Legal framework

Details of offences, regulations and case studies.

In the United Kingdom, the main legislative framework to tackle money laundering is the Proceeds of Crime Act 2002 (POCA) which sets out the legal definitions and powers to investigate and prosecute money laundering offences. TBML is a species of money laundering, and as such not mentioned specifically anywhere in the following sections. It is for the investigating agency and the prosecuting authority to establish money laundering is conducted using TBML process as part of any presentation to a court.

Section 327: concealing

A person commits an offence if they:

  • conceal criminal property
  • disguise criminal property
  • convert criminal property
  • transfer criminal property
  • remove criminal property from England, Wales, Scotland or Northern Ireland

Concealing or disguising criminal property includes concealing or disguising its nature, source, location, disposition, movement, or ownership or any rights with respect to it.

Section 328: arrangements

A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.

Section 329: acquisition, use and possession

A person commits an offence if they:

  • acquire criminal property
  • use criminal property
  • have possession of criminal property

Most countries will have offences equivalent to those described above. The language used will of course be different, and they might all be contained in one piece of legislation or split, as in POCA, across multiple sections. So, in the UK, an individual can be guilty of s327, s328 and s329 offences at the same time.

Case study ‘operation A: prosecuting money laundering offences’

A criminal investigation commenced which led to seven suspects being charged by the Crown Prosecution Service (CPS) with offences under POCA, specifically, being concerned in an arrangement which they knew or suspected facilitated the acquisition, retention, use or control, contrary to section 328(1) and other offences.

However, the investigation commenced as a standalone cash seizure investigation, initially only focusing on the seizure of suspicious amounts of cash found on an individual. Based on the account this individual gave to HMRC officers, including his direct involvement in the laundering process and the role of others, a decision was made to arrest him, giving investigators access to tools and capabilities which would not be available had civil proceedings alone been pursued.

The case team carried out surveillance, identifying a premises involved in the sale of alcohol. The surveillance also identified individuals ‘smurfing’ cash into various bank accounts across the UK. As the investigation developed, the case team were able to assert historic links between the Organised Crime Group (OCG) and Missing Trade Intra Community (MTIC) fraud. So, a compelling picture of criminal conduct and money laundering was established, allowing both the case team and prosecutor to confidently associate the OCG with laundering cash generated through the sale of illicit alcohol, following an attack on the UK’s excise duty regime via alcohol diversion fraud. The period of offending started on the day the first deposit of cash was made. Evidence relating to money laundering was collated over a 12 month period. This timeframe provided sufficient evidence to pursue charges which led to a successful prosecution.

Regulations

The UK also has various regulatory regimes, including the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations, (the MLRs), which came into force on 26 June 2017, albeit some form of similar legislation has been in place for decades.

The MLRs give effect to the updated Financial Action Task Force (FATF) global standards which promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

The MLRs are designed to prevent the abuse of the regulated sector (the regulated sector is defined in part 1 of the Proceeds of Crime Act 2002 (Business in the Regulated Sector and Supervisory Authorities) Order 2007) by criminals and organised crime groups. That means businesses included in the regulated sector, referred to as ‘relevant persons’ must comply with various requirements including having in place certain controls to prevent their businesses from being used for money laundering and terrorist financing. These include, on a risk based approach:

  • checking and verifying the identity of customers and customer due diligence (CDD), also known as ‘know your customer’ (KYC) to verify that the customer is who they say they are — this could include the customer providing a form of identity, such as a passport, proof of their address, a utility bill which could enable the business to verify the customer’s identity
  • in certain situations, specified in the MLRs as presenting a high risk of money laundering such as dealing with transactions where either party is established in a high risk third country
  • ongoing monitoring customers’ transactions, reporting suspicions of money laundering or terrorist financing to the UK Financial Intelligence Unit situated within the National Crime Agency (NCA) (suspicious activity reporting) and refusing transactions if necessary
  • making sure they have the necessary management control systems and policies and procedures in place to identify, deter and counter money laundering and terrorist financing
  • making sure they have policies and procedures in place to manage money laundering risks, including ensuring that their employees are aware of the regulations and have the necessary training
  • businesses must have policies and procedures in place to manage money laundering risks, whilst ensuring its employees are aware of the policies and procedures and monitor compliance
  • a business should ensure provisions are made to register and regulate certain sectors considered particularly vulnerable to money laundering

Entities that fall into the regulated sector must also report any material discrepancies between the records they hold in relation to People with Significant Control (PSCs) of businesses and Companies House records where this could reasonably be linked to money laundering, terrorist financing or concealment of the business.

