As accountants, bookkeepers or tax advisers in the UK we have a legal obligation to report suspicions of ‘money laundering’ based on information which has come to us in the course of our work. But what is the meaning of ‘money laundering’ in UK law?
The answer lies in the Proceeds of Crime Act 2002, and particularly in sections 327 to 329 and 340 of that Act.
The predicate offence
Importantly, before there can be a money laundering offence there has to have been a preceding offence from which some benefit (in money or money’s worth) has been obtained by someone.
Lawyers refer to ‘property’ in the context of money laundering – but accountants would refer to an asset.
The predicate offence has to have resulted in someone obtaining an asset, or evading a liability (so that they are deemed to have obtained an asset of value equal to the liability evaded).
For accountants the most usual predicate offence is tax evasion, but an asset could also be obtained by, for example, fraud, theft or drug dealing.
UK law takes an ‘all crimes’ approach – meaning that the predicate offence could be any offence from which some benefit (in money or money’s worth) has been obtained.
The money laundering offence
The money laundering offence could involve any handling of the proceeds of a predicate offence.
The legislation is deliberately drawn in very wide terms, using expressions such as “in whole or part and whether directly or indirectly”. The intention no doubt was to reduce the risks of clever defence lawyers finding loopholes in the criminal law.
So a money laundering offence might involve simply the possession of proceeds of crime, or the acquisition or use of proceeds of crime. Or it might involve concealing, disguising, converting or transferring the proceeds of crime. Or removing the proceeds of crime from one jurisdiction to another (such as removing proceeds from England and Wales). Or entering into or becoming concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person.
The mental element
However to be guilty of a money laundering offence the alleged offender has to know or suspect that the asset in question is, or represents, proceeds of crime.
But what if there is no identifiable asset?
In cases of tax evasion the evader sidesteps a liability. But there is no identifiable asset – such as a tin of cash or a specific bank balance – which he has obtained from that crime. So does that mean there are no proceeds of that crime and there can be no money laundering?
Unsurprisingly that is not a result that the criminal courts would be willing to accept. So instead the courts interpret the law to mean that all of the tax evader’s assets are deemed to be proceeds of crime. The result is that the tax evader commits a money laundering offence simply by retaining his assets.
What are the implications for us?
The result is that – although we are technically not required to report suspicions of theft, fraud or tax evasion – in practice these offences will necessarily lead to a money laundering offence. For example a thief who steals a bar of chocolate from a shop then has possession of the stolen chocolate bar, and so commits a ‘money laundering’ offence as soon as he leaves the shop. The same is true of a fraudster who receives money into his bank account, or a tax evader who fails to declare all his income and has ‘saved’ tax as a result.
Strictly speaking, it is the ‘money laundering’ offence which triggers the obligation to report to the firm’s MLRO (and for the MLRO to report to the National Crime Agency). But the practical effect is that we are obliged to report our suspicion of the predicate offence.
Placement, layering and integration
Many articles about money laundering refer to placement, layering and integration. These are commonly recognised elements in traditional money laundering, however they have no place in the UK criminal law relating to money laundering offences. To be clear, neither placement, layering nor integration are a necessary element of a money laundering offence in UK criminal law.
Where systematic placement, layering and integration are observed they may be additional indicators of a money laundering offence – but the absence of these does not rule out a money laundering offence.
If you are concerned that your firm’s AML compliance is inadequate, out of date, or even non-existent, get in touch now using the link below and we can work together to fix this. The hardest part is getting started.
