Anti-Money Laundering

AML legislation and offences can be divided into two categories: those that apply to individuals and entities within the regulated sector and those that apply to those not operating in the regulated sector. The regulated sector consists of all those firms that are part of the financial services community regulated by the Financial Conduct Authority (FCA) together with those that provide professional services, such as lawyers and accountants. A complete list of the categories that make up the regulated sector is provided immediately below. Any business that does not fall within one of these specified categories falls outside the regulated sector for purposes of AML legislation:

• credit institutions;
• financial institutions;
• auditors, insolvency practitioners, external accountants and tax advisers;
• independent legal professionals;
• trust or company service providers;
• estate agents;
• high-value dealers; or
• casinos.

The Proceeds of Crime Act 2002

The main source of the UK’s AML law is found in the Proceeds of Crime Act 2002 (POCA). This created a number of money laundering offences. The main offences under POCA are found at sections 327-329 (the Primary Offences) and include the offences of:

• concealing, disguising, converting or transferring proceeds of crime (proceeds), or removing them from the jurisdictions of England and Wales, Scotland or Northern Ireland (section 327);
• entering into, or becoming concerned in, an arrangement that one knows or suspects enables the retention, use or control of the proceeds (section 328); and
• acquiring, using or possessing proceeds (section 329).

All of the Primary Offences apply regardless of whether a business is operating inside or outside the regulated sector. For further detail with regard to the Primary Offences, see question 5. There is a defence to the Primary Offences where an authorised disclosure has been made and the appropriate consent has been received. For details of this defence, see question 8.

In addition to the three Primary Offences listed above, it is an offence for those operating in the regulated sector to fail to disclose knowledge or suspicion of money laundering (sections 330-331). It is also an offence if, during the course of business, they gain knowledge or suspicion that a disclosure has been made and an investigation into money laundering is being contemplated or carried out and then make a disclosure or ‘tip off’ regarding the existence of that investigation which is likely to prejudice the investigation (section 333A).

For all other persons (ie, those not operating within the regulated sector) the failure to disclose an offence applies only to an officer who has been nominated to receive the authorised disclosure (if any) regarding the Primary Offences, rather than to any employee within the business (section 332). There is, however, a similar tipping-off offence in relation to prejudicing an investigation by making a disclosure or destroying, concealing or falsifying documents (section 342). There is no requirement in section 342 that the information regarding the investigation be gained in the course of business and therefore the scope of the offence is wider than that of section 333A and could even apply to those who worked in the regulated sector but who came across knowledge of the investigation other than in the course of their business. Again, there are defences to the failure to disclose and tipping-off offences; see question 16 for more detail.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulations)

These regulations came into force on 26 June 2017, replacing the previous Money Laundering Regulations 2007 and the Transfer of Funds (Information on the Payer) Regulations 2007 (the Previous Regulations). The Regulations apply to the conduct and transactional work of ‘relevant persons’ (a term that, in practice, is identical to the regulated sector) and therefore only apply to those operating in the regulated sector. The key criminal offence under the Regulations is that of not complying with the Regulations themselves, which predominantly concern themselves with issues such as risk assessment, due diligence (DD), record-keeping, registration and reporting (including ensuring adequate training for employees). There are also other offences, including of prejudicing an investigation into a potential contravention, providing false or misleading material in purported compliance with a requirement and contravening a prohibition on being a bene­ficial owner, officer or manager of a relevant firm unless approved as a beneficial owner. The main distinction to bear in mind between the POCA offences and the offence under the Regulations is that, as a whole, the POCA offences are subjective in nature, with the test being what the individual or entity actually knew or, often, even suspected. In contrast, the Regulations are more objective in nature.

The Serious Crime Act 2015

Section 37 of the Serious Crime Act 2015 (SCA) (which came into force on 1 June 2015) introduces, via amendment to POCA, an exclusion of civil liability relating to good-faith authorised disclosures of suspicion of money laundering. This amendment was necessary as firms found themselves increasingly defending civil actions in circumstances in which they had made an authorised disclosure following suspicion of money laundering and were then forced to freeze customer accounts (or at least limit access to funds) until the relevant enforcement body decided whether to take further action or consent to resume ordinary operations, causing loss to their clients.

The Terrorism Act 2000

The Terrorism Act creates separate offences of funding terrorism, using money or property for terrorism or entering any arrangement that makes funds available for the purposes of terrorism (sections 15-17). In addition, it is an offence to enter into, or become concerned in, an arrangement that facilitates the retention or control by, or on behalf of, another person, of terrorist property in any way (section 18). Similarly to POCA, it also produces separate offences of failure to disclose the laundering of terrorist property or of ‘tipping off’ a third party that a disclosure had been made.

