21 February 2005
A robust anti-money laundering (AML) policy lies at the heart of the Government's financial crime and anti-terrorism strategy. On 24 February, it will be two years since the AML provisions of the Proceeds of Crime Act (Poca) came into force, and on 1 March it will be a year since many of the activities of a host of professional services came within the 'regulated sector', requiring firms to have in place internal systems and processes to combat money laundering.
It is only now that the implications of the AML provisions are being appreciated fully by law enforcement organisations and the regulated sector. The Government's latest response is to dilute certain Poca requirements through various amendments contained within the Serious Organised Crime and Police Bill currently before Parliament. The approach adopted is to introduce carve-outs and additional defences to offences.
The virtuousness of the anti-money laundering provisions within the Poca is their simplicity. The problem is that the scope and reach of the offences are too wide. The wide definition of 'criminal property' and 'criminal conduct' means that the definition of a core money laundering crime covers any offence from which a benefit is obtained. Consequently, the mandatory reporting requirements have placed huge compliance costs on the regulated sector. A perception exists that law enforcers cannot cope with the amount of information they are now receiving from an army of 'unpaid informants'.
The feeling is that only a small percentage of suspicious activity reports (SARs) to the National Criminal Intelligence Service (NCIS) lead to an investigation, and even fewer to prosecution. This leads to the value of the entire system being questioned.
Some of the proposed reforms within the organised crime bill are sensible and not controversial. Other reforms are more contentious. Under Clause 94 it will become an additional defence to both a core money laundering offence and a non-reporting offence that a person knows or has reasonable grounds for believing that criminal conduct committed overseas is legal under local law. Therefore, knowledge or suspicion of a facilitation payment, while likely to be a corrupt payment under English law, if permitted under local law would not need to be reported. Moreover, under Clause 96, SARs will not need to be made when the identity of the person engaged in money laundering, or the location of any laundered property, is not known, providing the SAR does not assist in uncovering the identity of such a person or location.
Instead of providing additional defences, surely it would have been more appropriate to narrow the Poca definition of money laundering? This would keep the law simple for the prosecuting authorities and reduce compliance costs for the regulated sector. Unfortunately, it is probably too late. The bill is entering its final stages and is likely to become law.
Post-implementation, AML laws will remain draconian and continue to impose heavy burdens on the regulated sector. Indeed, one suggested reform comes straight out of Yes Minister. Under Clause 97, it will become a criminal offence to make an SAR other than in the form and manner set out by Government, unless the person making the report has reasonable grounds for not doing so. For a system that depends on the cooperation and goodwill of the regulated sector, such a coercive measure is unnecessary and inappropriate.
Overall, the proposed reforms within the bill send out a mixed and rather confused message. An opportunity to establish an effective, targeted and proportionate reporting system, where the regulated sector and law enforcement work together, has been missed.
Jason Mansell is a barrister at Seven Bedford Row.