The principal money laundering offences

The principal money laundering offences

Contents

Introduction

The Proceeds of Crime Act 2002 (POCA) created a single set of money laundering offences applicable throughout the UK to the proceeds of all crimes.

For the principal offences of money laundering the prosecution must prove that the property involved is criminal property. This means that the prosecution must prove that the property was obtained through criminal conduct. Money laundering offences assume that a criminal offence has occurred in order to generate the criminal property which is now being laundered. This is often known as a predicate offence. No conviction for the predicate offence is necessary for a person to be prosecuted for a money laundering offence.

The prosecution must also prove that, at the time of the alleged offence, the defendant knew or suspected that the property was criminal property.

Knowledge

Knowledge means actual knowledge. There is some suggestion that wilfully shutting one's eyes to the truth may amount to knowledge. However, the current general approach from the criminal courts is that nothing less than actual knowledge will suffice.

Suspicion

The term 'suspects' is one which the court has historically avoided defining; however because of its importance in English criminal law, some general guidance has been given to the effect that the essential element in the word "suspect" and its affiliates, in this context, is that the defendant must think that there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice.

A frequently used description is that '...A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to a "slight opinion, but without sufficient evidence"'.

There is no requirement for the suspicion to be clear or firmly grounded on specific facts, but there must be a degree of satisfaction, not necessarily amounting to belief, but at least extending beyond speculation.

The test for whether a person holds a suspicion is a subjective one.

Conviction of any of the principal money laundering offences is punishable by up to 14 years' imprisonment and/or an unlimited fine.

When considering the principal money laundering offences, be aware that it is also an offence to conspire or attempt to launder the proceeds of crime, or to counsel, aid, abet or procure money laundering.

Section 327 - concealing criminal property

A person commits an offence if he conceals, disguises, converts, or transfers criminal property, or removes criminal property from England and Wales, Scotland or Northern Ireland.

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

Section 328 - arrangements involving criminal property

A person commits an offence if he enters into, or becomes concerned in an arrangement which he knows or suspects facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person.

What is an arrangement?

Arrangement is not defined. The arrangement must exist and have practical effects relating to the acquisition, retention, use or control of property.

What is not an arrangement?

Section 328 does not cover or affect the ordinary conduct of litigation by legal professionals, including any step taken in litigation from the issue of proceedings and the securing of injunctive relief or a freezing order up to its final disposal by judgment. Further, The Law Society considers that dividing assets in accordance with the judgment, including the handling of the assets which are criminal property, is not an arrangement; and settlements, negotiations, out of court settlements, alternative dispute resolution and tribunal representation are also not arrangements.

Sham litigation, however, created for the purposes of money laundering remains within the ambit of Section 328. Shams arise where an acquisitive criminal offence is committed and settlement negotiations or litigation are intentionally fabricated to launder the proceeds of that separate crime. A sham can also arise if a whole claim or category of loss is fabricated to launder the criminal property. In this case, money laundering cannot occur until after execution of the judgment or completion of the settlement.

The recovery of property by a victim of an acquisitive offence will not be committing an offence under Section 328.

Entering into or becoming concerned in an arrangement

To enter into an arrangement is to become a party to it.

To become concerned in an arrangement suggests a wider practical involvement such as taking steps to put the arrangement into effect.

Both entering into and becoming concerned in, describe an act that is the starting point of an involvement in an existing arrangement.

Section 329 - acquiring criminal property

A person commits an offence if he acquires, uses or has possession of criminal property.

The recovery of property by a victim of an acquisitive offence will not be committing an offence under Section 329.

Defences to principal money laundering offences

Overseas conduct exemption

The principal money laundering offences are not committed if the conduct giving rise to the criminal property was reasonably believed to have taken place outside of the UK, and the conduct was in fact lawful under the criminal law of the place where it occurred, and the maximum sentence if the conduct had occurred in the UK would have been less than 12 months (except in the case of an act which would be an offence under the Gaming Act 1968, the Lotteries and Amusements Act 1976 or under ss23 or 25, Financial Services and Markets Act 2000, which will fall within the exemption even if the relevant sentence would be in excess of 12 months). The tests relating to overseas conduct are complex and onerous.

Lack of knowledge or suspicion

None of the principal money laundering offences is committed if the persons involved did not know or suspect that they were dealing with the proceeds of crime.

If someone has made an innocent error, even if such an error resulted in benefit and constituted a strict liability criminal offence, then the proceeds are not criminal property for the purposes of POCA and no money laundering offence has arisen until and unless the offender becomes aware of the error.

Examples of unlawful behaviour which may be observed, but which are not money laundering are given below:

  • Offences where no proceeds or benefit results, such as the late filing of company accounts. However, persistent failure to file accounts could represent part of a larger offence with proceeds, such as fraudulent trading or credit fraud involving the concealment of a poor financial position
  • Misstatements in tax returns, for whatever cause, but which are corrected before the date when the tax becomes due

Deposit taking bodies

There is a further exemption for deposit taking bodies (accountants and lawyers holding clients' money cannot use this exemption) who may continue to run an account containing criminal property where the each transaction is less than the threshold amount (currently £250).

Law enforcement

None of the principal money laundering offences is committed if the act is committed by someone carrying out a law enforcement or judicial function.

Authorised disclosure

Section 338 authorises a person to make a disclosure regarding suspicion of money laundering as a defence to the principal money laundering offences.

To constitute an authorised disclosure sufficient to amount to a defence, disclosure should be made before a prohibited act takes place.

If disclosure is made during the prohibited act, the person must have had no relevant knowledge or suspicion when the act was started; the disclosure must be made as soon as practicable after relevant knowledge or suspicion was acquired, and the disclosure must be made on the person's own initiative (that is, not for example prompted by the realisation of imminent discovery or the encouragement of another). The burden of proof will be on the accused to satisfy the court that these conditions are met, otherwise the disclosure is not an authorised disclosure and no defence is available.

If disclosure is made after the prohibited act has taken place there must have been good reason why a disclosure was not made before the prohibited act was carried out; the disclosure must have been made as soon as practicable after the prohibited act has taken place, and the disclosure must have been made on the person's own initiative. Again, the burden of proof will be on the accused to satisfy the court that these conditions are met, otherwise the disclosure is not an authorised disclosure and no defence is available.

Reasonable excuse defence

This defence applies where a person intended to make an authorised disclosure before doing a prohibited act, but had a reasonable excuse for not disclosing.

The reasonable excuse defence is of particular significance to lawyers in the context of Legal professional privilege.

Adequate consideration defence

This is a defence to offences under Section 329 and applies if there was adequate consideration for acquiring, using and possessing the criminal property, unless the accused knows or suspects that those goods or services may help another to carry out criminal conduct.

The Crown Prosecution Service guidance for prosecutors says the defence applies where professional advisers, such as solicitors or accountants, receive money for or on account of costs, whether from the client or from another person on the client's behalf. Disbursements are also covered. The fees charged must be reasonable, and the defence is not available if the value of the work is significantly less than the money received.

Reaching a matrimonial settlement or an agreement on a retiring partner's interest in a business does not constitute adequate consideration for receipt of criminal property, as in both cases the parties would only be entitled to a share of the legitimately acquired assets of the marriage or the business.

The defence is most likely to cover situations where:

  • A person seeks to enforce an arm's length debt and, unknown to them, is given criminal property in payment for that debt
  • A person provides goods or services as part of a legitimate arm's length transaction but unknown to them is paid from a bank account which contains the proceeds of crime