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Under POCA, enforcement authorities have a number of asset recovery regimes to utilise in order to recover the proceeds of crime, including confiscation, civil recovery and cash forfeiture. The Criminal Finances Act 2017 (CFA), which received Royal Assent on 27 April 2017, was enacted to improve the government’s ability to tackle money laundering, corruption, and the recovery of proceeds of crime and counter-terrorism financing and makes some significant changes to POCA by introducing a number of new investigatory powers. In particular, one of the new tools provided to enforcement authorities is the Unexplained Wealth Order (UWO), which requires persons who fall under suspicion of criminal activity to explain the origins of their assets or risk forfeiture.

Applications for UWOs can be made by enforcement authorities to the High Court against politically exposed persons (PEPs) or those who have been involved in serious crime or are connected to a person who has been involved in serious crime. An order may only be issued where the value of the property exceeds the minimum level of £50,000. Once an order has been made, the individual must provide a statement setting out the nature and extent of their interest in the property, how it was obtained, details of any settlement if the property is held by trustees and any other information specified in the order. If the individual fails, without reasonable excuse, to comply with the requirement of the UWO, the property is presumed to be recoverable property for the purposes of any civil recovery proceedings.

The CFA also adds new sections to POCA to allow enforcement authorities to make an application to the High Court for an interim freezing order at the same time in relation to any property that is the subject of a UWO if there is a risk any recovery order obtained as a result of the UWO may be frustrated.

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In England and Wales, money laundering offences are normally investigated by the police or HM Revenue & Customs (HMRC). Where the alleged money laundering has been committed by an institution based in the City of London (which refers to the financial centre rather than the metropolitan area), it will generally be investigated by the Money Laundering Investigations Unit, which sits within the Financial Investigation Unit of the City of London Police. If the matter relates to money laundering by politically exposed persons (PEPs), then the matter will be investigated by a specialist unit within the National Crime Agency (NCA).

Should the matter proceed to prosecution then this will generally be by the Crown Prosecution Service. In cases where the money laundering is linked to a serious fraud or corruption case, the matter may be both investigated and prosecuted by the Serious Fraud Office.

Supervisory authorities include HMRC, the FCA and the Gambling Commission, and there are a further 22 accountancy and legal professional trade bodies that also act as supervisory authorities and supervise and issue rules to fight money laundering across various sectors.

In addition, in May 2016 the UK government announced support for a public-private sharing partnership called the Joint Money-Laundering Intelligence Taskforce (JMLIT), following a one-year pilot in 2015. JMLIT brings together government, law enforcement, regulators and banks to share corruption intelligence and to detect, prevent and disrupt money laundering and other economic crime.

The government has also recently set up a new watchdog, the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), as part of a wider clampdown on money laundering and terrorism financing. Launched in January 2018, OPBAS sits within the FCA and supervises the 22 professional body AML supervisors to ensure they provide consistently high standards of AML supervision.

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In summary, yes they can. AML legislation adopts the standard position in UK legislation that a company is capable of being prosecuted for most criminal offences, unless a statute indicates otherwise. However, to hold a company criminally liable for money laundering it is necessary to prove that the offence was committed by a natural person (or persons) who was at the time the ‘controlling mind and will’ of the company. In practice, this has proved a difficult test to meet, resulting in few successful prosecutions.

In May 2016 the UK government announced it would consult on the introduction of a new offence of failure to prevent economic crime (see ‘Update and trends’ for more information), which, if introduced, would be likely to result in an increase in money laundering-related prosecutions against corporates against a backdrop where the bar to prosecution would have been lowered.

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The Primary Offences of POCA are set out in question 1. With regard to the sections 327 and 329 offences, the individual must know that the assets are proceeds (ie, the benefit of criminal conduct). By contrast, for the section 328 offence, the individual only needs to suspect that the assets are the proceeds of crime. The test for suspicion has been established as being that a person ‘must think that there is a possibility, which is more than fanciful’, although the suspicion does not need to be ‘clear’ or ‘grounded and targeted on specific facts’. The threshold for suspicion is, therefore, low in relation to the section 328 offence of entering into or becoming concerned in an arrangement.

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The short answer is normally no. Under section 340(9) of POCA, the definition of proceeds includes all property (real or personal) wherever it is located, and includes both incorporeal and intangible property.

The exception to this general rule is in relation to deposit-taking institutions where the institution will not commit an offence where an account is maintained and the value of the funds involved is less than £250.

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The definition of criminal conduct under POCA is very broad and includes any conduct that constitutes an offence in the UK. It also includes any offence that occurred outside the UK that, had it been committed within the UK, would have constituted an offence or been punishable by more than one year’s imprisonment, and was unlawful under the criminal laws of the country where it was committed at the time the offence occurred.

