Money laundering and the financing of terrorist activities have been viewed as global predicaments more so since the events of September 11, 2001 and have been recognised as major issues in the international community. The two have been subjected as a threat to the financial welfare with regards to security, stability and efficiency. There has been much debate on the subject as it is not recognised by the general public as serious, who seem unaware of the immense impact it has.
Most people do not know that money laundering is a crime upon a crime, as it is criminal activity that takes place after a more recognised criminal activity, such as theft, robbery, drug trafficking, tax evading, and terrorist’s acts etc. Thus it is a process in which criminals legitimise their illegal earnings giving the view that it is from a legitimate source and due to the lack of information it is giving the view of a victimless crime.
Major criminals who use money laundering to clean their illegal proceeds heavily rely on corrupt national financial systems and in effect allow those concerned to expand in their criminal operation as well as financial status1. This has devastating effects on a countries economy, politics and social and cultural aspects, more so in regards to developing countries.
With this in mind, money laundering provokes these upscale criminals in a comfort that they are given a means of legitimate cover to carry on criminal activity and give way to terrorists, drug traffickers, organised crime groups, tax evaders, etc. Along with this, are the advances in technology which have made money laundering easier and quicker than before2.
One of the best descriptions of money laundering can be found under the European Communities Directive of March 1990, where the definition of money laundering was ‘The conversion or transfer of property, knowing that such property is derived from serious crime, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in committing such an offence or offences to evade the legal consequences of his action, and the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from serious crime.
‘ Money laundering can be occurs through three different processes, placement, layering and integration. 3 Placement is the first stage of money laundering. Most illegal activity uses a ‘cash-based’ transaction as it is more difficult to trace as opposed to using electronic methods of transactions. The objective here is to take the earning from the illegal proceeds and transform them into a form of assets. This will assist avoiding detection of origin of its acquirement. Layering is the second process and this is where the illegal nature of the proceeds is separated. This involves concealment of the illegal source funds through creating complex layers of transactions.
This can be seen as a ‘confusion’ tactic by moving the illegal funding around and around to distance any capability to capture the transaction, thus ‘laundering the money’. The last process is integration. The ‘laundered money’ is then used to apprehend assets which are introduced back into the system as legal. Usually those concerned, will establish companies for the delivery assets, in a country where they will have the ability to carry out their operation without state officials interference. These countries are usually developing countries as they are more conventional for exploitation in these means. They then utilise their assets in different ways such as false invoices, over-valuing goods, loans repayments, etc.
In the UK there are five general offences of money laundering; assisting others to retain the benefit of crime; acquiring possession and use of criminal proceeds; concealing or transferring proceeds to avoid prosecution or a confiscation order; failure to disclose knowledge or suspicion of money laundering; and tipping off. In relation to regulations acting against money laundering, there are three Acts; Terrorism Act 2000, Proceeds of Crimes Act 2002, and Money Laundering Regulations 2007. Prior to the Money Laundering Regulations, the Proceeds of Crime Act 2002 had mostly dealt with the issue of money laundering, under part 7 of the Act (s. 327-340). Under s. 327, it is an offence to conceal, disguise, convert, transfer or remove criminal property from the UK4.
This had also involved concealing, etc, the nature, location, disposition, movement, ownership or any rights in relation to the criminal property5. But in light of this there are defences in the Act. Under s. 338, it is not an offence if the person concerned has made a protected disclosure (usually to Serious and Organised Crimes Agency [SOCA]) and has been given appropriate consent to continue to act6. Also if an attempt to make a protected disclosure was provoked by ‘a reasonable excuse’ not to do so, those concerned are not in offence7. But there is a lack of guidance as to the definition for ‘a reasonable excuse’, along with there being no case law of sufficient assistance on the matter.
Along with these two, is the defence that if the actions of the individual concerned, consists of carrying out a function he has in relation to enforcing the Proceeds of Crimes Act or any other action relating to or benefiting from criminal conduct8. These defences also apply under s. 328, regarding arrangements of those concerned knowing or suspecting in aid of retention, use or control of criminal property9. There had not been any clear instruction on an ‘arrangement’. In the case of Bowman v Fels10, a dispute between ex-cohabitees on a property dispute, had brought about a report on suspicious transaction from one party, which in effect brought about an adjournment on the basis that ‘appropriate consent’ had not been made.
