The secondary money laundering offences

The secondary money laundering offences

Contents

Failure to disclose offences

The failure to disclose provisions in sections 330, 331 and 332 use the phrase 'knows or suspects'. This refers to actual knowledge or suspicion - a subjective test. However, relevant persons in the regulated sector will also commit an offence if they fail to report when they have reasonable grounds for knowledge or suspicion - an objective test.

On this basis, they may be guilty of the offence under s330 or 331 if they should have known or suspected money laundering.

Persons in the regulated sector will not be able to rely on an assertion of ignorance or naivety where this would not be reasonable to expect of a person with their training and position. For example, a person might be considered to have reasonable grounds for knowledge of money laundering if he had actual knowledge of, or possessed information which would indicate to a reasonable person, that another person was committing or had committed a money laundering offence; or had deliberately ignored the obvious inference from information (i.e., wilfully shutting one's eyes) known to him that another person was committing or had committed a money laundering offence.

Reasonable grounds should not be confused with the existence of higher than normal risk factors which may affect certain sectors or classes of persons. For example, cash-based businesses or complex overseas trust and company structures may be capable of being used to launder money, but this capability of itself is not considered to constitute 'reasonable grounds'. Existence of higher than normal risk factors require increased attention to gathering and evaluation of know your client (Customer due diligence overview) information, and heightened awareness of the risk of money laundering in performing professional work, but do not of themselves require a report of suspicion to be made. For 'reasonable grounds' to come into existence, there needs to be sufficient information to advance beyond speculation that it is merely possible someone is laundering money, or a higher than normal incidence of some types of crime in particular sectors.

For all failure to disclose offences the person must either:

  • Know the identity of the money launderer or the whereabouts of the laundered property, or
  • Believe the information on which their suspicion was based may assist in identifying the money launderer or the whereabouts of the laundered property

Section 330 - failure to disclose: regulated sector

A person commits an offence if

  • He knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering, and
  • The information on which his suspicion is based comes in the course of business in the regulated sector, and
  • He fails to disclose that knowledge or suspicion, or reasonable grounds for suspicion, as soon as practicable to a Money laundering reporting officers or the Serious Organised Crime Agency (SOCA)

Section 331 - failure to disclose: nominated officer in the regulated sector

A nominated officer in the regulated sector commits a separate offence if, as a result of an internal disclosure under s330, he knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering and he fails to disclose as soon as practicable to SOCA.

Section 332 - failure to disclose: nominated officer in the non-regulated sector

An organisation which does not carry out relevant activities and so is not in the regulated sector, may decide on a risk-based approach to set up internal disclosure systems and appoint a person as nominated officer to receive internal disclosures.

A nominated officer in the non-regulated sector commits an offence if, as a result of a disclosure, he knows or suspects that another person is engaged in money laundering and fails to make a disclosure as soon as practicable to SOCA.

For this offence, the test is a subjective one: did the person know or suspect in fact?

Defences to failure to disclose offences

There are three situations in which a person does not commit an offence for failing to disclose:

  • That person has a reasonable excuse
  • That person is a professional legal adviser and the information came to that person in Privileged circumstances
  • That person did not receive appropriate training from their employer

The first defence is the only one which applies to all three failure to disclose offences; the other two defences are only specifically provided for persons in the regulated sector who are not nominated officers.

All of the failure to disclose sections also reiterate that the offence will not be committed if the property involved in the suspected money laundering is derived from exempted overseas criminal conduct (The principal money laundering offences).

Reasonable excuse

No offence is committed if there is a reasonable excuse for not making a disclosure, but there is no judicial guidance on what might constitute a reasonable excuse.

However, as with reasonable excuse under the principal money laundering offences, where common law on Legal professional privilege has not been expressly excluded, it is considered that the decision not to make a disclosure because the information came to the person in privileged circumstances would be a reasonable excuse.

Any reasons for not making a disclosure under this section should be carefully documented.