Accordingly, every criminal offence committed in the UK, and many of those committed outside the UK, including those relating to violation of tax or currency exchange legislation, can serve as a predicate crime and engage AML provisions.

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Under the Primary Offences (sections 327-329) it will be a defence to show that:

• before committing the prohibited act the alleged offender (or in the case of a company, the nominated officer) made a disclosure to the NCA and obtained prior permission to undertake the otherwise prohibited act. This permission may either be provided actively (ie, within seven working days the NCA will respond saying that it does not object to the act being undertaken) or passively (POCA specifies certain time periods in which the NCA is required to respond following a disclosure if it objects to a transaction. If no objection has been received within these set periods then consent is deemed to have been given and the otherwise prohibited act may be undertaken);
• when the alleged offender began the prohibited act he or she had no reason to know or suspect that the property constituted or represented benefit from criminal conduct, and he or she, on his or her own initiative, made a disclosure as soon as was practicable after he or she gained such knowledge or suspicion;
• the disclosure is made after the alleged offender has committed the prohibited act but he or she had a reasonable excuse for failure to make the disclosure, and made the disclosure as soon as it was practicable for him or her to do so; or
• the act was done in the carrying out of a function of the individual relating to the enforcement of POCA or any other enactment relating to criminal conduct.

In addition, the offence under section 329 provides for an additional defence where a person acquired the property (which otherwise would form the basis of the offence) for adequate consideration, though this can, in certain circumstances, be a complex area.

Further, there are the two specific defences that have been referenced above; namely, in relation to deposit-taking institutions, an account is maintained and the value of the funds was less than £250, and the offence took place outside the UK and at the time it was committed the action would not have constituted a breach of criminal legislation in the jurisdiction where it occurred.

Under the Terrorism Act, the defences are very similar to those found under POCA.

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An individual found guilty of one of the Primary Offences (sections 327-329) is liable to a term of imprisonment not exceeding 14 years and an unlimited fine, if sentenced in a Crown Court.

Directors of companies convicted of AML offences may be disqualified from continuing to hold appointments as directors in certain circumstances. In addition, under EU Directives that have been implemented in the UK, public authorities in the UK are required to exclude from public contracts all organisations that have been convicted of a money laundering offence under POCA.

Deferred Prosecution Agreements were introduced into the UK in 2014. These Agreements are made between a prosecutor and an organisation (but not individuals) to defer prosecution for alleged economic wrongdoing, such as money laundering, as long as certain conditions are met. These conditions are likely to include significant fines, undertakings to improve compliance procedures and possibly the appointment of an independent monitor to oversee the improvements.

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Restraint orders

In circumstances where they believe they will ultimately make a compensation or confiscation order in relation to property, the courts have the power to make restraint orders under both POCA and the Terrorism Act. Such an order prevents an individual from dealing with specified property or, alternatively, all property held by the individual, including any transferred to him or her after the order has been made. The restraint order may include provisions authorising the detention of any property to which the order relates.

Confiscation orders

The court must consider, and in practice is likely to grant, a confiscation order where an individual is convicted of an offence in the Crown Court if either the prosecution asks for it or the court considers it appropriate, to ensure that a guilty individual does not continue to enjoy the benefits of the proceeds of his or her crime.

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There are no limitation periods in relation to AML matters in the UK. A prosecution can be brought at any time after the commission of the offence Offences that were committed before POCA came into force will be subject to previous legislation.

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The definition of criminal conduct includes offences committed outside the UK, subject to certain conditions (see question 7). Therefore, an AML offence can be committed in the UK even where the predicate offence happened abroad.

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For the purposes of criminal enforcement, the same agencies as listed in question 3 will maintain responsibility for investigation and enforcement. However, in addition, with regard to the regulated sector only (see question 1 for a definition of the regulated sector) the Regulations require each of the covered institutions and persons to have a supervisory authority (ie, the FCA for financial service businesses or the Solicitors Regulation Authority with respect to legal advisers). It is the duty of these supervisory authorities to effectively monitor and take other appropriate measures to ensure compliance with the Regulations. Regulators, in particular the FCA, will carry out periodic reviews of the systems and controls of firms operating in the regulated sector, and if it finds these insufficient or unsatisfactory, can proceed to take enforcement action, which could result in substantial fines.

Where there has been an alleged breach of a tipping off or failure to disclose an offence of POCA or of the Regulations, it is likely that the appropriate supervisory authority (acting as regulator) will become involved and take regulatory action against a person who is deemed not to have complied with their obligations. This will be the case even where the matter was not felt to be sufficiently serious to warrant criminal action.

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For the purposes of POCA sections 330, 331 (failure to disclose) and 333A (tipping off) offences relate to individuals and entities that work within the regulated sector. As set out in question 1, this includes all financial service businesses that are regulated by the FCA, together with, for example, lawyers, accountants, tax advisers, foreign exchange or cheque-cashing businesses, estate agents and casino operators (both remote and non-remote).