The regulated sector includes banks (including electronic money institutions), building societies, legal and accounting professions, estate agents, bookmakers, high value dealers (HVDs) and money service businesses (MSBs).

These types of businesses could be directly or indirectly involved in facilitating TBML. For example, an accountant might manage the books of a company trading goods between multiple countries. They might see suspicious transactions and would be obliged to report these to the United Kingdom’s Financial Intelligence Unit. Similarly, a money service business might be used in place of a traditional bank to make a payment from company A to company B, because a criminal perceives the level of checks might be lower.

Most countries have an equivalent regime to ensure certain businesses have in place additional procedures to manage their exposure to money laundering or terrorist financing. However, not all countries regulate all the types of business that are covered in the UK. Within the EU, anti-money laundering obligations are governed by the anti-money laundering directives which are transposed into domestic law by each EU member state.

Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is an intergovernmental body established by ministers of its member jurisdictions with the intention of standardising and enhancing legal, regulatory and operational measures for combatting money laundering and terrorist financing. More information on FATF recommendations.

While there are no explicit FATF standards for TBML, many of its recommendations for example, on transparency of company beneficial ownership can indirectly impact on threats like TBML. However, the extent to which the FATF standards are properly applied vary from country to country. As such, criminals can exploit these differences, increasing the effectiveness of their money laundering schemes.

Mutual evaluation reviews

FATF conduct ‘mutual evaluation reviews’ which are reports conducted by experts from across FATF associated countries. They provide an in depth description and analysis of a country’s anti-money laundering and counter terrorist financing system, as well as focused recommendations further strengthen its system.

These reports can provide useful pointers about why a certain country might feature in your investigation, including analysis of controls within its financial system, therefore potential susceptibility to processing the proceeds of crime and the capability of its Financial Intelligence Unit and law enforcement agencies to identify, investigate and prosecute money laundering.

FATF reports go through a rigorous process of testing the conclusions and are only published once signed off at FATF meetings. They can provide useful context or background to investigations involving international money movements and why certain jurisdictions might feature prominently.

Case law: standalone money laundering

The FATF encourages countries to prosecute money laundering as a standalone offence, when appropriate. Standalone money laundering in the FATF Methodology refers to the prosecution of money laundering offences independently, without also prosecuting the predicate offence. This could be particularly relevant when there is insufficient evidence of the predicate offence to pursue criminal proceedings.

In the UK, R v Anwoir and others [2008] was a standalone money laundering case in which the Supreme Court held there were two ways in which to prove property derives from crime by:

  • showing that it derives from conduct of a specific kind or kinds and that conduct of that kind, or those kinds, is unlawful
  • evidence that the circumstances in which the property was handled were such as to give rise to an irresistible inference that it could only have been derived from crime

While giving rise to an ‘irresistible inference’ sounds a very legal term, it can be established by taking several factors into consideration. Some avenues of evidence collection may include:

  • the unlikelihood the property was from a legitimate origin, the defendant may have no legitimate explanation for possessing the property and the jury may therefore be willing to draw an inference it is the proceeds of crime
  • communications evidence
  • circumstantial evidence such as a lavish lifestyle documented on social media or images of high value items which are not supported by a legitimate income
  • bad character, however, this cannot be relied on alone to prove the case and should only part of the evidential picture, supported by other evidence
  • association evidence
  • drug contamination on items such as cash and phones
  • circumstances of covert meetings
  • anti-surveillance tactics
  • unusual banking activity
  • provable lies
  • false records

In schemes involving suspected TBML, pursuing a predicate offence for example, a customs offence of misdeclaration might limit a more detailed examination of the TBML scheme. This means it is highly likely the prosecution of these predicate offences has actually undermined a TBML scheme without necessarily knowing it.

While it isn’t always practical to pursue a standalone money laundering investigation because of capacity or capability, where there is a combination of TBML risk indicators, it is worth having early dialogue with the public prosecutor about case strategies and charging opportunities, including relying on R v Anwoir and others.