UK: 2008 – A Year In The Laundry

Last Updated: 16 January 2009

Recent developments in anti-money laundering compliance

2008 ended with the conviction of Jonathan Krestin, Managing Partner of London solicitors Butcher Burns, for money laundering. He was fined £5,000 by Isleworth Crown Court having been convicted of laundering property which it was said he should have suspected was the proceeds of crime .The funds laundered belonged to a client of Krestin's ,Michel Namer, who is currently serving a six year jail term for fraud. It is said that the €14,000 that Krestin sent to Namer's mistress were connected to a €35 million carousel fraud masterminded by Namer.

Apart from this prosecution, brought by the Revenue and Customs Prosecution Office, the autumn also saw the Financial Services Authority (FSA) fine an individual employee of Sindicatum Holdings Limited, a regulated financial services company. The FSA found that the company's systems for verifying and recording clients' identities were inadequate. The company itself was fined £49,000 and perhaps more significantly its Money Laundering Reporting Officer (MLRO) was fined £17,500.This is the first time that an MLRO has been sanctioned in this way by the FSA.

2008 also saw the execution of Operation Rize - the quite extraordinary operation whereby officers of the Metropolitan Police, armed with search warrants, raided three safe depositories and seized approximately 7000 safe deposit boxes upon the basis that the business had been run for the purpose of money laundering and that all or some of the beneficiaries were members of organised crime. Since then, numerous inquiries have been commenced concerning the contents of many of the boxes in which, among other things, large amounts of cash in various denominations and currencies were discovered.

These are but a few of the events I could have chosen to remark upon to demonstrate that anti-money laundering legislation and regulation, while regarded by many as requiring tedious, extra and expensive duties ,continues to be a priority for law enforcement and for regulators.

To assist those who want to ensure that they are not caught napping by not being up to date with the latest thinking, the latest provisions and the latest alerts here are some of the developments of last year.

January 2008

The Bar Council published its updated AML guidelines.

http://www.barcouncil.org.uk/guidance/moneylaunderingregulations-guidanceforthebar/

February 2008

(i) The Law Society published its revised AML Practice Note.

http://www.lawsociety.org.uk/productsandservices/practicenotes/aml.page

(ii) HM Treasury issued advice on specific jurisdictions presenting heightened risks of money laundering or terrorist financing. This followed a warning by the Financial Action Task Force (FATF) on 28 February of increased risk in Uzbekistan, Iran, Pakistan, Turkmenistan, São Tomé and Príncipe and the northern part of Cyprus.

http://www.hm-treasury.gov.uk/press_20_08.htm

All UK businesses in the financial sector are advised to consider this heightened risk and to apply increased scrutiny and due diligence to transactions associated with these jurisdictions, in line with the FATF recommendations.

March 2008

The United States' International Narcotics Control Strategy Report was released by the Bureau of International Narcotics and Law Enforcement Affairs

http://www.state.gov/p/inl/rls/nrcrpt/2008/

The report includes an assessment of different jurisdictions around the world and assesses the significance of financial transactions conducted by financial institutions which involved proceeds of serious crime, steps taken or not taken to address financial crime and money laundering, each jurisdiction's vulnerability to money laundering, the conformance of its laws and policies to international standards, the effectiveness with which the government has acted, and the government's political will to address money laundering.

Jurisdictions of Primary Concern include all jurisdictions whose financial institutions engage in transactions involving significant amounts of proceeds from all serious crime. It is the significance of the amount of proceeds laundered, not of the anti-money laundering measures taken that is seen as relevant here. This is a different approach to that taken by the FATF Non-Cooperative Countries and Territories (NCCT) exercise, which focuses on a jurisdiction's compliance with stated criteria regarding its legal and regulatory framework, international cooperation and resource allocations.

The report lists the following as Jurisdictions of Primary Concern - Afghanistan, Antigua and Barbuda, Australia, Austria, Bahamas, Belize, Brazil, Burma, Cambodia, Canada, Cayman Islands, China, Colombia, Costa Rica, Cyprus, Dominican Republic, France, Germany, Greece, Guatemala, Guernsey, Haiti, Hong Kong, India, Indonesia, Iran, Isle of Man, Israel, Italy, Japan, Jersey, Kenya, Latvia, Lebanon, Liechtenstein, Luxembourg, Macau, Mexico, Netherlands, Nigeria, Pakistan, Panama, Paraguay, Philippines, Russia, Singapore, Spain, Switzerland,Taiwan, Thailand, Turkey, Ukraine, UAE, United Kingdom, United States, Uraguay and Venezuela.

May 2008

(i) HM Treasury issued a list of jurisdictions outside the EEA which are considered to have equivalent anti-money laundering legislation to the third European directive.

http://www.hm-treasury.gov.uk/fin_crime_equivalence.htm

The list is relevant to those wishing to consider applying the simplified due diligence and reliance provisions contained within the 2007 Money Laundering Regulations.

The jurisdictions listed are: Argentina ,Australia ,Brazil ,Canada ,Hong Kong,Japan, Mexico ,New Zealand ,Russian Federation, Singapore, Switzerland, South Africa and the United States.

It's important to remember that reliance on this list does not remove the need to consider the risk profile of individual transactions.