For those operating outside of the regulated sector, and as set out in question 1, the failure to disclose an offence (section 332) only applies to the officer nominated to receive and deal with authorised disclosures, if an unregulated business has nominated such a person. It does not have wider application to all individuals. On the other hand, the tipping-off offence at section 342 has very wide application and applies to everyone. Significantly, section 342 (unlike section 333A for the regulated sector) contains no requirement that an individual gain knowledge or suspicion in the course of their business; a mere suspicion about the existence of an investigation, however gained, is sufficient.

In relation to the Regulations, while the alternative term ‘relevant persons’ is used, this is to all practical purposes identical to the definition of regulated sector for the purposes of POCA. Therefore the Regulations only apply to entities within the regulated sector.

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UK AML legislation requires relatively extensive compliance programmes to be introduced by persons within the regulated sector. Under POCA, regulated businesses are required to appoint a ‘nominated officer’ (generally known as the money laundering reporting officer or MLRO).

Under the Regulations, relevant persons (ie, those operating in the regulated sector) are required to implement a number of compliance programmes relating to areas such as customer DD (see question 17), record-keeping and reporting (see question 19), and the training of staff.

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Failure to disclose

An individual will commit an offence under section 330 POCA if, during the course of business in the regulated sector, he or she knows or suspects (or has reasonable grounds for knowing or suspecting) that another person is engaged in money laundering and does not make a ‘protected disclosure’ to the MLRO. There are a number of circumstances under which the failure to make a disclosure will not constitute an offence, including:

• where the individual has a reasonable excuse for not making the disclosure;
• where the individual knows or believes on reasonable grounds that the predicate offence occurred outside the UK and the action was not a criminal offence in that jurisdiction (see question 7);
• where the individual can show that he or she received insufficient training from their employer to allow them to identify money laundering, or to educate them as to their duties and obligations once money laundering is identified; or
• where the individual is, or works for, a legal adviser and the information is legally privileged.

An MLRO operating in the regulated sector will commit an offence under section 331 POCA should he or she, following a credible section 330 protected disclosure, fail to make a disclosure to the NCA, unless he or she has a reasonable excuse, or the action occurred outside of the UK and the conditions set out in question 7 are not met.

Alternatively, while there is no equivalent to section 330 for the employees of non-regulated-sector entities that fail to disclose, an MLRO working for an unregulated business (if one has been nominated) can still be found guilty of a disclosure offence under section 332, where he or she fails to appropriately disclose actual knowledge or suspicion of money laundering to the NCA following a disclosure being made to him or her.

The MLRO will also commit an offence if he or she gives permission for a prohibited act in circumstances where he or she has not received consent (whether active or passive - see question 8 for distinction) from the NCA.

Tipping off

An individual in the regulated sector can commit a ‘tipping-off’ offence under section 333A POCA, where a disclosure has been made to the NCA and the individual discloses (either internally or externally) that an investigation into the allegation of a money laundering offence is being contemplated or carried out and that disclosure is likely to prejudice the investigation. To commit an offence under section 333A, the information on which the disclosure is based has to have come to the individual in the course of business.

Under section 342, any individual (save where the knowledge came to the individual in the course of business in the regulated sector, in which case section 333A will apply) commits an offence if he or she either makes a disclosure that is likely to prejudice an investigation, or falsifies, conceals or destroys evidence. There is no requirement for the information to have been gained in the course of business, and so section 342 is much broader in scope than section 333A. There are a number of defences to a section 342 offence if the individual can show that:

• he or she did not suspect the disclosure would prejudice the investigation;
• the disclosure was made by a legal adviser to a client or in contemplation of legal proceedings;
• he or she did not suspect the documents were relevant to the investigation; or
• he or she did not intend to conceal facts contained in the documents.

Similar offences are set out in the Terrorism Act (see question 1) and for the Primary Offences (sections 327-329 of POCA) see questions 5 and 8.

The Regulations

In relation to the Regulations, it is an offence for a person to fail to comply with the terms and provisions of the Regulations, although it will be a defence to show that they took all reasonable steps and exercised all DD to avoid committing the offence.

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In the UK, customer DD is required by those working in the regulated sector (see question 1 for a definition) when:

• a business relationship is established;
• the intention is to carry out an occasional transaction;
• money laundering or terrorism financing is suspected; or
• there are doubts over the veracity or adequacy of documents or information previously obtained for identification.

