In this chapter of our legal guides series, BCL partner John Binns discusses the increased need for advice on money laundering and terrorist financing in non-regulated sector businesses.
While the need for compliance advice in money laundering and terrorist financing traditionally arises in the regulated sector, there is also an increasing awareness of its relevance to other businesses.
This is particularly so because of the rise in obligations on the private sector generally, characterised by the corporate offences of ‘failing to prevent’ bribery (under the Bribery Act 2010) and the facilitation of tax evasion (under the Criminal Finances Act 2017), as well as the increasing awareness and impact of sanctions law.
A company whose business involves selling cars, for example, or luxury yachts, might reasonably now consider whether, alongside or as part of its procedures to limit its exposure under the 2010 and 2017 Acts or to avoid breaching sanctions, a set of systems to avoid the commission of money laundering or terrorist financing offences.
This is also true of the not insignificant subset of legal professionals whose business sits entirely outside the regulated sector – among them, those solicitors’ firms that specialise in criminal defence.
The relaxed view
The traditional starting point for any business outside the regulated sector of the Proceeds of Crime Act 2002 (‘POCA’) or the Terrorism Act 2000 (‘the TA’) has been that it has no obligations at all to appoint an Money Laundering Reporting Officer, to conduct Know Your Customer or Customer Due Diligence procedures, or to report suspicions (except for terrorist financing).
Moreover, insofar as its business involves the sale of products or services, even the knowing receipt of funds that represent the proceeds of crime (assuming what it gave in return was of roughly the same value, and would not be assisting a crime) would usually not attract liability, thanks to the provisions on adequate consideration (POCA section 329(2)(c)).
So, to a large extent, such businesses could afford to take a relaxed view about their customers (absent issues of bribery, tax evasion, terrorism, or sanctions), and essentially ignore POCA altogether.
One response to that position is that, for many businesses, the knowing receipt of the proceeds of crime would raise issues beyond those strictly about compliance with the law, namely the protection of its reputation or ethical values.
A limited protection
More prosaically though, the problem with the adequate consideration provisions is that while they provide protection for the receipt of property under section 329 of POCA, they do not, for instance, protect the transfer of funds to others (which would offend against section 327) or the risk of becoming concerned in an arrangement (under section 328).
Importantly, these are not mere theoretical risks. A sophisticated criminal or launderer might very well opt to place his funds with one or more retailers of high-value goods (who, unless they deal in cash, will not have regulated-sector obligations as High Value Dealers) and then withdraw from the transaction, perhaps requesting that the refund be sent to another account, as a means of layering criminal property.
Where a purchase is made by means of a transfer from an apparently unconnected third party, this may very well reflect an arrangement by which the customer, the third party, an intermediary and others effectively swap clean and tainted funds for each other. In both cases, if the transaction is ultimately investigated, the relaxed stance of the seller may come under some justified scrutiny.
Lawyers and privilege
The example of the solicitors’ firm specialising in criminal defence is one where the risks are perhaps even more acute. Where unused funds held in a client account are returned to a client accused of acquisitive crime, or the firm holds funds for the purposes of a bail security, there is always the possibility of law enforcement asking questions about those funds.
For legal professionals, the issue of legal professional privilege (LPP) is often a complicating factor. While the need to submit a Suspicious Activity Report (‘SAR’) under POCA or the TA overrides duties of confidentiality to the client, it does not override LPP. Where a suspicion arises solely from information subject to LPP, it is submitted, this would be a reasonable excuse for not submitting a SAR, and possession of the funds would not be an offence under section 329.
Unusually, because POCA uses the concept of ‘privileged circumstances’ rather than LPP, there is also the potential for other professional advisers – such as accountants and tax advisers – to encounter dilemmas such as these. While it has long been established that LPP does not apply to non-lawyer professionals, POCA envisages that information received by, say, an accountant for the purpose of obtaining legal advice – for instance, where their input is sought to assist with a criminal tax investigation – would be obtained ‘in privileged circumstances’ and would not have to be – indeed, could not be – disclosed as part of a SAR.
The potential for investigations
The context of advice to non-regulated sector businesses may be a proactive desire for compliance, but it may also be because of an issue has been discovered either within the business or because of an approach by law enforcement. In either case, the advice must consider not only the strict letter of the law, but the approach likely to be taken by an investigator.
Nowhere, perhaps, is this of greater significance than where a corporate client finds it necessary to conduct an internal investigation into potential money laundering involving its assets or personnel.
The decisions on whether and when to conduct such an investigation, how to proceed with it, the extent to which the product of it is protected by LPP, and when (if at all) a report should be made to the authorities, are difficult, and will require highly specialised advice.
Finally, another area for money laundering advice to a business may be where otherwise ordinary commercial transactions carry a risk that they may involve criminal property. One example would be where an accusation of crime against a business’ owner or investor raises a suspicion that he has placed tainted assets within the business.
Another may be a planned acquisition or investment by a business in the UK, where the target business’ conduct overseas (such as the sale of medicinal cannabis in jurisdictions where it is lawful) would amount to a crime if it occurred here. Such scenarios may seem some distance from the purpose for which POCA was designed, but they are examples of issues that a responsible business must be seen to handle properly, and on which advice should sensibly be sought.