CENTRAL AUTHORITY FOR REPORTING - UNITED KINGDOM
The Serious Organised Crime Agency (SOCA), a new law enforcement agency and the UK's Financial Intelligence Unit. SOCA was created by virtue of the Serious Organised Crime and Police Act 2005 and assumed its responsibilities on 1st April 2006.The Agency has taken over all functions previously held by the National Criminal Intelligence Service (NCIS).
HAS THE SECOND EU MONEY LAUNDERING DIRECTIVE BEEN IMPLEMENTED?
The Second Money Laundering Directive has been implemented. Some of the provisions of the Directive were implemented in the UK by Part 7 of the Proceeds of Crime Act 2002 ("POCA") which was enacted on 24 February 2003.
In addition to POCA, The Financial Secretary to the Treasury laid down the Money Laundering Regulations 2003, together with amending orders for the Proceeds of Crime Act and the Terrorism Act. The Regulations came into force from 1 March 2004.
Following the publication of its consultation paper "Implementing the Third Money Laundering Directive" in July 2006, HM Treasury has published, for consultation, the draft money laundering regulations 2007. They will repeal and replace the 2003 Regulations.
LAWS REGARDING ANTI-MONEY LAUNDERING PROCEDURES
The UK has had money laundering legislation, which created reporting obligations for lawyers, for the past ten years.
On 24 February 2003, the pre-existing legislation was replaced by the Proceeds of Crime Act 2002 ("POCA") which implemented some of the provisions of the Second Money Laundering Directive. These provisions, contained within Part 7 of the Act, principally strengthened the obligation to report money laundering to the authorities and provided the authorities with the ability to prevent reporting parties from executing their operations. Further, POCA clarified that the reporting obligations apply to the laundering of profits derived from any type of crime, however trivial. The "serious" crimes test in the Directive has therefore been exceeded in the UK.
In addition to POCA, the UK government issued the Money Laundering Regulations 2003 ("MLR’s"), which imposes statutory anti-money laundering procedures on a variety of organisations, including lawyers undertaking legal work for their clients that falls within the activities listed in the Directive. Moreover, it introduces a client identification requirement, and the MLR’s also imposes requirements in relation to record keeping, training, and internal reporting procedures, including the nomination of a member of staff to be the internal recipient of money laundering reports who must also supervise submitting reports externally if appropriate. These staff members are referred to within POCA as "nominated officers." They are also colloquially known as Money Laundering Reporting Officers ("MLRO's").
Effective July 1, 2005 changes to the money laundering provisions contained in the Proceeds of Crime Act 2002 ("POCA") were approved. The changes introduced by the Serious Organised Crime and Police Act ("SOCA"), are:
- A "deposit-taking body" (such as a bank) will no longer commit a money laundering offence if its activities in connection with a criminal property are carried out in the course of operating an account where the value of that criminal property concerned is less than the "threshold amount" (currently set at £250). Aside from banks, others in the regulated sector must continue report to SOCA for sums below and above this threshold. (s.103 SOCA)
- The stand-alone obligation of those in the regulated sector/ nominated officers to report money laundering suspicions to SOCA will now only apply in cases where the reporting party knows the identity of the suspected money launderer or the whereabouts of laundered property (or has information which would assist in that regard). (s.104 SOCA)
There is no timetable currently in place for the bringing into force the remaining change to POCA, the so-called "Spanish Bullfighter" provision in s.102 SOCA. The current definition of "criminal conduct" for the purposes of the POCA money laundering offences includes overseas conduct which is lawful in the foreign jurisdiction but would amount to a criminal offence if it took place in the UK. Section 102 will provide: - Money laundering offences will no longer be committed in this situation if a person knew or believed at the time that the criminal conduct giving rise to the criminal property took place overseas and was not contrary to the law of the foreign jurisdiction. To fall within this exception, there must have been reasonable grounds for this belief.
HM Treasury is presently consulting on the proposed implementation of the Third EU Money Laundering Directive which was adopted in October 2005.
In 2007 the Government will publish an anti-money laundering and counter-terrorist financing strategy document that will set out how the challenges will be met over the next five years.
According to section 333 of POCA, it is an offence for a person who knows or suspects that an authorised disclosure has been made to make a disclosure likely to prejudice any investigation into the matter.
Part 7 of POCA contains primary money laundering offences; section 327 concealing, section 328 arrangements, and section 329 acquisition, use, and possession. These offences apply to virtually anything done with dirty money or property, known in POCA as "criminal property". The offences are committed if the activities are undertaken with "knowledge or suspicion" that the transaction involves money laundering.
However, lawyers and others who fear that they may commit one of these primary money laundering offences by fulfilling their clients' instructions will have a defence if they report the matter to the relevant UK authority, SOCA, and receive "appropriate consent" which is official permission to continue with the operation. There is no exclusion for information which is subject to Legal Professional Privilege in relation to these offences.