DD should at all times be applied on a risk-sensitive basis and be sufficient to demonstrate that the extent of the measures taken is appropriate in all the circumstances. As a minimum, DD consists of:

• identifying the customer and verifying their identity on the basis of documents or information obtained from a reliable and independent source;
• where there is a beneficial owner that is not the customer, verifying the identity of the beneficial owner, including, in the case of a legal person, trust or similar legal arrangement, and measures to understand the ownership and control structure; and
• obtaining information on the purpose and intended nature of the business relationship.

Under the Regulations, a beneficial owner is a body corporate or any individual that:

• (with the exception of a listed company on a regulated market) ultimately owns or controls, either directly or indirectly, more than 25 per cent of the shares or voting rights in the body; or
• exercises control over the management of the body corporate. Similar rules apply in relation to partnerships, trusts and other legal entities or arrangements.

This process must be completed before the establishment of a business relationship or the carrying out of an occasional transaction, save where this would necessarily interrupt the normal conduct of business and there is little risk of money laundering or terrorism financing, in which case it can be completed during the establishment of the business relationship. Where it is not possible to satisfactorily complete the DD, the relevant person must not carry out any transaction and should terminate any business relationship (new or established) with the customer, as well as consider making any relevant disclosure under POCA.

Ongoing monitoring is required on all business relationships, and should again be applied on a risk-sensitive basis. This involves scrutiny of transactions throughout the course of the relationship to ensure they are consistent with the existing knowledge of the customer, his or her business and risk profile, together with keeping other information obtained for DD measures up to date.

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The importance of conducting risk-based analyses has been emphasised with the introduction of the Regulations in June 2017. In particular, those working in the regulated sector are now required to carry out a written risk assessment to identify and assess the risks of money laundering and terrorism financing to their business, taking a number of factors into account, such as any risk assessment information provided by a supervisory authority, customers, the countries or geographic areas of operation, products or services, transactions and delivery channels. The scope and extent of this risk assessment may differ depending on the size and nature of the firm conducting the assessment.

The Regulations also embed a risk-based approach into customer DD. There are three ‘levels’ of customer DD:

• the standard that is used in the majority of cases;
• simplified DD procedures; or
• enhanced DD procedures that apply to certain categories of individuals.

Unlike the Previous Regulations, the Regulations do not provide for any automatic simplified DD for certain customers. Instead, simplified DD may only be applied where a firm determines that a particular customer presents a low risk of money laundering or terrorism financing.

The Regulations provide guidance regarding additional steps required for the enhanced DD procedure, which must be followed by comprehensive ongoing monitoring, and must be applied where:

• there is a high risk of money laundering or terrorism financing;
• the business relationship or transaction is with a person established in a high-risk third country;
• a credit institution or financial institution has, or proposes to have, a correspondent banking relationship with another such institution;
• the customer or potential customer is a PEP, or a family member or known close associate of a PEP;
• it is discovered that a customer has provided false or stolen identification documentation or information and the business proposes to continue to deal with that customer;
• where a transaction is complex and unusually large, or there is an unusual pattern of transactions and the transaction(s) have no apparent economic or legal purpose; or
• the situation by its nature can present a high risk of money laundering or terrorism financing.

The Regulations’ definition of PEPs now includes domestic as well as foreign individuals who are entrusted with prominent public functions. The Regulations provide details and make clear that the definition goes much further than heads of state and includes members of parliament, high-level judges, members of courts of auditors or the boards of central banks, senior diplomats and the management of state-owned enterprises and directors, deputy directors and members of the board or equivalent function of an international organisation. Immediate family members and close associates of these individuals are also covered. Where a PEP is identified, the relevant person must assess the level of risk associated with the customer and the extent of any enhanced DD that should be performed. At the very least, the rele­vant person must have approval from senior management for establishing that relationship, and take adequate measures to establish the source of wealth and funds that will be involved in the business relationship or occasional transaction and perform enhanced ongoing monitoring of the relationship.

In addition, the Regulations state that no credit institution may enter into, or continue, a correspondent banking relationship with a shell bank and that the credit institution must take appropriate measures to ensure that it does not enter into or continue a banking relationship with a bank that is known to permit its accounts to be used by a shell bank.

Wire transfers

EU Regulation 2015/847, which applies to the UK, requires financial institutions to ensure that all wire transfers include information about the payer, such as the name, address and account number of the payer, as well as the name and account number of the payee (or, where there is no account, a unique transaction identifier), although there a differing requirements if all payment service providers are in the EU.

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Record-keeping

The Regulations require that a person in the regulated sector must keep the following for five years:

• a copy of any documents and information obtained by the relevant person to satisfy the customer DD requirements; or
• sufficient supporting records in respect of a business relationship or occasional transaction that is the subject of customer DD measures or ongoing monitoring.

In either case, the five years starts from when the business relationship ends or, where the records were only in relation to an occasional transaction, the date on which the occasional transaction is completed.

