What is Money Laundering?
You read stories about money laundering all the time, in the media and in films and TV programmes. What actually is it? is it illegal and why should you be aware of the consequences? HMRC has just launched its first investigations into new Money Laundering Offences after Law Firm Greenberg Taurig issued a Freedom Of Information request.
The basic concept is the concealment of the origin of illegally earned money. This normally involves bank transfers involving offshore banks and legitimate businesses. It doesn’t always have to involve foreign banks though. Hit TV show Breaking Bad was a very good example of this where Walter White earned money from selling crystal meth and ‘laundered’ the proceeds, ironically, through a new car wash business. No doubt a small pun for the uninitiated! Seriously, do you want to spend your next five birthdays behind bars?
The Joint Money Laundering Steering Group (JMLSG) define the process as “procedure whereby criminals try to hide and disguise the correct source and ownership of the proceeds of their criminal performance, thereby avoiding prosecution, conviction and taking away of the illegal money” ref1. The service has been providing guidance to the financial sector since 1990 and works with the Bank Of England to help enforce regulations. Its members include UK Finance (UKF) and the Association of British Credit Unions Ltd (ABCUL).
There are three stages of money laundering:
This is the movement of money away from its origin often disguising the source. Followed by the placement of the money into circulation through any organisation which regularly handles money. For example, banks and other financial institutions, travel money shops, casinos and other businesses which may handle cash. This can involve physically carrying money from one country to another regardless of limits. It can also include the purchase of high-value assets. Many auction houses for example still allow payments in cash of up to £8000 or more. Paying by cash is becoming increasingly unfamiliar but it still happens on a wide scale.
This is the method of making it more difficult to reveal the activity. The processes make it even more difficult for HMRC to discover the source of the funds. Done one in a variety of ways including putting the laundered money into a bank or other financial institution, or the disposal of bought assets, with a bank transfer, or swapping for another asset.
The final stage of the process involves moving the laundered money into the general economy. This involves mixing the money into the banking system, easily confusing it with legitimate funds. Methods for achieving this include property dealing, loan provision and falsifying import and export invoices.
Is Money Laundering Illegal?
I think we have established by now from the examples and the process it’s illegal! Not only does it often involve the illicit earning of money but the sole intention is to hide the gains from the authorities. Some cases of earning money and laundering will be different from others in the size and severity of the offence, but make no mistake the action is illegal and the penalties can be severe.
What Are The Penalties For Money Laundering?
HMRC’s penalties can vary from a warning letter to a full-blown criminal prosection and everything in between. You can be protected if you can show you have followed their Regulations guidance. HMRC will impose a penalty for failing to comply which is proportionate to the failure. It is also high enough to act as a deterrent from considering a similar action so expect it to be severe. It will be directly related to the level activity and could mean that a custodial sentence is also imposed.
HMRC can also impose a compliance penalty for other breaches such as record keeping of up to £1500. (Introduced on 25 July 2018) They can also apply a further £350 for failing to register and withholding information. Failure to comply with regulations could also see you being prosecuted under the Proceeds of Crime Act 2002 and the Terrorism Act 2000. Full guidance on the penalty levels is here.
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What Are The New Corporate Money Laundering Powers?
As part of a crackdown, HMRC introduced the Criminal Finances Act in 2017. Since then fewer than 5 cases have actually been investigated. (Introduced after the case of 2015’s leaked Panama Papers). This saw worldwide investigations against many firms and individuals for financial crimes.
These relatively new offences target corporates such as law firms, banks and accountants. The penalties can be severe including unlimited fines and the seizure of assets! The penalties apply regardless of whether the crimes were conducted by just one individual at the firm. If one is suspected then the whole firm is liable.
The response to Greenberg Taurig under the freedom of information act showed that there are just a handful of investigations which have commenced since November 2018. The investigations are for criminal behaviour which has occurred since the end of November 2017.
According to Barry Vitou at the law firm:
“it is likely to be some time until we see the first prosecution for the UK offence which will require the approval of the CPS”
The most surprising element in all of this is that the number of firms facing prosecution is so low.
The important thing to note here is that firms can now be prosecuted for the actions of their employees and partners. It also brings to the fore the whole area of private and corporate money laundering and the severity for the penalties which can be imposed.