POCA also contains freestanding reporting obligations. The main of these is the section 330 failure to disclose offence which applies to the "regulated sector". At present this offence applies to a limited number of lawyers who fall within the current "regulated sector" because they give advice about financial services. However, the implementation of the Directive through the implementation of the MLR's means that lawyers conducting any of the activities listed in the Directive will fall within the "regulated sector". However, there is an exemption in this offence from the reporting obligation if information is received in legally privileged circumstances, but this is applied in fairly narrow circumstances.
There are also offences within sections 331 and 332 which apply to "nominated officers" (MLRO's). There is no specific exclusion relating to legally privileged information which applies to these offences and is a cause for concern, but there is a defence if the nominated officer has a "reasonable excuse" not to disclose. The Law Society will argue that if information is privileged within the firm that provides the nominated officer with a "reasonable excuse", but this has not been tested.
In brief, for these purposes legal professional privilege falls within two main categories:
- "Advice" privilege where the lawyer and client are communicating with a view to the lawyer providing legal advice. This would seem to accord with the reference in Recital 17 to ascertaining the legal position for the client.
- The other category is known as "litigation privilege" and covers communications made if litigation is "reasonably in prospect" or after litigation has been commenced. This would seem to accord with the reference in Recital 17 about information received either before, during, or after, judicial proceedings. Communications cannot be subject to legal professional privilege if they are created with the intention of furthering a criminal purpose. It is irrelevant whether the intention is that of the lawyer, client, or any other third party.
LAWYER RESPONSIBILITY
The Proceeds of Crime Act 2002 requires those in what the legislation terms the "regulated sector" to report where they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in laundering the proceeds of crime. At present this offence applies to a limited number of lawyers who fall within the current "regulated sector" because they give advice about financial services. However, the implementation of the Directive through the implementation of the MLR's means that lawyers conducting any of the activities listed in the Directive fall within the "regulated sector". [1]
The existing regulated sector, which includes banks and investment businesses, has been expanded by the Money Laundering Regulations 2003 to include: Legal advisers (those providing business legal services which involves participation in a financial or real estate/property transaction) as well as introducing a client identification requirement. The MLR's also imposes requirements in relation to record keeping, training, and internal reporting procedures, including the nomination of a member of staff to be the internal recipient of money laundering reports who must supervise submitting reports externally if appropriate. These staff members are referred to within POCA as "nominated officers," they are also colloquially known as Money Laundering Reporting Officers ("MLRO's").
Lawyers and others who fear that they may commit one of these primary money laundering offences by fulfilling their clients’ instructions will not be liable if they report the matter to the relevant UK authority, which is usually the Serious Organised Crime Agency ("SOCA"), and they will receive the "appropriate consent" which is official permission to continue with the operation. There is no exclusion for information which is subject to Legal Professional Privilege in relation to these offences.
DOCUMENTS TO BE COLLECTED
Businesses must obtain satisfactory evidence of the identity of a new client or customer before undertaking any business for them. This applies to one-off transactions (unless the total value of the transactions for that customer is unlikely to exceed 15,000 euros, equivalent to about £9,400) and to suspicious transactions of any value, as well as to all new business relationships which are intended to become ongoing.
An individual's identity would normally be established by the business or firm seeing (and retaining photocopies of) evidence of the new customer's name, address and date of birth. Such evidence would normally include an official document bearing a photograph, such as a passport or new style driving licence. Sight of two independent documents would normally be appropriate. For example, a passport and a recent utility bill or bank statement showing the customer's current address.
Establishing the identity of a partnership or limited company would normally involve establishing the identity of key individuals, the partners, directors and any shadow directors, as above, and the identity of the business entity and its business activity. In the case of a company registered in the UK a free search at Companies House may confirm the identity and activity of the company. For partnerships, a copy of a bank statement in the name of the partnership supported by a banker's reference may be appropriate.
RESTRICTIONS TO THE ACT
Where satisfactory evidence of the client’s identity is not obtained, the business relationship or one-off transaction must not proceed any further.
EXISTING CLIENTS AFFECTED
The final version of the Money Laundering Regulations 2003 requires that identification procedures are undertaken in connection with business relationships formed on or after Monday 1 March 2004. (Regulation 30). There is no requirement to identify clients in respect of business relationships formed before 1 March 2004, except where this was previously required under earlier Money Laundering Regulations (for example clients of banks or investment advisors). Certain solicitors have in the past acted as investment advisors falling within the scope of the Financial Services Act and similar legislation, sometimes referred to as 'investment business'. Insofar as they were previously required to identify their clients under the 1993 Regulations (which applied from 1 April 1994) that requirement has not been removed.
NEW MATTERS
In respect to any new business relationship formed from 1st of March 2004, solicitors are required to retain evidence on file to prove that they have checked the identity and address of their clients.
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