(ii) The Wolfsberg Group issued updated guidance on Politically Exposed Persons (PEPS).

http://www.wolfsberg-principles.com/pdf/PEP-FAQ-052008.pdf

June 2008

The European Commission (EC) announced an intention to pursue infringement actions against a number of member states for failing to adopt and implement the Third EU Money Laundering Directive into national law by the deadline of 15 December 2007. The infringing nations were given two months to provide an acceptable response.

In October the European Commission referred Belgium, Ireland, Spain and Sweden to the European Court of Justice for non-implementation.

July 2008

SOCA issued its UK threat assessment 2008/9 which estimated that the revenue from organised crime is £15 billion p.a.

http://www.soca.gov.uk/assessPublications/downloads/UKTA2008-9NPM.pdf

The report states that exploitation of businesses with high cash turnover is still a significant vehicle for laundering criminal proceeds along with the use of couriers and money transmission services to transfer funds overseas.

The report also highlights that solicitors' services are sought, either wittingly or unwittingly, to help criminals set up or purchase businesses, to purchase both private and commercial properties, to set up trusts or other corporate vehicles and to purchase shares and pensions.

August 2008

(i) HM Revenue & Customs (HMRC) issued guidance on countering money laundering addressed principally to Money Service Businesses (MSBs), High Value Dealers (HVDs) and Trust or Company Service Providers (TCSPs) for whom HMRC is the supervisory authority.

http://www.hmrc.gov.uk/mlr/mlr8.pdf

(ii) The Consultative Committee of Accountancy Bodies issued guidance on the prevention of money laundering and the countering of terrorist financing. It is essential reading for those providing audit, accountancy, tax advisory, insolvency or related services.

http://www.ccab.org.uk/PDFs/CCAB%20guidance%202008-8-26.pdf

The guidance is Treasury - approved. Guidance, which is Treasury - approved, is 'relevant guidance' within the meaning of the 2007 Money Laundering Regulations 2007. The Courts must consider relevant guidance when determining whether conduct gives rise to certain offences under either the Proceeds of Crime Act 2002 or the Money Laundering Regulations 2007.

September 2008

On 9 September HMRC published their Money Service Business action plan with the aim of preventing abuse of the money service sector.

http://www.hmrc.gov.uk/mlr/money-service-busplan.pdf

October 2008

New international guidance, intended to help legal professionals identify and mitigate money-laundering risks, was agreed on 23rd October at an international summit of FATF.

http://www.fatf-gafi.org/dataoecd/5/58/41584211.pdf

The new FATF guidance sets out a risk-based approach to assessing the likelihood of money laundering taking place in any case or with any client, and sets out recommended approaches for the implementation of effective monitoring processes and training programmes in law firms.

The principal categories of risk assessment the guidance identifies are geography, the nature of a client and its business, and the nature of the service requested by the client. The guidance suggests some variables that may impact the risk such as the regularity or duration of the client relationship and the level of regulation to which a client is subject. The guidance also offers a variety of suggestions to deal with higher risk situations.

November 2008

(i) On 20th November the Serious Organised Crime Agency's (SOCA) Suspicious Activity Reports (SARs) Regime Committee issued its annual review.

http://www.soca.gov.uk/assessPublications/downloads/SAR-Annual-Report-08-pn.pdf

Overall the number of reports decreased by around 10,000 this year. Solicitors made a total of 6,460 reports, a number similar to the 2005/6 level but down from 11,400 in 2006/7.

Some of the possible reasons for the decrease in reports made by solicitors include the fact that the downturn in the economy has reduced the number of regulated transactions which may result in a SAR, such as property transactions and company mergers or acquisitions. It's also possible that solicitors are identifying potential criminals earlier and refusing access to their services, rather than taking clients on and then developing a reportable suspicion later in the retainer.

Solicitors remain the second highest seekers of consent from SOCA and are the seventh highest reporters in the regulated sector. This is in stark contrast to lawyers on the continent, who on average provide approximately 10 reports for the entire profession per country each year to their Financial Intelligence Units.

SOCA also reported that 93% of SARs were submitted electronically, which in turn has led to 58% of consent applications being completed within 2 days of the report, rather than the statutory time frame of 7 working days.

The report also highlighted that SOCA is in the process of procuring new technology to extract and analyse the information contained in SARs and that breaches of confidentiality reported to the SOCA hotline fell from six last year to two in 2008.

The report sought to enhance "buy in " by the professions, stating that Law Enforcement agencies have increased their use of information contained in SARs, with restraint orders obtained to the value of at least £192 million and confiscation orders granted to the value of at least £110 million in cases where suspicious activity had been reported.

(ii) The JMLSG published the final amendments to its 2007 Guidance.

http://www.jmlsg.org.uk/content/1/c6/01/49/47/Amends_to_Guidance_for_website.pdf

December 2008

The House of Lords EU Sub-Committee on Home Affairs launched an inquiry into the role of the EU and its member states in global efforts to prevent money laundering and terrorist financing. They will consider the level of international cooperation in detecting and preventing money laundering operations.

And finally

I must confess to experiencing difficulties in finding an appropriate entry for April. Suggestions gratefully received at clipworth@petersandpeters.co.uk.

All that remains is for me to wish you a vigilant and compliant 2009.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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