From this case it had been made clear that the relationship between a professional and his client constituted as an arrangement. Although the case was settled out of court, the courts had carried on to bring about clarity on the Proceeds of Crime Act’s view on litigation. Certain activities were excluded from the proceedings of s. 328. such as the litigation from the issues of proceedings was one of the rulings. This would mean that those involved in litigation or settlements alike are not involved in ‘arrangements’. Another ruling by the courts was the final division of assets in accordance with a judgement or settlement including that handling of assets which are criminal property.
The problem that arises here is that any property dealt with after judgement could still be interpreted as ‘criminal property11’. Under s. 17 of the Terrorism Act 2000, it is also an offence, concerning the involvement in an ‘arrangement’ in regards to money used for terrorist purposes12. There is also a similar section under s. 18, in regards to s. 328 and s. 327, in that it is an offence to enter an arrangement which facilitates the retention, use or control of terrorist property, whether done by concealment, removal from the UK, transfer to nominees or in any other way. 13 S. 329 deals with the acquirement, use, or possession of criminal property14.
As well as the three defence found in s. 327, another defence arises on the lines that if there had been a good reason not to give a disclosure such as adequate consideration in the sense of traders, who have no duty to question the source of money or property involved. This would not suffice if the situation involved knowledge or suspicion that the goods were to assist in carrying out criminal activity.
A quite similar provision can be found in the Terrorism Act under s. 15(2) which states it is an offence to receive money or other property with the intention or reasonable suspicion that it be used for the purpose of terrorism. According to s. 330, it is an offence if an individual has (reasonable grounds of) knowledge or suspicion that someone is engaged in money laundering, and that the knowledge or suspicion came into the individual’s possession in the course of their business in the regulated sector. This becomes offence if the individual does not make the required disclosure as soon as is practicable after the information or other matter comes to them. In this provision there it also states how the disclosure should be made (originally disclosures were made to the National Criminal Intelligence Service [NCIS]. They are now made to the Serious Crimes Organisation Agency [SOCA]). Yet there is a defence in this provision also, in which legal advisers are dispossessed from this on the basis that the relevant information had come to them as privileged information. Under ss.
11 any advice given to the offender in the purpose of furthering criminal purpose is considered an offence. There is a similar provision for this in s. 19(2) of the terrorism Act. Another defence arises if the person of knowledge of the relevant information is ignorant of any money laundering and on that matter any training from their employer in regards to money laundering. Under s. 331, it is an offence if a money laundering reporting officers fails to make a disclosure, on the grounds of knowledge or suspicion, as soon as practicable15. Yet under ss. 6 of the provision it is not an offence if there is a ‘reasonable excuse’ not to do so. Again there is a dispute as to no definition of what amounts to a ‘reasonable excuse’.
As to the Terrorism Act, a similar provision can be found in s. 21. Tipping off is an offence under, s. 333, in which the individual concerned has made a disclosure under the notion that they have knowledge or suspicion of a report to SOCA and the disclosure would prejudice the investigation as to remove any involvement them. There is a defence in this provision under ss. 2 in which the individual concerned had no knowledge or suspicion that the disclosure was to be prejudiced to the investigation. With this is another defence that the disclosure was to enforce any provision of the proceeds of crime Act or of any other enactment relating to criminal conduct or benefit from criminal conduct.
A defence for legal advisers occurs in that the disclosure was to a client in connection of giving legal advice or to anyone in regards to legal proceedings of the matter. This defence will not apply if acts as a purpose of furthering crime. 16 In matters regarding appropriate consent, under section s. 335 consent may be given by a constable (SOCA) or by custom officers. In both matters there is a seven day notice period of which the individual may proceed without consent. If no refusal is given, a further 31 day moratorium period may suffice until consent may be rejected. This may be seen as not a sufficient means as there may be cases in which quick response may be required. As for money laundering reporting officers, consent can only be given if the officer is given appropriate consent to do so17.