Over the last decade many countries have introduced measures to make it harder for criminals to benefit from their crimes.
Historically money laundering was popularly understood as being a process by which illicitly obtained cash was applied to the acquisition of assets. It is now a much broader idea extending far beyond cash to the acquisition and transfer of funds and assets which represent the benefit of crime.
The UK has defined crime more broadly than other countries so that it includes offences such as tax evasion. Everyone (except the criminals) would support the policy objective underlying the rules and regulations but sometimes the way they operate can seem mysterious and frustrating to clients. This briefing is to provide a short explanation to clients so that the justification and context for what the law requires of solicitors can be understood.
The purpose of anti-money laundering regulations is essentially to prevent the proceeds of crime being used and enjoyed. This means disrupting not only the purchase of assets but also the concealment of criminal property by converting its form and moving it around. The main measures involve preventing individuals concealing their true identity when dealing with assets and requiring reports to be made to the authorities if any basis arises for suspecting that criminal property is involved. Once a report is made the suspicion must not be disclosed so as to impede any investigation and the transaction can only proceed with the relevant authority’s permission. Let’s look at these three aspects in a little more detail.
Firstly, solicitors are required to establish the identity of the person instructing them and to keep evidence that they have done so.
The Law Society publishes a useful note on the requirement in the simplest of cases:
The UK is a major international financial and legal centre, with a strong reputation for honesty and integrity. Unfortunately that is why financial and professional businesses, like banks and solicitors’ firms, are attractive to money launderers – criminals who sometimes try to hide stolen money by turning it into legitimate income. The government has introduced measures:
- To make it more difficult for criminals to make and keep money from their crimes
- To confiscate the proceeds of crime
For this reason there are compulsory checks which solicitors have to make of their clients. Being asked for identification does not mean you are under suspicion. The new identification requirements apply to all clients when they are asking their solicitors to conduct certain types of cases.
In situations involving companies or trusts (particularly with an international element) the task is more complicated. To comply with the requirements without delaying our work or imposing a significant administrative burden means an ability on our side to understand sometimes complex structures and a willingness on our prospective client’s part to provide information promptly and in good order. We will aim to obtain the right information as quickly as possible in a form which is most convenient to our prospective client. It is our responsibility neither to seek too much nor obtain too little. We tend to act for clients over the long term and this may mean information needs to be re-visited from time to time to ensure that any relevant changes are identified and recorded.
Secondly, solicitors have an ongoing responsibility to report transactions which might reasonably be thought to raise a suspicion that the proceeds of criminal activity (including tax evasion) could be involved. This duty is enforced with criminal sanctions which have resulted in solicitors being imprisoned even though they did not actually know that criminal proceeds were involved. This means, for example, that a solicitor must fully understand how transactions are being funded and be able to document that understanding. Necessary enquires can be seen by clients as suggesting a lack of trust but this is not the case; our obligations require our files to evidence the steps that have been taken and trust, however well placed, is not evidence. If a doubt arises we must either allay all suspicion or make a report. The suspicion need not be a suspicion that our client has been involved in wrongdoing. Property may be the proceeds of someone else’s criminal activity.
Thirdly, once a report has been made we cannot take any steps or inform our client that a report has been made. “Tipping off” is itself a serious criminal offence. This could mean that activity stops for a time and we are unable to provide any explanation. Activity can only resume with clearance from the appropriate authority. Until clearance is obtained a client has nothing to gain from pressing for action or an explanation. We will simply say that we are unable to progress the transaction for the present.
A client should not assume that these requirements only apply if the client is suspected of wrongdoing. The rules are focused on the proceeds of crime not on the activity of criminals. In fact more than 90% of all reports do not result in any immediate police action and in the great majority of cases clearance to proceed with transactions is obtained within 5 working days. Patience is likely to be required all round but clients may rest assured that we only take the steps that are necessary. Conversely, if steps are necessary we take them.
This briefing is mainly concerned with money laundering in relation to transactional matters. Further money laundering issues arise in relation to Family and Litigation matters in relation to which we are of course happy to advise.
If you are concerned about any of the money laundering issues raised in this briefing we provide specialist advice concerning money laundering offences.
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