Privileged circumstances

No offence is committed if the information or other matter giving rise to suspicion comes to a professional legal adviser or other relevant professional adviser in Privileged circumstances.

It should be noted that receipt of information in privileged circumstances is not the same as Legal professional privilege.

Privileged circumstances means information communicated:

  • By a client, or a representative of a client, in connection with the giving of legal advice to the client, or
  • By a client, or by a representative of a client, seeking legal advice from the professional adviser
  • By a person in connection with legal proceedings or contemplated legal proceedings

A relevant professional adviser is an accountant, auditor or tax adviser who is a member of a professional body which is established for accountants, auditors or tax advisers (as the case may be) and which makes provision for (a) testing the competence of those seeking admission to membership of such a body as a condition for such admission; and (b) imposing and maintaining professional and ethical standards for its members, as well as imposing sanctions for non-compliance with those standards.

Examples of when relevant professional advisers might frequently fall within privileged circumstances as regards legal advice privilege include:

  • Advice on taxation matters, where the tax adviser is giving advice on the interpretation or application of any element of tax law and in the process is assisting a client to understand his tax position
  • Advice on the legal aspects of a take-over bid, for example on points under the Companies Act legislation
  • Advice on duties of directors under the Companies Act
  • Advice to directors on legal issues relating to the Insolvency Act 1986, e.g., on the legal aspects of wrongful trading
  • Advice on employment law

Examples of when relevant professional advisers might fall within privileged circumstances as regards litigation privilege include:

  • Assisting a client by taking witness statements from him or from third parties in respect of litigation
  • Representing a client, as permitted, at a tax tribunal
  • When instructed as an expert witness by a solicitor on behalf of a client in respect of litigation

The exemption will not apply if information is communicated or given to the professional adviser with the intention of furthering a criminal purpose.

The Crown Prosecution Service guidance for prosecutors indicates that if a professional adviser forms a genuine, but mistaken, belief that the privileged circumstances exemption applies (for example, the client misleads the adviser and uses the advice received for a criminal purpose) the adviser will be able to rely on the reasonable excuse defence.

Lack of training

Employees within the regulated sector who have no knowledge or suspicion of money laundering, even though there were reasonable grounds for suspicion, have a defence if they have not received training from their employers. Employers may be prosecuted for a breach of the 2007 Regulations if they fail to train staff (Training).

Tipping off

The offence of Tipping off was previously set out in Section 333, but was removed by statutory instrument (effective from 26 December 2007).

The original offence meant anyone not acting in the course of a business in the regulated sector could commit this offence which consisted of:

  • Knowing or suspecting that a report has been made either to a nominated officer or to SOCA (under either Section 337 or Section 338); and
  • Making any disclosure which he knows or suspects is likely to prejudice any investigation that might follow that report

There were limited exceptions relating to persons carrying out law enforcement or judicial functions, and to legal advisers acting in privileged circumstances provided the disclosure was not made with the intention of furthering a criminal purpose.

The penalty for this offence was a maximum of 5 years imprisonment, or an unlimited fine, or both.

Section 333 has been replaced by Section 333A which applies only to the regulated sector.

Tipping off - in the regulated sector

There are two tipping off offences in S333A of POCA. They apply only to business in the regulated sector.

  • Section 333A(1) - disclosing a suspicious activity report (SAR) - see further article on Disclosures. It is an offence to disclose to a third person that a SAR has been made by any person to the police, HM Revenue and Customs, SOCA or a nominated officer, if that disclosure might prejudice any investigation that might be carried out as a result of the SAR. This offence can only be committed (1) after a disclosure to SOCA, (2) if the person knows or suspects that by disclosing this information, they are likely to prejudice any investigation related to that SAR, and (3) where the information upon which the disclosure is based came to the person in the course of business in the regulated sector.
  • Section 333A(3) - disclosing an investigation. It is an offence to disclose that an investigation into a money laundering offence is being contemplated or carried out if that disclosure is likely to prejudice that investigation. The offence can only be committed if the information on which the disclosure is based came to the person in the course of business in the regulated sector. The key point is that a person can commit this offence, even where they are unaware that a SAR has been submitted

There is nothing in POCA which prevents relevant persons making normal enquiries about their client's instructions, and the proposed retainer, in order to remove, if possible, any concerns and enable them to decide whether to take on or continue the retainer.

