Author: Azizur Rahman
10 May 2017
4 min read
The news that the Financial Conduct Authority (FCA) has contacted up to 17 banks in relation to a Russian money laundering scheme dubbed “the Laundromat” will leave many in finance with questions to answer.
FCA investigators are studying information provided by The Guardian, which revealed UK-based banks had processed nearly 2,000 transactions, amounting to $740m, for companies set up as part of the Laundromat scheme. HSBC was the largest conduit for the payments - handling $545M - a revelation that comes barely six months after its chief legal officer stated that the way banks prevent financial crime is outdated.
Arguably, the first question that the FCA will want answered is who was involved in processing hundreds of millions of pounds of payments between 2010 and 2014. The second must be how they did it.
The revelations about the banks must be seen as a major sign that all is not well with the financial institutions when it comes to money laundering. And if such major financial organisations are getting it wrong, the chances are that many others who work in finance are also running the same risk.
The UK’s maximum sentence for money laundering is 14 years. In recent years, the FCA has made money laundering a high priority. For those two reasons alone, those working in finance must know how to stop, or at least identify and report, money laundering.
Money laundering involves the movement of money, or the use of it in transactions, so that it can no longer be recognised as the proceeds of crime.
A person can launder their own criminal proceeds or someone can do it for them: both are offences under the Proceeds of Crime Act 2002 (POCA).
Section 327 of POCA makes it illegal to hide, disguise, convert, transfer or remove criminal property from the jurisdiction, while Section 328 makes it illegal to enter into, or become concerned with, an arrangement to obtain, retain or use the proceeds of crime. Section 329 prohibits the possession of criminal property.
Sections 330 to 332 of POCA make it an offence to fail to disclose knowledge or suspicion of money laundering in the regulated sector. The regulated sector is the businesses and sole traders covered by the Money Laundering Regulations 2007: including those who exchange currency, send and accepts large amounts of money, cash cheques and provide tax and financial advice.
The case of Da Silva (2006) defined suspicion in money laundering as “a possibility, which is more than fanciful, that the relevant facts exist’’. That issue of suspicion (or lack of it) may leave the 17 banks facing awkward questioning from the FCA.
To convince the authorities of your innocence regarding money laundering accusations, you have to be able to demonstrate that you had a genuine commitment to preventing it. This means carrying out a number of activities and being alert to signs of possible laundering.
If you are handling someone’s money or other assets, you must check the background of them and their trading partners.
There has to be suspicion if someone in a transaction is unclear about, or reluctant to disclose, the exact amounts of money or all the people involved. Proof of identity, funding sources and the beneficiaries of a deal all have to be established, otherwise the authorities will view this as an inadequate attempt to prevent laundering.
You need to ask why your company has been asked to be involved; especially if the people proposing the deal are not known to you. Does the deal appear a logical one for all parties to make? And if not, why not?
If unusual conditions are attached to a deal, if someone is insisting on a cash-only transaction or the movement of money in the deal seems unnecessarily complex, you have to be concerned – and act on your concerns.
The outlook is much better for you if it is you that uncovers and reports the suspected money laundering rather than a third party or an investigating authority.
All companies have to have in place clear procedures for staff to report any suspicions about a deal they are being asked to be involved in. Any firm covered by the Regulations must have a nominated officer that staff can report their knowledge or suspicion of money laundering to.
Equally importantly, these procedures have to be enforced and any reports acted upon: introducing them as a box ticking exercise will be of little value if money laundering is them discovered and the authorities come investigating.
Any company investigated will have to show that all financial records are kept up to date and filed correctly and that risk assessments have been carried out to assess vulnerability to money laundering – and that their findings have been acted on. In addition, staff must be trained in, and aware of, the legal obligations to identify and report possible money laundering.
The obligation is clearly now on those working in finance when it comes to money laundering prevention. If they do not know how to proceed, they must seek legal advice.
The Joint Money Laundering Initiative Taskforce (JMLIT), which started in 2015, was developed between the UK government, the British Bankers Association, law enforcement agencies and more than 20 UK and international banks.
Its intention was to understand, assess and then disrupt the ways financial systems could be used for money laundering, as well as bribery and terrorist financing.
JMLIT not only puts the focus on prevention of money laundering. It has led to the identification, investigation and closure of bank accounts suspected of being involved in money laundering.
The Taskforce has given those working in finance some input regarding the issue of tackling money laundering. It has also emphasised the links between money laundering and other crimes; such as bribery and terrorist financing.
For those who work in the regulated sector to then fail to meet their responsibilities to prevent money laundering is dangerous to them from a financial, criminal and reputational perspective.
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.