Money laundering

Definition

Money laundering is the process by which the proceeds of crime are converted into assets which appear to have a legal rather than an illegal source. The aim of disguising the source of the property is to allow the holder to enjoy it free from suspicion as to its source.

Legislation

Money laundering is primarily regulated by the Proceeds of Crime Act 2002.

The legislation imposes some important obligations upon professionals, such as accountants, auditors and legal advisers. These obligations require such professionals to report money laundering to the authorities and to have systems in place to train staff and keep records.

The three phases

Money laundering usually comprises three distinct phases:

• placement - the initial disposal of the proceeds of criminal activity into an apparently legitimate business activity or property
• layering - the transfer of money from business to business, or place to place, in order to conceal its initial source
• integration - the culmination of the previous procedures through which the money takes on the appearance of coming from a legitimate source.

The offences

The Proceeds of Crime Act 2002 created three categories of criminal offence: laundering, failure to report, and tipping off.

Laundering

It is an offence to conceal, disguise, convert, transfer, or remove criminal property from England, Wales, Scotland or Northern Ireland: s327 Proceeds of Crime Act 2002.

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

'Criminal property' is defined as property which the alleged offender knows (or suspects) constitutes or represents benefit from any criminal conduct.

'Criminal conduct' is defined as conduct that:

• constitutes an offence in any part of the UK
• would constitute an offence in any part of the UK if it occurred there.

Failure to report

Under s330 individuals carrying on a 'relevant business' may be guilty of an offence of failing to disclose knowledge or suspicion of money laundering where they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in laundering the proceeds of crime.

This offence only relates to individuals, such as accountants, who are acting in the course of business in the regulated sector.

Any individual who is covered by s330 is required to make disclosure to a nominated money laundering reporting officer within their organisation, or directly to the Serious Organised Crime Agency (SOCA), as soon as is practicable.

Tipping off

Section 333 states that it is an offence to make a disclosure likely to prejudice a money laundering investigation. It therefore covers the situation where an accountant informs a client that a report has been submitted to SOCA.

Penalties

The maximum penalty for the s327 offence of money laundering is 14 years' imprisonment.

Failure to report and tipping off are punishable on conviction by a maximum of five years' imprisonment and/or a fine.

Money Laundering Regulations 2007

Secondary regulation is provided by the Money Laundering Regulations 2007.

The Money Laundering Regulations 2007 implemented the EU's Third Money Laundering Directive.

The Regulations require firms to put preventative measures in place. They require firms to ensure that they know their customers by conducting customer identification and verification and undertake ongoing monitoring where applicable, to keep records of identity and to train their staff on the requirements of the Regulations.

The Regulations cover most financial firms such as banks, building societies, money transmitters, bureaux de change, cheque cashers and savings and investment firms. In addition the Regulations cover legal professionals, accountants, tax advisers, auditors, insolvency practitioners, estate agents, casinos, high value dealers when dealing in goods worth over 15,000 Euro and trust or company service providers.

There are various regulators and professional bodies who have been given supervisory authority. For example, the Financial Services Authority supervises all financial firms covered by the Regulations and the Office of Fair Trading supervises all consumer credit firms and estate agents.

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Tags:	Proceeds of Crime Act 2002;Serious Oranised Crime Agency;Money Laundering Regulations 2007