These enquiries will only be tipping off if the relevant person discloses that a SAR has been made or that a money laundering investigation is being carried out or contemplated. The offences of tipping off only apply to the regulated sector.

The tipping off offences will only occur in the circumstances described, but there may be circumstances where a money launderer may be alerted to the possibility that a report will be or has been made or an investigation conducted, other than by a disclosure of such fact e.g., by unexpected delay caused by waiting on consent (Disclosures). Businesses in the regulated sector will need to take care to guard against alerting a launderer in this way, as part of their policies and procedures aimed at preventing operations related to money laundering.

A tipping off disclosure may be made in writing or verbally, and either directly or indirectly – including through inclusion of relevant information in published information. It is not tipping-off, however, for a relevant person to include a paragraph about their obligations under the money laundering legislation in their standard terms of engagement.

Defences to Tipping off

The following disclosures are permitted:

  • Disclosures within an undertaking or group (Section 333B): A person does not commit an offence if he makes a disclosure to another person employed by the same undertaking as him, and nor does an independent legal professional or a relevant professional adviser commit an offence if the disclosure is made to another independent legal professional or a relevant professional adviser where both the person making the disclosure and the person to whom it is made are in either an EEA state or a state imposing equivalent anti-money laundering requirements and those persons perform their professional activities within different undertakings that share common ownership, management or control.
  • Other permitted disclosures between institutions (Section 333C): An independent legal professional or a relevant professional adviser does not commit an offence if he makes a disclosure to another person of the same kind from a different undertaking but of the same professional standing as himself (including as to duties of professional confidentiality and the protection of personal data) where the disclosure relates to the same client or former client of both advisers and involves a transaction or provisions of a service that involved them both, the disclosure is only made for the purpose of preventing a money laundering offence and the disclosure is made to a person in an EU Member State or a State imposing an equivalent money laundering requirements. This means that e.g., an accountant may only disclose to another accountant, and not to a lawyer or another kind of relevant professional adviser.
  • Other permitted disclosures (general) (Section 333D): An offence is not committed if a disclosure is made to a Supervisory body by virtue of the 2007 Regulations or for the purpose of the prevention, investigation or prosecution of a criminal offence in the UK or elsewhere, an investigation under POCA, or enforcement of any order of a court under POCA. In addition, and of importance to those who are professional legal advisers or relevant professional advisers, an offence is not committed by the adviser if he makes the disclosure to his client for the purpose of dissuading the client from engaging in conduct amounting to an offence.

Prejudicing an investigation

This offence, set out in Section 342, is committed where a person:

  • Knows or suspects that a money laundering, confiscation or civil recovery investigation is being conducted or is about to be conducted; and
  • Makes a disclosure which is likely to prejudice the investigation; or
  • Falsifies, conceals or destroys documents relevant to the investigation, or causes that to happen.

As with tipping off offences, the person making the disclosure does not have to intend to prejudice an investigation for this offence to apply. However, there is a defence available if the person making the disclosure did not know or suspect the disclosure would be prejudicial, did not know or suspect the documents were relevant, or did not intend to conceal any facts from the person carrying out the investigation.

It is a defence that a disclosure is made by a professional legal adviser or other relevant professional adviser to a client, or a client's representative, in connection with the giving of legal advice or to any person in connection with legal proceedings or contemplated legal proceedings provided the disclosure is not made with the intention of furthering a criminal purpose.

Considerations similar to those set out under tipping off above apply in terms of how the offence may be committed and of taking precautions to ensure any disclosure made does not prejudice an investigation.