through the Proceeds of Crime Bill. In the meantime, the Financial Services Authority (FSA) has called upon firms to review their dealings with any individuals or groups linked with terrorism by the US government and FBI. In addition, the Law Society has launched its own initiative to ensure the profession is aware of its obligations to report suspicious activity.
The plans to revisit the laws on money laundering came as something of a surprise to lawyers specialising in business crime. Last week Adam Cowell, a partner in Irwin Mitchell's business crime unit and secretary of the International Criminal Law Association, told The Lawyer that the proposals were already "about as draconian as you could possibly imagine".
"Whenever a serious event like this occurs, the government wants to be seen to be doing something but I suspect that in many instances the powers that they have are already sufficient," he argued.
Such sentiments strike a chord with Michael Caplan, a partner at Kingsley Napley. "There are already very stringent measures in place for any proceeds of crime that relate to terrorism and it's difficult to actually see what additional restrictions might be necessary," he says. "What might be important is for the government to remind the business and financial community of those regulations."
While many of the reforms in the bill are welcomed by lawyers, such as harmonising the money-laundering legislation under one act, simplifying offences and establishing the Criminal Assets Recovery Agency (CARA) to coordinate strategy and enforce legislation, others are more controversial.
For example, the bill contains a new "negligence" threshold making it an offence if there are reasonable grounds for suspecting someone is engaged in money laundering as opposed to "actual suspicion" which is required now.
According to Sidney Myers, a litigation partner at Allen & Overy, the proposal "lowers the threshold and widens the net" of the legislation significantly.
"It shifts the balance by saying that someone should be prosecuted even when they didn't know or suspect that the money was criminal proceeds but where the courts could prove they had reasonable grounds for knowing or suspecting," he says. As he points out, it is a move that is unlikely to be welcomed by the banks and other financial institutions that will be expected to police any new law.
According to Jon Holland, a partner in Lovells' banking and financial litigation department, more often than not the staff responsible for compliance are not those "at the top of the totem pole" in their respective organisations. "It seems unfair to make people potentially criminally liable not because they failed to disclose actual knowledge or suspicion of money laundering but because they are a bit daft," he says.
Other proposals under the Proceeds of Crime Bill are seen by some as a potential threat to civil liberties. For example, the bill proposes a new civil action for the recovery of the proceeds of crime. There will be no need for a criminal conviction and the burden of proof will be to the civil standard.
According to Adam Cowell, the legislation brands people as criminal but "without the inconvenience of getting a criminal conviction". The proposal "tips the balance too far", he contends, putting "the cart before the horse" by enabling the removal of property without charge. He says: "It's no longer the 'proceeds of crime' bill but the 'proceeds of people who we suspect of crimes' bill."
Aside from the bill, there are other legislative upheavals that compliance officers will have to deal with over the coming months. In December, the FSA will take control of enforcing the 1993 Money Laundering Regulations.
According to Holland, the change certainly promises "a more vigorous enforcement regime". As he points out, no one body was previously charged with the task of enforcing the regulations. He explains that the National Criminal Intelligence Service (NCIS) is the "repository for reports" made about suspicions about money laundering, he explains, which are then pursued by the law enforcement agencies.
In the past there have been few successful prosecutions for money laundering offences under the primary legislation. But as Holland argues: "Now there's going to be somebody there with teeth. A group of people who are there to enforce the regulations, and the inclination to do so, and a great raft of sanctions under them."
In light of the terrorist attacks on the World Trade Center and the Pentagon, Chancellor Gordon Brown called for urgent implementation of a new money laundering directive presently being considered at the European Parliament. According to Arun Srivastava, an associate in the finance department of Baker & McKenzie, it amends the earlier 1991 directive, widening the existing regulations beyond the scope of the banks and financial institutions.
"What the EU is trying to do is cover those professions or businesses which are now used for money laundering because it has been made more difficult in the banking and finance area, but which are still not subject to tight controls," he explains. Obligations will be imposed upon businesses such as casinos and antiques dealers as well as accountancy firms and, possibly, solicitors. Unsurprisingly, the profession has resisted any erosion of client confidentiality. It has been reported that the directive would extend reporting obligations to all stages of advice, including initial advice, which is currently exempt.
As Srivastava explains, the 1993 regulations apply to those engaged in "relevant financial business. It doesn't expressly mention solicitors in the regulations and that is one of the things the directive is seeking to change. But most firms take the view that they are engaged in such business."
The world "has moved a bit on its axis" as a result of last month's terrible events, observes Holland. "In the same way as a number of civil liberties issues are being put to one side, now maybe people will be prepared to contemplate an intrusion into aspects of solicitor-client confidentiality and privilege."
The NCIS would argue that it has never shied away from attacking the legal profession for lawyers not pulling their weight in reporting dodgy deals. In the past, it has provoked a storm of controversy by suggesting that a handful of City law firms were actively engaged in money laundering without actually naming firms.
