The Dyer Partnership - Chartered Accountants, UK tax, e-services consultants

Money laundering - a summary of the new legislation

(27/2/2004)

Important new legislation will come into effect from 1 March 2004 in relation to money laundering offences. We have summarised below the general principles relating to money laundering offences, which we feel that all our clients should be aware of. In addition, we have set out our own specific obligations under the legislation and how they will affect you.

Introduction

Part of the legislation will affect all individuals and businesses, with other parts only affecting those businesses that operate in the "regulated sector" or that are "relevant businesses". In addition, businesses that are "money service operators" or "high value dealers" will be subject to more onerous regulations contained within the legislation. As most businesses do not fall within any of the above categories, we have not included here details of those parts of the legislation.

Our obligations

Our firm operates within the regulated sector and is a relevant business. We are therefore required, in common with all accountancy practices, by the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003, to satisfy ourselves as to the true identity of all new clients by verification of personal details and maintain records of identification evidence. We will be required by law to report to the National Criminal Intelligence Service, any knowledge or suspicions of money laundering, without notification or reference to our clients. Furthermore we also will not be able to confirm or deny any suspicions of money laundering to our clients.

Whilst we believe that it is our duty to support any legislation which results in the discovery and prevention of crime, we are also aware of our responsibilities to, and our relationship with, our clients. For this reason we shall endeavour to work closely with you to assist you in complying with the money laundering legislation.

Background to the money laundering legislation

Anti-money laundering legislation has existed in the United Kingdom for a number of years. The legislation was initially introduced in an attempt to detect and prevent drug trafficking and was later extended to cover terrorist activities. More recently, the Proceeds of Crime Act 2002 ("POCA") introduced legislation which established a number of money laundering offences. In addition, in certain situations the POCA requires knowledge or suspicions of money laundering offences to be reported to the appropriate authority and in all cases makes it an offence to make a disclosure to an alleged offender which is likely to prejudice any investigation ("tipping off").

"All crimes" regime

The term "money laundering" is confusing and we should really be talking about an "all crimes" regime. In other words, any crime committed in the United Kingdom which involves criminal property. Criminal property is any property which constitutes a person's benefit from criminal conduct provided the alleged offender knows or suspects that it constitutes such a benefit. So, for example, house breaking, theft, bribery, fraud or tax evasion will constitute criminal conduct and the proceeds from these offences will constitute criminal property.

You should also note that the legislation applies to any value of criminal property, however small.

You should note that the proceeds from the offence need not be the actual receipt of cash or goods. For example, if a person knowingly under declares income on his or her tax return and saves tax thereby, then the saving of the tax will be the criminal property.

You should also note that if an act that would be considered an offence in the United Kingdom is committed abroad, then it will constitute an offence even though committed abroad. This also applies even if the act was legal in the other country concerned.

The main money laundering offences T

here are three main money laundering offences, as follows:

to conceal, disguise, convert, transfer or remove criminal property from England and Wales or from Scotland or from Northern Ireland

to enter into or become concerned in an arrangement which you know or suspect facilitates the acquisition, retention, use or control of criminal property by or on behalf of a third party

to acquire, use or have possession of criminal property. However, no offence is committed if you acquired or used or had possession of the property for adequate consideration

Note also that to aid or abet a money laundering offence is, in itself, an offence.

There are numerous examples of the main money laundering offences, and we set out below just some of these:

An individual knowingly understates income or overstates expenses on his or her tax return or on a business tax return so as to evade tax

A person receives an overpayment in error from the Inland Revenue or the Tax Credit Office and refuses to repay the overpayment

The proprietor of a business pays himself monies from the business and records them as "purchases"

A business fails to take out employer's liability insurance

An employer knowingly pays employees below the National Minimum Wage

The secondary money laundering offences In

addition to the three main money laundering offences there are also two secondary offences.

Failure to disclose knowledge or suspicions of money laundering

This offence relates,in the main, to those businesses operating in the "regulated sector". These businesses have to appoint someone within the business who is responsible for receiving internal reports from individuals within the business relating to knowledge or suspicions of money laundering. This person is known as the Money Laundering Reporting Officer ("MLRO"). In turn, the MLRO must, if he or she thinks fit, send an external report to the National Criminal Intelligence Service ("NCIS").

NCIS is the government body responsible for processing reports and, if necessary, passing them on to the investigating authority, eg the police, the Inland Revenue or H M Customs and Excise.

Businesses operating outside the regulated sector do not have to appoint an MLRO, but they can if they so wish. If they have appointed an MLRO then it is an offence for any individual not to report knowledge or suspicions of money laundering to the MLRO and for the MLRO not to report to NCIS, if he or she thinks fit.

Tipping off an alleged offender

The second secondary offence is the offence of tipping off. This offence applies to everyone, irrespective of the type of business they operate.

The POCA states that a person commits the offence of tipping off if he or she knows or suspects that a report has been made relating to knowledge or suspicions of a money laundering offence and he or she makes a disclosure to the alleged offender (either directly or indirectly) so as to prejudice any investigation which might be conducted following the report.

The penalties

There can be serious consequences if you commit one of the offences contained in the Proceeds of Crime Act 2002, as follows:

Offence

Sections 327, 328 or 329 (ie concealing, arrangements or acquisition, use and possession).

Penalty

Magistrates Court - imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both

Crown Court - imprisonment for a term not exceeding 14 years or a fine (no limit), or both.

Offence

Sections 330, 331, 332 or 333 (ie failure to disclose and tipping off).

Penalty

Magistrates Court - imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

Crown Court - imprisonment for a term not exceeding 5 years or a fine (no limit), or both.

What you should do now ·

It is important that all information presented by you or your business to us is accurate and fully disclosed. This is especially so in relation to information to be included in a personal or business tax return

An honest error or mistake will not usually constitute a criminal offence, provided that it is corrected as soon as it is discovered and the correct amount of tax is paid over. For this reason all tax returns should be checked carefully by you before they are submitted to the taxation authorities ·

If your business does not operate in the regulated sector you do not need to appoint a Money Laundering Reporting Officer, but you can if you so wish. If you do appoint a Money Laundering Reporting Officer, you must ensure that you and your employees adhere to the legislation relating to the issuing of internal reports and to any reports made to NCIS

In addition, you should remember that, if you do appoint a Money Laundering Reporting Officer and an internal report is made to this person, you must be aware of the problems relating to tipping off

If you are in any doubt as to whether a money laundering offence has been committed, either by yourself or a third party, take expert advice as soon as possible. The National Criminal Intelligence Service website is at www.ncis.gov.uk

If you require any further information about the money laundering legislation or have any queries about the contents of this letter, please get in touch with us straightaway.

The Dyer Partnership, 17 Westminster Court, Hipley Street, Old Woking, Surrey GU22 9LG