Author: Azizur Rahman
5 June 2018
4 min read
Formula One is facing testing times. The sport is under official scrutiny regarding suspicions of money laundering.
Italian prosecutors are reportedly investigating reports that financial wrongdoing on a huge scale has been conducted in relation to the F1 race at Monza. Reports in Italy state that F1 sponsorships involving “dozens’’ of companies from Italy and other countries may be part of an 80 million euro money laundering scheme involving falsified sponsorship invoices.
Investigators have confirmed that 82 people are under investigation and that the trail may go beyond Monza, to the finances involved in other F1 races. According to some sources, the investigation began six years ago. This could mean that more than 100 races could be subject to investigation.
While we are far from knowing the true extent of the laundering – or if there has actually been any – the investigation highlights two issues. The first is that any business, however high or low profile, can be a target for money launderers. The second is that such allegations can be hugely damaging to a company – and even the whole sector of business in which it functions – from a financial and reputational point of view.
F1 would much rather be known for speed, global glamour and excitement. For now, however, some of those involved are having to deal with the less attractive proposition of a criminal investigation into money laundering.
It is a high-profile reminder that wherever you trade and whatever type of business you are involved in, failing to take proper preventative measures can make your enterprise vulnerable to money launderers.
If the people involved in F1 (or any business) are to prevent money laundering, they need to understand what it is. Only then will they be able to recognise it.
Money laundering is the disguising of the origins of money that is the proceeds of crime. A person can launder their own criminal proceeds or have it done for them by another person.
In the UK, money laundering carries a maximum sentence of 14 years under the Proceeds of Crime Act 2002 (POCA): Section 327 makes it an offence to conceal, disguise, convert, transfer or remove criminal property from the jurisdiction, Section 328 makes it illegal to enter into or become concerned with an arrangement to acquire, retain or use the proceeds of crime, while Section 329 makes it an offence to possess criminal property. Sections 330 to 332 of POCA make it an offence to fail to disclose knowledge or suspicion of money laundering.
POCA is a UK piece of legislation but many other countries take a similarly tough approach to money laundering.
Foreign authorities routinely make money laundering enquiries in the UK. Similarly, UK law enforcement agencies will take their money laundering investigations abroad if that is where the investigative trail takes them. According to the National Crime Agency (NCA), at least £90 billion is laundered annually through the UK and European Union. We will never know how accurate this figure is. But the fact that it has been announced indicates both the seriousness with which countries view money laundering and the degree of cooperation between them to tackle the problem.
In Europe, the Fourth EU Money Laundering Directive (4MLD) is a reflection of this. It came into force in 2017 and places more responsibilities on banks and financial institutions. 4MLD demands that banks carry out more due diligence checks on customers, requires greater transparency regarding the ownership of assets and introduced tougher approaches when it comes to checks on people or organisations from high-risk countries and on politically exposed persons (PEP’s), their relatives and close associates.
It could be argued that 4MLD has no direct bearing on F1. But it is part of a coordinated multinational campaign to both reduce the scope for money laundering and identify and punish those who are committing it. So, in many ways, it has a very direct bearing on what may have happened at F1; especially when it must be remembered that laundered money may well eventually be deposited in a financial institution covered by 4MLD.
Everyone in business, therefore, needs to know that they have to do prevent and / or identify money laundering. But they also need to know that preventing money laundering is not something that can be cured with a “silver bullet’’: there is no wonderful, easy-to-apply solution that will offer total protection
Prevention of money laundering involves identifying the risk of it finding its way into your business, whether that be high-octane motor racing or a less exhilarating commercial enterprise. Procedures need to be devised to tackle that risk. And those procedures need to be introduced and executed properly. They must also be reviewed and amended if necessary. This cannot be seen as a one-off exercise, as preventative measures need to reflect circumstances – and circumstances may change.
Intelligent and appropriate prevention measures will make it much less likely that a business will be targeted by a money launderer. Such measures, if properly implemented, will also be a strong defence argument for any business, if – unlikely though it may be – it then becomes the subject of a money laundering investigation.
There will be many in F1 and beyond who are either unaware of money laundering preventative measures or uncomfortable with having to devise and introduce them. If that is the case, they can seek legal help.
Any procedures introduced will be worthless unless they are aimed at the risks in a business. If they are not targeted or they are inappropriate, they will be of little value. The risks will vary between differing business sectors. Within each business sector, the risks may also differ (to a degree) from company to company.
The important thing is to tailor the procedures to the individual business. Yet while procedures may differ, they should all contain the following elements:
Scrutiny: Any current or potential customer, investor or trading partner should be subject to checks regarding their identity, background and trading history. If someone expresses an interest in moving money into, around or out of the company, their reasons for doing so should be analysed carefully; even if they are staff - and regardless of seniority.
Research: Know exactly who is involved in any deal. Find out who the real beneficiaries or investors are, determine the precise relationships between all funds and parties involved and the exact reason why the transaction has been proposed.
Transparency: Procedures need to ensure that business is conducted in an open way in any business; with no aspects of a deal being conducted without a number of people in the company knowing all the details.
Investigation: There has to be a recognised way for anyone to report concerns about any aspect of the business – and for those concerns to be investigated properly.
Limits: Rules can be introduced that can limit the scope for laundering. No-cash policies on certain transactions, restrictions on use of company bank accounts, deadlines for financial records being updated and filed are all examples of rules that can deter and prevent laundering.
Education: Staff need to be made aware of the potential problem of money laundering and trained, where necessary, so they know their legal obligations to report any suspicions.
Without such procedures, no business can feel protected against money laundering.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.