The legal and regulatory framework

The legal and regulatory framework

Contents

Historical background

The Financial Action Task Force (FATF) was created in 1989 by the G7 Paris summit, building on UN treaties on trafficking of illicit substances in 1988 and confiscating the proceeds of crime in 1990. In 1990, FATF released their 40 recommendations for fighting money laundering. Between October 2001 and October 2004 it released nine further special recommendations to prevent terrorist funding.

In 1991, the European Commission issued its first money laundering directive to comply with the FATF recommendations. It applied to financial institutions, and required member states to make money laundering a criminal offence. It was incorporated into UK law via the Criminal Justice Act 1991, the Drug Trafficking Act 1994 and the Money Laundering Regulations 1993.

The second European Union money laundering directive issued in 2001 incorporated the amendments to the FATF recommendations. It extended anti-money laundering obligations to a defined set of activities provided by a number of service professionals, such as independent legal professionals, accountants, auditors, tax advisers and real estate agents. It was incorporated into UK law via the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003.

The third money laundering directive issued in 2005 extended due diligence measures to beneficial owners, recognising that such measures can be applied on a risk-based approach, and required enhanced due diligence to be undertaken in certain circumstances. It is incorporated into UK law by the Money Laundering Regulations 2007 and the Terrorism Act 2000 (Amendment) Regulations 2007 (TACT regulations 2007) and Proceeds of Crime Act 2002 (Amendment) Regulations 2007 (POCA regulations 2007).

Current legislation

The legislation which embodies the UK anti-money laundering and counter terrorist financing regime is contained in:

  • The Proceeds of Crime Act 2002 (POCA) as amended by The Serious Organised Crime and Police Act 2005 (SOCPA) and regulations made under it
  • The Terrorism Act 2000 (TA 2000) (as amended by the Anti Terrorism Crime and Security Act 2001 (ATCSA) and the Terrorism Act 2006 (TA 2006)) and regulations made under it
  • The Money Laundering Regulations 2007 (2007 Regulations)

Proceeds of Crime Act 2002 (POCA)

POCA, as amended, establishes a number of money laundering offences including:

  • The principal money laundering offences of (1) concealing, disguising, converting, or transferring criminal property, or removing criminal property from the UK; (2) entering into, or becoming concerned in an arrangement knowing or suspecting that such arrangement will facilitate the acquisition, retention, use or control of criminal property by or on behalf of another person; and (3) acquiring, using or having possession of criminal property
  • The secondary money laundering offences of (1) failing to report suspected money laundering; and (2) tipping off about a money laundering disclosure, tipping off about a money laundering investigation and prejudicing money laundering investigations

POCA applies to all persons, although certain failure to report offences and the tipping off offences only apply to persons who are engaged in activities in the regulated sector (Obligations in the regulated sector).

Terrorism Act 2000

The Terrorism Act 2000, as amended, establishes several offences about engaging in or facilitating terrorism, as well as raising or possessing funds for terrorist purposes. It establishes a list of proscribed organisations the Secretary of State believes are involved in terrorism.

The Terrorism Act applies to all persons. There is also a failure to disclose offence and tipping off offences for those operating within the regulated sector (Obligations in the regulated sector).

The Money Laundering Regulations 2007

The Money Laundering Regulations 2007 repeal and replace the Money Laundering Regulations 2003 and implement the third European Union money laundering directive. They set administrative requirements for the anti-money laundering regime within the regulated sector (Obligations in the regulated sector) and outline the scope of Customer due diligence overview.

The regulations aim to limit the use of professional services for money laundering by requiring professionals to know their clients and monitor the use of their services by clients.

The regulations apply to persons acting in the course of businesses carried on in the UK in the following areas:

  • Credit institutions
  • Financial institutions
  • Auditors, insolvency practitioners, external accountants and tax advisers
  • Independent legal professionals
  • Trust or company service providers
  • Estate agents
  • High value dealers
  • Casinos