2 August 2004
13 August 2013
21 February 2014
Financial regulatory developments (FReD): Commission asks ESMA for MAR advice, EBA for MiFID 2 advice; FCA holds general insurance conference; and more
6 June 2014
5 February 2014
13 May 2014
The new money laundering regime continues to throw up practical problems for those practising in the financial services sector and for their clients. What has emerged is the difference between the theoretical requirement to send in a suspicious activity report and the irate client who does not take long to work out who it is that has brought the authorities down upon them. Lawyers are fortunate to have the benefit of Dame Butler-Sloss’s judgment in P v P (2003), which removes a substantial part of the problems created by tipping off one’s own client when it is necessary to complete a report.
Despite, or because of, the arguments advanced on behalf of the National Criminal Intelligence Service (NCIS), the judge decided that the regime permitted lawyers to inform clients of their having made a report without sanction, provided it was not with the intention of furthering a criminal purpose. Thankfully it is the intention of the professional legal adviser that is critical, not that of the recipient of the information, being the client or any person informed in connection with actual or proposed proceedings.
Some firms are changing their standard letters of engagement to alert clients to the requirement that they may have to report particular activity to the authorities. This may be of importance if the decision is made not to tip off the client that a report has been made (in keeping with NCIS’s request for compliance with the spirit, if not the letter, of the tipping-off provisions). The potential problems that can then be created (failure to close a transaction with unforeseen consequences flowing from the same) have been the subject of much discussion and concern.
There are two areas of difficulty arising from the extra-territorial provisions of the Proceeds of Crime Act 2002 (PoCA). First, the benefit from criminal property that can give rise to money laundering offences can flow from an offence committed in the UK (criminal conduct); but in addition, criminal conduct can flow from conduct that would constitute an offence in any part of the UK if it occurred there (Section 340 (2)(b) of the PoCA). This is thought to involve taking conduct overseas (which may or may not give rise to a criminal offence where the conduct takes place) and transposing that conduct to the UK. Would that conduct be an offence in the UK? This may cause difficulties – for example, does one assume that consents and regulatory approvals required in the UK have been obtained? In addition, it is the case that conduct that is lawful in country A may be unlawful in the UK. Non-domiciled clients may well find this somewhat hard to understand.
Second, there is a broader extra-territorial element to the PoCA money laundering regime. The substantive offences include (broadly) dealing with criminal property, making arrangements in respect of the same and acquiring, using or possessing the same. While the extra-territorial element referred to above applies in respect of the predicate or underlying offence, the broader application is to be found in Section 340(11) of the PoCA. The definition of money laundering (which itself can give rise to the disclosure provisions for the regulated sector under PoCA Section 330) includes not only the substantive offences, but also acts that would constitute the substantive offences (or inchoate offences relating to the same) if done in the UK.
So there is another level of mental gymnastics required by the transposing to the UK of acts carried out abroad which may then constitute substantive offences. It has to be said that before property can be criminal property, the alleged offender has to know or suspect that it constitutes or represents a benefit from criminal property. But this may be of little comfort to the practitioner wrestling with their personal obligation to make disclosure and conscious of the imposition of an objective standard of having reasonable grounds for suspecting that another is engaged in money laundering. At least they can pass on the difficulty to the money laundering reporting officer.
These problems may be clarified by the courts in due course. But these points are salutary reminders of some of the difficulties that can be encountered in practice.