Such comments are "irresponsible" unless the NCIS is prepared to "name names", says Fraser Ashman, the partnership secretary and anti-money laundering officer at CMS Cameron McKenna. "I do wonder what the evidence is other than circumstantial," he says. "If you're buying a business or a major piece of property then the chances are you'll use a firm like Camerons because it's a big deal - but to say lawyers have shortcomings in what they're reporting is a big leap."
"It's simply not true, as the NCIS likes to imply, that every lawyer likes nothing better than to have Pablo Escobar walking through the door," says Holland. "The vast majority of lawyers in this country were just as horrified as everyone else and I think that anybody, if they had played a part in that, actively or passively, would be throwing themselves into the car-park."
According to the latest NCIS report, 18,408 disclosures were made last year, with just 248, less than 2 per cent, coming from solicitors. Clearly, the service would like this figure to rise dramatically and the pressure will be all the greater in light of the recent events.
The Law Society joined the fight against economic crime last week. "Our message to anybody wanting to use a solicitor to disguise the origin of illegal funds is 'Don't even try'," said president David McIntosh. The society has launched a hotline for solicitors who have concerns about clients as well as pledging to step up cooperation with agencies such as the NCIS and the police.
"[We] are warning any solicitor who gets knowingly involved in money laundering that we will bring their career to the earliest possible conclusion," McIntosh said.
But according to Monty Raphael, senior partner at Peters & Peters, there is no point in legislating so that the likes of lawyers make more reports if it becomes just a "meaningless intelligence operation".
"The problem is that there is no evidence that the NCIS are able to ensure that the good leads are necessarily followed up," he says, adding that of the 43 police forces not all of them have effective financial investigation units and, if they do, they are already overworked. "Those doing the reporting will quickly become demoralised if they think that there is little point because their reports appear to go nowhere," he says.
Over the last 12 months, Camerons has made two reports to the NCIS. According to Tony Marks, senior litigation partner, the NCIS "haven't been particularly interested" and the firm took the matter to the Metropolitan Police, which was "much more proactive". It is a scenario that can leave lawyers in an impossible situation.
"To protect yourself against the charge of 'assisting' you have to have the green light to proceed with the transaction having made the disclosure," Marks explains. "But you can imagine the police bureaucracy - how, in an urgent transaction, do you get that approval?"
No one is ruling out a change to the existing regime in an attempt to clamp down on terrorism, but they question whether it would actually deal with the problem. Of course, it has to be right to "close loopholes", says Baker & McKenzie's Arun Srivastava. But he adds: "All that has happened in the US should not be used as a blank cheque for the government to introduce legislation which might otherwise have come under closer scrutiny and might not be proportionate."
|Money laundering - the danger signs|
| Unusual settlement requests |
Watch out for:
clients who pay by cash, for example, big property transactions or an investment.
clients who want to settle debts that would normally be settled with funds from a bank account or credit card
payments using a third party cheque or money transfer where there is a variation between the account holder, the signatory and the prospective investment.
Watch out for:
The client who has no apparent reason for using your firm. For example, if you are based in Manchester and your client is in Southampton.
The client whose requirements do not fit in your normal pattern of business.
Large sums of money
Watch out for:
The client who asks you to hold big sums of money in your client account.
The secretive client
Watch out for:
The client who is reluctant to meet you in person, or provide full details of their identity, a normal forwarding address, or a land line telephone number.
Watch out for:
The client who is introduced to you by either an overseas bank, another investor or a third party that is based in a country where there is, for example, drugs trafficking or production.
|Clamping down on terrorist money|
According to Geoffrey Negus, spokesman for the Office for the Supervision of Solicitors, there are lawyers who are knowingly breaking the rules.
"Our suspicion is that there are probably a tiny group of solicitors - enough to fit into your living room - that appear to be respectable and reputable but are pretty heavily involved," he says. "You can almost say they are money launderers rather than solicitors." When pushed for a number, he reckons that there are "possibly a dozen" solicitors involved at this level.
There have been only three successful prosecutions of solicitors in connection with money laundering offences in the last decade. However, according to Negus, there are a small number of cases "at an advanced level of investigation" by the OSS together with the police.
The most recent was the case of Louis Glatt, who was sent down for seven years in July this year. He helped a bootlegger, called Ellis Martin, launder £28m through front companies and bank accounts while he was still in prison. Glatt used his position as a solicitor to enable Martin's associates to visit him in prison under the guise of being legal executives.
There are three stages of laundering - 'placement', where money is amalgamated by, for example, buying foreign currency; 'layering', where it is disguised through a series of transactions; and 'integration', where the funds enter the legitimate market.
The OSS believes that the small number of corrupt lawyers are operating at the second stage. "They will, we believe, often offload parts of their assignments to vulnerable solicitors who they have heard through the grapevine have serious personal problems," Negus adds.
But it is when the funds are integrated that solicitors have to be at their most cautious. By that stage lawyers are likely to be conducting a "perfectly straightforward" legal relationship with the client.
"By then they have entered a sense of false security and something approaching trust," Negus says. And that is when they should be at their most vigilant.