The Regulations also require that any personal data in the customer DD information and transaction data must be deleted after a maximum of 10 years unless certain exclusions apply.

On a practical level, it would also be sensible for the nominated officer to keep a detailed record of any money laundering issues, including any internal disclosures made to him or her, any external disclosures subsequently made to the NCA (or if no report was produced, a detailed note as to why) and any correspondence with the NCA or other investigation or enforcement authorities (including any active consents received or, in cases where no response was received, a file note recording the date on which the notice period ended and confirming that no response was received).

The record-keeping obligations also apply to foreign branches and subsidiaries where local law allows.

Reporting requirements - failure to disclose and tipping off

There are a number of reporting requirements under sections 330-332 POCA (see question 16) that can broadly be broken down into the requirement for:

• a person working in the regulated sector who, during the course of his or her business, comes to suspect another individual is involved in money laundering, to make a disclosure to the MLRO; and
• an MLRO (whether in the regulated sector or otherwise if one was nominated for an unregulated business), who receives a credible disclosure about the possibility of money laundering, to make a disclosure to the NCA.

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The Data Protection Act 1998 (DPA) gives individuals a right of access to their data and allows them to make a subject access request for information on the purposes to which their data is being processed and the recipients to whom the data may be disclosed. This clearly has the potential to put the DPA obligations in conflict with those under POCA and the Terrorism Act where a subject access request is made in circumstances after a POCA disclosure has been submitted to the MLRO or NCA.

However, the DPA contains provisions (section 29) that exclude the right to data where provision would be likely to prejudice the prevention or detection of crime; hence, disclosures made in accordance with POCA or the Terrorism Act will not breach the DPA. In addition, the exclusion of civil liability will provide extra confidence.

Separately, POCA contains certain set circumstances in which institutions can share records or information without committing a tipping-off offence. These are predominantly contained at sections 333B-333E, but broadly include circumstances where a regulated person makes a disclosure:

• to another employee, officer or partner of the same undertaking;
• to another credit or financial institution in the same group that is located in an EEA state that imposes equivalent anti-money laundering requirements to the UK (the Equivalency Test);
• between the same type of institution where the disclosure is made to prevent money laundering and the Equivalency Test is met);
• to a supervisory body, such as the FCA, or for the purposes of the prevention or investigation of a criminal offence; or
• for the purposes of detecting, investigating or prosecuting a criminal offence or for the purpose of a money laundering, confiscation or civil recovery investigation.

The new CFA has also recently amended the DPA to introduce new conditions for the processing of personal and sensitive personal data, where disclosures are made ‘in good faith’ to other regulated sector entities under the provisions. This amendment has been made to facilitate gateways set up under the CFA to allow information-sharing between firms within the regulated sector, where there is a suspicion that a person is engaged in money laundering, the commission of a terrorism-financing offence or in relation to the identification of terrorist property or its movement or use. However, firms will still need to take appropriate steps to ensure that they are compliant with the DPA when making any disclosures.

The EU General Data Protection Regulation also comes into effect in May 2018 and will enhance individuals’ data protection rights, requiring companies to increase security requirements in relation to customer due diligence and other records of personal data.

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POCA offences

A breach of the failure to disclose or tipping-off offences carries a maximum penalty of five years’ imprisonment and an unlimited fine, with the exception of the tipping-off offence at section 333A, where the maximum length of imprisonment is two years (although an individual found guilty of the wider section 342 tipping-off offence can receive up to five years).

For resolutions and sanctions in relation to the Primary Offences (sections 327-329), see question 9.

The Regulations

Following a breach of the Regulations, the designated regulatory and supervisory body for the business can impose a penalty of such amount as it considers appropriate. However, it shall not take action where there are reasonable grounds to show that the individual took all reasonable steps to ensure that the breached requirement would be complied with.

The Regulations contain a criminal offence for failure to comply with the other terms of the Regulations. If found guilty of this in the Crown Court, a person faces the maximum penalty of two years’ imprisonment and an unlimited fine. Again, it will be a defence to show that the person took all reasonable steps to avoid committing the offence. Where it is dealt with through a criminal penalty, a civil fine cannot be additionally imposed (although other regulatory action may be taken). There are also other offences, including of prejudicing an investigation into a potential contravention, providing false or misleading material in purported compliance with a requirement and contravening a prohibition on being a beneficial owner, officer or manager of a relevant firm unless approved as a beneficial owner. Each has a maximum penalty of two years’ imprisonment, a fine, or both.

Where a breach in relation to a company is found to be with the consent of, or as a result of the neglect of, an officer of that company (or a partner in a partnership), then both the body corporate and the officer in question will be guilty of the offence.

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There are no limitation periods in relation to AML matters in the UK. A prosecution can be brought at any time after the commission of the offence.