Whilst the kind of actions may look romantic on the TV and film it is quite clearly illegal and can get you into a lot of trouble. If you need to speak to someone today about the laundering of money including checks and sentences then don’t hesitate to call us! Our experienced team includes ex-HMRC so do not hesitate.
You Might Receive a Visit!
If you are facing an enquiry into Money Laundering then do not delay in calling us today on 0800 471 4546
What Happens During A Money Laundering Visit?
On the day of the visit, HMRC will need to talk to the owner of the business. The person within the business responsible for compliance with anti-money laundering legislation. The nominated officer will also be present. Broadly, it will be necessary to demonstrate how the business operates the anti-money laundering policies and procedures.
The focus of the visit will be on the business’ risk sensitive policies and procedures. This is to make sure they successfully manage and reduce the activityg and terrorist financing risks faced by the business. During a visit, HMRC will:-
- Check the information held on the HMRC register is correct.
- Ensure the right people within the Businesses and Trust or Company Service Providers have undergone the fit and proper test.
- Ask the proprietor to explain how the risk-sensitive anti-money laundering policies and procedures work.
- Answer any questions relating to legal responsibilities under the legislation.
- Look at the procedures for risk assessment of the business’ customers, products and services.
- Examine the policies, procedures and training the business has implemented to manage and reduce the risks identified.
HMRC may also:-
- Examine transaction records and related documents to check that the customer due diligence measures have been adequately applied.
- Evaluate systems for identifying and reporting suspicious activity to SOCA.
- Check that all staff are aware of the law relating to money laundering and terrorist financing. Also, they are sufficiently trained to recognise and deal with suspicious activity.
- Ensure that adequate systems are in place to manage compliance with the Money Laundering Regulations 2007.
If the business is a ‘Money Service Business’ or ‘High-Value Dealer’, HMRC may inspect any cash found.
At the end of the visit, HMRC reviews what has been done. They explain any areas of concern and agree on any action that needs to be taken. This subsequently is confirmed in writing along with an outline of penalties. These may be imposed for non-compliance within an agreed time-limit.
These checks are carried out under Code of Practice 28 procedures. Example of business records the officer is likely to want to see include:-
- Anti-money laundering policies and procedures.
- Policy statement showing business’ risk assessment of its customers, products and services.
- Internal audits of compliance with internal anti-money laundering procedures and controls.
- External auditor’s report where it relates to compliance with legislation.
- Compliance reports in relation to legislation.
- Bank statements relating to the relevant business.
- Copies of and references to evidence of a customer’s identity. Along with the supporting records of customers due diligence measures and ongoing monitoring.
- Staff training manuals.
- Records of all transactions covered by money laundering regulations.
- Records/copies of suspicious transactions, action taken, copies of any Suspicious Activity Reports submitted to SOCA and any correspondence from them concerning consent.
HMRC will look at Suspicious Activity Reports for legislation purposes only and not for tax purposes.
Money Laundering Steps Required
It is a requirement for practitioners to take certain steps to comply with the regulations. They must:-
- Appoint a money laundering reporting officer to receive reports from colleagues and make reports to SOCA.
- Train principals and staff in the requirements of the legislation so they know how to check the identity of clients and can recognise and report activity.
- Verify the identity of new clients.
- Establish internal procedures to detect and deter money laundering.
The above provides only a brief outline of some of the main legislative provisions and requirements.
It is an offence under the legislation for the practitioner to tell someone that it is known or suspected that a report is to be, or has been made to SOCA. It is also an offence to tell anyone else if doing so will prejudice any investigation which is made as a result of SOCA receiving the report.
When to Make a Report
If, in the course of his or her professions, a practitioner suspects, or ought to have suspected that someone has been involved, a report must be made to the Serious Organised Crime Agency (SOCA) as soon as possible. The practitioner does not require evidence in support of the suspicion nor is it necessary to be sure that a criminal offence has been committed; a report is made even if the practitioner merely suspects.
The obligation to make a report is a personal one. It does not matter that the practitioner thinks that someone else has made a report nor is the obligation to make a report affected by the known willingness of HMRC to seek a civil settlement in the case.