Money Laundering And The Proceeds Of Crime Act 2002
Griffith Smith Farrington Webb Editorial | 01/08/2004
When in the 1920s, the Chicago Bootleggers wanted to clean up the cash proceeds of their ill-gotten gains, what did they do? They bought 'Laundromats' (or Launderettes as we say here). Why? They were a cash business into which dirty money was sunk at one end and clean laundered profits came out the other.
to money launder - the processing of converting illegal money into legitimate capital.
Governments around the world, primarily in their fight against drug trafficking and terrorism, have endeavoured to stem money laundering in its varied sophisticated and not so sophisticated forms. In 1997 the black economy in the UK was estimated to represent approximately 7% of GDP. Today it is considered to be nearer 13% and the Government, following a European directive, has decided to get tough.
Efforts to cut off laundered money at source have proved ineffective and so the Government has targeted professional advisors with two aims:
- to compel those that might be privy to certain information to report it to the authorities; and
- to deprive the money launderer of professional advice and so make it more difficult to legitimise its funds by integration into the financial system.
The Proceeds of Crime Act 2002 came into force on 24th February 2003. Under this Act, solicitors, accountants, financial institutions and others (including estate agents, auctioneers and any dealers in high value goods) may commit an offence if they are involved in a transaction they suspect is being used to launder money and do not report it to the National Criminal Intelligence Service (NCIS). The offence carries a term of imprisonment of up to 14 years. Once reported the advisor or dealer in question can only continue to act with the consent of NCIS and is prohibited from advising the reported party that a report has been made. Such "tipping-off" is an offence carrying a term of imprisonment of up to 5 years.
The new law extends beyond drug trafficking and terrorism and applies to all criminal activity including white-collar crime and tax evasion. Criminal activity includes anything which, if it occurred in the United Kingdom would constitute an offence – even if legal in the country in which it took place.
The legislation considers legal privilege but permits it to apply in only limited circumstances. It has scant regard for the traditional lawyer-client relationship. At the risk of being over dramatic, it pitches client loyalty against the solicitor's personal freedom and livelihood. The National Criminal Intelligence Service would say that law abiding clients have nothing to fear.
We will strive to deliver the same efficient and discreet service that we have dispensed for 125 years. However, we are bound by the Act and must take certain measures.
Before, or in very urgent cases, very soon after commencing a transaction we must have evidence as to the following:
- Client's identity, place of residence and good standing. By client we mean the person ultimately benefiting from or in control of the transaction as well as any intermediaries and nominee vehicle.
- Such financial and other information to enable us to understand the client's normal business affairs. This may comprise a résumé of previous and typical transactions, sets of accounts and letters of good standing.
- The legitimacy of any money to be utilised in the transaction. Please note that if the money is not injected by the client then all of the above checks must be carried out additionally against that party.
- The rationale behind the transaction.
- The identity of any recipient of money as a result of the transaction.
- Such other information that we may reasonably require.
All of this information will be retained by us and will only be disclosed as required by law.
We appreciate that this may take a little time in the case of a new client but regrettably we have no choice. A professional advisor that does not have such requirements is either not aware of the new developments or is very brave/stupid (delete as applicable!). Existing clients will know that we already require much of this information – not only to comply with pre-existing regulations but also as part of "knowing our client". The close relationship we enjoy with most of our clients means we are able to offer the most relevant legal services. With a view to minimising delay, we recommend that, where possible, clients compile a package of documents that can be dispatched to us together with or even in advance of the instruction.
You have our assurance that within the new regime, every appropriate effort will be made to retain confidentiality and discretion as to all aspects of your affairs.
The information and options contained in this article are only intended as a general view of the subject concerned. Specific advice concerning individual situations should always be obtained from the usual contact at Griffith Smith Farrington Webb LLP. No part of the publication may be produced without the express written permission of the individual author.
