Anti-Money Laundering

Money laundering is the process of converting money or assets that derive from a criminal activity into ”clean” assets, for the purpose of disguising their illicit origin. This offence covers virtually any act that constitutes a person’s benefit from criminal conduct. These definitions are quite broad and easy to fall under. 

The money laundering process usually takes place in three stages:

• Stage 1 – Placement: criminally derived funds are introduced into the financial system.

• Stage 2 – Layering: assets are being ‘laundered’ by means of conversion, transfer or concealing.

• Stage 3 – Integration: laundered assets are re-introduced into the legitimate economy.

Money laundering therefore enables criminal organisations to seep illegal profits in the financial system, and facilitates criminal activities such as terrorism, corruption, tax evasion, smuggling, drug or human trafficking.

It is not only the money laundering offences that you should be aware of but also those offences resulting from a failure to act on a suspicion of money laundering. There are also a variety of administrative and regulatory requirements for firms within the regulated sector.

The primary legislation on this topic includes:

• the Proceeds of Crime Act 2002;

• the Terrorism Act 2000; and

• the Fraud Act 2006.

The principal secondary legislation is the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

There are three main money laundering offences relating to the direct handling of the proceeds of crime that can be committed by any person. 

• Concealing, disguising, converting or transferring the proceeds of crime, or to remove the proceeds of crime from the jurisdiction of England and Wales

• Entering into, or becoming concerned in an arrangement, in which the person knows or suspects the retention, use or control of the proceeds of crime

• Acquiring, using or possessing the proceeds of crime

Offences of failing to report money laundering:

• Failure to disclose - a person working in a business in the regulated sector knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in an offence above but fails to disclose that knowledge or suspicion to a relevant officer 

• Failure to disclose - a person nominated to receive disclosures under the above offence working in the regulated sector knows or suspects, or has reasonable grounds to know or suspect money laundering as a consequence of his role and fails to make the necessary disclosure as soon as practical after the information comes to him

• Tipping off - a person working in a business in the regulated sector knows or suspects that another person's suspected involvement with money laundering is under investigation or in contemplation of investigation, and regardless makes a disclosure to any person likely to prejudice any investigation

• Prejudicing the investigation - a person knows or suspects that a money laundering investigation has, or is about to be, commenced in respect of another and he makes a material disclosure to any other person which is likely to prejudice the investigation, or interferes with relevant material.

The obligations will depend on whether a business is conducting regulated activities or not. The regulations apply to a number of different business sectors, including accountants, financial service businesses, estate agents, solicitors and others. Every business covered by the regulations must be monitored by a supervisory authority.

Some businesses may already be monitored because they are authorised by the Financial Conduct Authority (FCA) or belong to a professional body such as the Law Society. If this is not the case and the business conducts regulated activity, then the business will need to register with HMRC. You can find out more information about registration requirements on the Government website here. 

Apart from registration those business will also have to meet certain day-to-day responsibilities. These include carrying out ‘customer due diligence’ measures to check that customers are who they say they are, and risk assessments.

They must also put in place internal controls and monitoring systems. The nature of these controls will depend on the size and complexity of the business, including the number of customers and the number and type of products and services provided.

The business will also have to produce a policy statement that includes their anti-money laundering policy, controls and the procedures the business has taken to prevent money laundering. They will also need to keep a record of all customer due diligence measures that are carried out, including:

• customer identification documents that you’ve obtained

• risk assessments

• your policies, controls and procedures

• training records

You can find more specific guidance on responsibilities for your sector under the Money Laundering Regulations here:

• Money Service Businesses

• Estate Agency Businesses

• High Value Dealers

• Trust or Company Service Providers

• the Accountancy sector

Ask a lawyer for advice based on your business model.