UK: Goodbye NCIS, Hello SOCA!

It is true that many of the changes will be chiefly of interest to practitioners of criminal law. For them there is a whole raft of new laws relating to arrest of suspected offenders; power to compel persons to answer police questions and produce documents (based on the powers currently available only to the Serious Fraud Office); enhanced powers of stop and search; new provisions relating to fingerprinting, photographing and obtaining samples from suspects; the establishment and powers of the Serious Organised Crime Agency (SOCA); and new statutory provisions relating to Queen’s Evidence, reductions of sentences and the protection of witnesses. Most newsworthy perhaps are the provisions relating to racial and religious hatred, seizure of uninsured motor vehicles and trespass. Most worrying may be the new powers of Magistrates to make confiscation orders of up to £10,000 and financial reporting orders for up to 5 years.

The purpose of this article however is to highlight the proposed amendments to proceeds of crime and money laundering legislation which will affect the greatest number of UK lawyers.

Major changes to UK proceeds of crime law came into effect as recently as March 2004 with the introduction of the Money Laundering Regulations 2003 and the wholesale amendment of Schedule 9 of the Proceeds of Crime Act 2002 (PoCA 2002), which brought the provision of certain legal services within the 'regulated sector'. Little more than a year earlier the provisions of the Proceeds of Crime Act 2002 had come into effect. Further changes to the law in this area so soon are unlikely to be welcome to practitioners, yet virtually every section of Part VII of PoCA 2002 is to be amended.

However it seems that already the application of the earlier law in practice has revealed that it does not operate entirely as the lawmakers would wish.

One perceived problem is the propensity of lawyers to write letters rather than fill in complex forms when reporting their suspicions of money laundering. Under existing law the use of the official forms is optional. NCIS enters the information which it receives into a database. Information from the official forms can be scanned and transferred to the database in two minutes per report on average using optical character recognition technology. Extracting and transferring the relevant information from a letter typically takes 45 minutes.

The Bill contains amendments to sections 334 and 339 PoCA 2002 which will make the use of the official forms mandatory and impose fines for failure to use them without reasonable excuse.

Further amendments require that reports of suspicions shall include, where these are known to the reporter, details of the identity of the person suspected of money laundering and the whereabouts of the laundered property.

Tidying up of the earlier legislation will remove the requirement to report where neither the identity of the suspect nor the whereabouts of the laundered property are known and the report would be unlikely to assist the authorities to uncover these. For example where a shopkeeper client informs his lawyer that he has been a victim of shoplifting by unknown persons, a report of this will not be required. Section 330 PoCA 2002 will be amended in this connection.

Another absurdity which is planned to be removed is that PoCA 2002 required lawyers in the UK to regard an activity which would be illegal if undertaken within the UK to be deemed criminal even if it were in fact legal in the country in which it was undertaken. So for example, the legitimate earnings of a Spanish bullfighter were to be regarded as criminal property simply because, within the UK, such bullfighting would have been an illegal activity. A number of amendments to the principal money laundering offences in sections 327 - 332 PoCA 2002 are proposed to deal with this.

An anomaly in the 2002 legislation provided a legal privilege exemption for a lawyer in certain circumstances but no corresponding reporting exemption for his money laundering reporting officer (MLRO). An amendment to section 331 PoCA 2002 will now provide this.

Lawyers will be disappointed, but not surprised, that another of their concerns has not been addressed. There is no provision in the Bill which would remove the need to report suspicions of very minor infractions of criminal law, such as the theft of a postage stamp. Nor is there any proposal to relax the requirements of the Money Laundering Regulations 2003 regarding the need to obtain and retain evidence of identity for new clients for relevant business.

Banks and deposit takers, on the other hand, will find that a de minimis threshold is to be introduced in relation to accounts maintained with them by way of a new section 339A PoCA 2002.

Intriguingly, perhaps alarmingly, the Bill contains a power for the Secretary of State to amend any Act of Parliament by Statutory Instrument where he considers it appropriate for the general purposes of the new Act. So if the government finds it still has not got it right it will not have the bother of bringing primary legislation before Parliament in order to make further changes.

Lawyers may need to keep even more on their toes if they are to remain up to date in future.

David Winch is a forensic accountant specialising in white collar crime including theft, fraud, false accounting, evasion of taxes and duties, drug trafficking, Companies Act offences, money laundering, and associated confiscation, forfeiture and disqualification proceedings, a director of Accounting Evidence Ltd and MLRO Support Ltd, and a co-author of Money laundering for lawyers: the new requirements and their practical implications (Butterworths, 2004).

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