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The Regulations apply to relevant persons (ie, those in regulated sectors) who are carrying on business in the UK. Therefore, while foreign-regulated businesses in the UK will be covered by the Regulations, they do not apply to the overseas business conducted by UK businesses (subject to the below).

As discussed above, to the extent permitted by local law, the Regulations also impose an obligation for a financial institution to require its branches and subsidiaries not located within an EEA state to comply with measures equivalent to those set out in the Regulations with regard to customer DD measures, ongoing monitoring and record-keeping.

For the extraterritorial reach of POCA offences, see question 12.

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Civil claims may be brought against money launderers and potentially those that assist them in three ways: knowing or unconscionable receipt, dishonest assistance and unlawful means conspiracy.

Liability for knowing or unconscionable receipt requires assets held under a trust or fiduciary relationship, transfer in breach of that trust or fiduciary relationship, beneficial receipt of assets by the defendant and that the defendant’s knowledge makes it unconscionable for him or her to retain the assets received.

Liability for dishonest assistance requires a trust or fiduciary relationship, a breach of that trust or fiduciary relationship, that the defendant must have procured, induced or assisted in the breach and that the defendant must have acted dishonestly in providing the assistance.

Liability for unlawful means conspiracy requires a combination or understanding between two or more people, an intention to injure another individual or entity, concerted action, consequent upon the combination or understanding and use of unlawful means as part of the concerted action that results in damage to the target of the conspiracy.

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The UK has been a member of the Financial Action Task Force (FATF) since 1990. In addition, the UK is a member of a number of other supranational organisations that play a significant role in addressing the issue; for example, the IMF, World Bank, the World Customs Organization, the Organization for Security and Co-operation in Europe and the United Nations Office on Drugs and Crime.

In addition, the UK’s NCA is currently hosting the International Anti-Corruption Coordination Centre (IACCC), an organisation launched in July 2017 that brings together specialist law enforcement officers from multiple agencies around the world to tackle allegations of grand corruption, including the laundering of the proceeds of crime.

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The FATF published a mutual evaluation report of the United Kingdom on 13 June 2007. This found the UK AML legislation predominantly compliant with the FATF’s international standards. This mutual recognition report was followed by a further follow-up report on 16 October 2009. This second follow-up report recognised that the UK had made significant progress in addressing deficiencies identified in the initial report, and decided that the UK should be removed from the regular follow-up process (although it would continue to report further improvements relating to AML on a biennial basis).

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The NCA is the UK’s FIU. Its contact details are as follows:

National Crime Agency

Units 1-6, Citadel Place

Tinworth Street

London SE11 5EF

United Kingdom

Tel: +44 370 496 7622 (available 24/7)

communication@nca.x.gsi.gov.uk

The NCA is a member of the Egmont Group, which is made up of a group of over 150 FIUs that work together to tackle international money laundering and terrorism financing via information exchange and the sharing of expertise. Prior to the 2016 Anti-Corruption Summit in London, the UK government announced that it would support the Egmont Group to establish a Centre of Excellence for Financial Intelligence Units to strengthen the technical capabilities and leadership role of these bodies.

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While the UK is party to a number of bilateral and multilateral mutual legal assistance (MLA) treaties, the UK can provide MLA to any country or territory in the world, whether or not that country is able to assist the UK, and whether or not there is a bilateral or multilateral agreement.

Any competent body under the law of the requesting country may issue a request to the UK. This includes a court exercising criminal jurisdiction or a prosecuting authority outside the UK. The request should be in writing, in English and sent to the appropriate central authority (for England and Wales this is the Home Office, save where orders to freeze or confiscate assets are requested, in which case this should be sent to the Crown Prosecution Service or the Serious Fraud Office). MLA allows for a wide range of services, including production orders (used to obtain ‘special procedure material’, such as banking evidence, records held by accountants), search and seizure warrants and restraint and freezing orders. For more details, see the UK Home Office Guidance Paper entitled Requests for Mutual Legal Assistance in Criminal Matters.

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National trends in criminal money laundering schemes

In October 2017, the UK government released its second national risk assessment of money laundering and terrorism financing. This identified that financial and other professional services were at substantial risk of being exploited in relation to high-end money laundering, typically involving the laundering of frauds, corruption or tax evasion. A national strategic assessment produced by the NCA in 2017 commented there is clear progression by money launderers from cash-based techniques into such trade-based and high-end money laundering methodologies, controlled by individuals overseas.

The purchase of property in the UK through offshore companies (in particular within London) was highlighted as a significant risk, as well as corporate entities set up in a way to disguise beneficial ownership and opaque business structures with significant usage of third-party payments to businesses. Looking forward, the use of financial technology such as e-wallet technology and cryptocurrencies was also identified as an enabler for financial crime including money laundering.

