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Why is there
so much publicity about Money Laundering?
For years there have been suggestions that vast amounts of illegal
money is being laundered, particularly by drug dealers and
international gangsters. The events of September 11th 2001 drew
attention to just how much money laundering is going on in the
world. It showed that international terrorists were moving cash
around with great ease and that present controls were not
particularly effective. This focused people’s minds on the issue
to a far greater extent than when it was merely Russian gangsters
passing money between international bank accounts!
Various governments around the world had also realised that money
laundering was contributing significantly to both tax evasion and
the ‘black economy’. As a result of these concerns, rules and
regulations are being tightened in very many ways and effort is
being concentrated on money laundering to a quite unparalleled
extent.
Anyone running a business needs to have some knowledge of what the
issues are and how they could easily find themselves on the wrong
side of the law.
What is Money Laundering and how does it
work?
Essentially it is the method by which a criminal places the proceeds
of crime into a bank account without drawing attention to what has
been done. If a drug dealer went along to a bank on Monday morning
and tried to pay in the weekend’s takings, the bank would notice
it and report it unless the sum was relatively small. If criminals
can find a legitimate business to help them by taking the cash and
pretending that it is the business’s money being paid in (in
exchange for a proportion!), then that business can put the cash
into the bank without any questions being asked.
Why you need to look out for Money
Laundering and why criminals might try to use your business
Criminals are constantly searching for new contacts to help them
with their money laundering. Certain types of business are more
vulnerable than others. Any business that uses or receives
significant amounts of cash can be particularly attractive. The more
obvious businesses and organisations would include:
- retail shops generally
- specifically antique dealers,
jewellers & classic car businesses
- cafes, restaurants and takeaways
- businesses connected with gaming
- taxi firms and car hire firms
- sports clubs
- businesses involved in currency
exchange
- charities
- sellers of financial products such
as single premium investment bonds
- banks.
Many of the changes to the laws and
regulations in the last few years have made it much more difficult
for criminals to use some of these types of businesses.
An example is the need to provide comprehensive proof of identity
and address in order to open bank accounts or to buy investment
products. This has made criminals spread their net far wider.
The problem is that there are a number of criminal offences (see
below for descriptions) that can lead to prosecutions for anyone who
helps the criminal, even if done innocently. It is quite common for
someone to ask a businessman for help in making sure the Inland
Revenue doesn’t know about something or to avoid paying Value
Added Tax and, if the payoff looks good, such a proposal could look
tempting.
The person being asked to help might have no idea at all that the
proposal is coming from a money launderer and that they could find
themselves being prosecuted for far more than just helping someone
to avoid tax.
Or, imagine someone comes into, for example, an antiques shop and
offers to buy a piece of furniture for £3,000 in cash. Not many
sellers would insist on a cheque! This person may be a money
launderer who then goes to another shop and sells it for say £2,000.
This time the criminal would ask for a cheque which can then be paid
innocently into a bank account.
What are the criminal offences and to whom
should suspicions be reported?
The basic legislation which applies to everyone in the UK,
regardless of the sector in which they work, identifies the
following as being criminal offences.
- It is an offence for anyone to be
involved in an arrangement to assist someone in obtaining,
concealing, retaining or investing assets which are the proceeds
of criminal conduct. The penalties for this offence are a
maximum of 14 years imprisonment, a fine, or both.
- It is also an offence if any
person who acquires knowledge or a suspicion of money laundering
relating to drugs or terrorist offences (in the course of their
trade, profession, business or employment) does not report the
knowledge or suspicion as soon as reasonably practicable. Notice
the use of the word suspicion which is clearly far short of
having any evidence at all. The penalties here for not reporting
are imprisonment of up to five years, a fine, or both. The
reporting should be to the Economic Crime Unit of NCIS (the
National Criminal Intelligence Service: 020-7238-8607 or PO Box
8000, London, SE11 5EN). Firms of professionals such as
accountants and lawyers will normally have an internal Money
Laundering Reporting Officer to co-ordinate such reports.
- The third offence is known as
tipping off and is what would happen if the suspicious person
were to share their concerns with a third party in addition to
the NCIS, if this sharing would be likely to prejudice a money
laundering investigation. Someone with a sense of fair play
might feel they should tell the suspected money launderer but
this could be an expensive mistake as it could lead to a
sentence of up to five years plus a fine.
The second of the three offences
described above is perhaps the one of most concern. Imagine someone
asked for your help in what a judge might consider to be suspicious
circumstances – even if you said you didn’t want to help, there
is still a danger of prosecution if the approach is not reported.
Normally the law in the UK actually requires you to carry out an
illegal act before you can become a criminal! You may be interested
to know that there is a defence that the person in question had a
‘reasonable excuse’ for failing to report a suspicion but how to
interpret that is very uncertain. It is sometimes suggested that
circumstances giving rise to this are unlikely to extend to beyond
‘the fear of physical violence or other menaces’! If
circumstances permit and you find yourself in this sort of position,
legal advice should almost certainly be taken.
Changes to the law
A number of changes are being made to the UK legislation, some of
which are already in force and others will be soon. Each of them is
intended to make it ever harder to launder illegal money.
Some new regulations are already in place, applying to what are
known as Money Service Businesses, more commonly described as for
example bureaux de change, cheque cashers and money transmission
agents. All such businesses are now required to register with
Customs and Excise by 1 June 2002 and have to provide information
such as:
- the name and status of the
business
- the type of business carried on
and the premises used
- details of any agency or franchise
agreements they operate under
- the name of their Money Laundering
Reporting Officer and details of anyone involved with a previous
conviction for money laundering.
The annual fee is £100 per premises
and penalties of up to £5,000 can be imposed for not complying with
registration requirements. Customs and Excise has powers to enter
premises and to inspect and remove documents.
New legislation in the form of ‘The Proceeds of Crime Act’ will
shortly be in force. Essentially this will extend the criminal
offences to apply existing regulations to the laundering of the
proceeds of any criminal conduct, rather than merely the most
serious. There are also plans to implement an EU Directive into UK
law which will require professionals in a wide variety of sectors to
introduce formal requirements for obtaining proof of identity of
customers, for keeping records and for having internal regulations
and reporting structures. These professions will include auditors,
external accountants, tax advisors, lawyers, estate agents,
auctioneers and others. At present these procedures only apply to a
very narrow range of businesses.
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