On specific schemes, Cifas, a UK fraud prevention organisation, has highlighted increases in misuse of facility frauds, for instance, where individuals are targeted and recruited by organised criminals to access their bank account to be used to facilitate the movement of the proceeds of crime.

National trends in criminal enforcement efforts

Since the publication of its AML and counter-terrorism finance Action Plan 2016, the UK government has been putting in place a wealth of reforming measures to enhance criminal enforcement efforts. These measures have included the CFA, which has enhanced law enforcement powers to investigate and seize the proceeds of crime by introducing UWOs (see question 2), extending disclosure orders so that they cover money laundering investigations, and widening civil recovery powers. The NCA also has already begun to use its UWO powers and the first UWOs were granted in February 2018.

The money laundering reporting regime has also been amended by the CFA to provide a gateway for information sharing between regulated firms (see question 20), and to allow the NCA to make applications to extend the period of time it has to investigate a matter following a disclosure in situations where the NCA has refused consent for a transaction to proceed.

As mentioned in questions 3 and 25, the government has also recently supported the creation of the JMLIT (see question 3) and the IACCC (see question 25), both of which have been set up to improve enforcement efforts in relation to money laundering and other economic crimes.

Tackling complex money laundering has also been identified as one of the top six national priorities for agencies tackling serious and organised crime. The government currently considering whether to introduce criminal offences designed to prevent economic crimes such as money laundering, fraud and false accounting when committed on behalf of or in the name of corporates. Such an offence would make it easier to bring prosecutions against corporates and would accordingly have a far-reaching and substantial effect in the field of AML. The government undertook a consultation examining the case for reform on this topic last year, and is expected to publish its response to this call for evidence in early 2018.

There are also plans to publish an asset recovery action plan in 2018 to improve performance in the asset recovery regime, plans to introduce the world’s first public register listing the ultimate owners of foreign companies that own UK property, and is expected to produce draft laws in summer 2018 with the intention of the register coming into effect in early 2021.

National trends in AML enforcement

The government’s recent AML and counter-terrorism financing supervision report 2015-17 summarises recent supervisory activity, showing that across the regime there has been an increase in the use of most enforcement actions between 2014/15 and 2015/16, with a slight dip in 2016/17.

In particular, there has been a significant increase in FCA enforcement action in this area, and in January 2017 the FCA fined Deutsche Bank £163 million for serious failings in its AML controls, its largest-ever financial penalty for AML failings. HMRC has also taken on more enforcement action in recent years. The FCA’s emphasis on enforcement appears set to continue, and in its 2017/2018 Business Plan, it highlighted that although it will generally use its civil powers enforcement powers where firms have poor AML controls, if failings are particularly serious or repeated it may use its criminal powers to prosecute firms or individuals.

As mentioned at question 3, the government has recently introduced the watchdog OPBAS to improve supervision, which will, as a consequence, lead to effective and proportionate enforcement. OPBAS’s purpose is to work with the 22 professional body AML supervisors to ensure they are providing consistently high standards of supervision, to introduce consistent standards across the different supervisors and to facilitate information-sharing.

National trends in AML regulation

The introduction of the new regulations has led to a number of changes to AML regulation in line with the government’s AML and counter-terrorism finance Action Plan 2016. The new regulations have emphasised the risk-based approach to AML procedures and a move away from any ‘tick-box’ approaches to such exercises.

There is also a growing national concern on the use of cryptocurrency and e-wallet technology for uses involving money laundering and terrorism financing, and the UK government has recently been negotiating an amendment to the 4th Money Laundering Directive that will result in virtual currency exchange platforms and custodian wallet providers being brought into AML regimes and require supervision from the relevant national authority. The UK government has also announced that it has launched an enquiry into digital currencies and distributed ledger technology, including looking at the regulatory response to digital currencies from the government, FCA and the Bank of England and how to improve and enhance this.

A Sanctions and Anti-Money Laundering Bill is currently going through the House of Lords, which includes clauses enabling ministers to make regulations about money laundering and terrorism financing, to enable regulations to be made to implement international regulatory standards once the UK ceases to be a member of the EU.

Current best practice

Current best practice in the compliance arena for companies and financial institutions is guided by the prescriptive regulations, which now includes a requirement to conduct a risk assessment of money laundering and terrorism-financing risks to ensure that regulated firms are taking a risk-based approach to AML. With the increasing complexity of regulation, technology is becoming an important element setting up effective and efficient compliance processes and procedures. The FCA has recently produced a report highlighting the benefits of using new technologies in AML compliance, and also has a ‘regulatory sandbox’ where businesses can test innovative products, services, business models and delivery mechanisms, as well as considering creating a global sandbox.

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