TRADING ABROAD AND MONEY LAUNDERING RISKS

Money laundering is only possible if the person wanting to commit the offence can find a means of carrying it out.

To launder money – to disguise the fact that it is proceeds of crime – requires the use of a company, organisation or an individual who can put it through their accounts; making it harder to identify as “dirty money’’.

Money laundering happens in national and international businesses. It may involve people who are participating knowingly. But it may also many use people who have no idea that their or their company’s accounts have been used as a vehicle for laundering.

Penalties

Take the example of Deutsche Bank and the penalties it has recently had imposed on it. It has been fined more than £506m for failing to prevent £8 billion of Russian money laundering and for exposing the UK financial system to the risk of financial crime.

The UK’s Financial Conduct Authority (FCA) imposed its largest ever fine (£163m) on Germany’s biggest bank, saying it had missed numerous chances to clean up its Russian operations because its systems to detect financial crime had been weak. The US’ New York Department of Financial Services (DFS), fined the bank £343M and ordered the bank’s behaviour to be monitored for two years.

Deutsche Bank’s problems are an indicator of both the penalties available for those found to have allowed money laundering to take place and the international nature of money laundering.

This was emphasised last year, when the leaking of the Mossack Fonseca Panama Papers showed how offshore structures were being used to facilitate money laundering. According to the United Nations, money laundering could account for up to 5% of global GDP.

The Panama Papers put money laundering in the media spotlight but many countries were already tightening their regulations and beefing up their enforcement to tackle it. As an example, money laundering has been at the heart of the Financial Conduct Authority’s (FCA) business plan for the past financial year, meaning it is high priority.

In the UK, the maximum sentence for money laundering is 14 years. It pays, therefore, to be aware of how to identify, prevent and report money laundering, whether your do business only in the UK or elsewhere in the world.

Definition

Money laundering is defined as 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. Both of these are offences under the Proceeds of Crime Act 2002 (POCA):

• Section 327 makes it illegal to hide, 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 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; with Da Silva (2006) defining suspicion in money laundering as “a possibility, which is more than fanciful, that the relevant facts exist’’.

What is Criminal Property?

It can be seen then that the lynchpin of the three offences is the notion of ‘criminal property’. The prosecution has to prove that the property, whether it is cash, a house, a car or whatever, is ‘criminal property’. This is defined at s340(3) as property which represents a benefit from criminal conduct, either directly or indirectly, in whole or in part, so long as the launderer ‘knows or suspects’ that the property represents such a benefit. The prosecution has to show that the launderer committed the relevant act (i.e. transfer, concealing etc) knowing or suspecting that the property derived from criminal conduct.

Precautions

If you are trading here or abroad and you are suspected of allowing money laundering to take place you must be able to show that you had done everything possible to prevent it happening.

We are living in an era in which even countries such as Afghanistan and Yemen are introducing measures that will clamp down on money laundering. There is greater cooperation than ever before when it comes to countries combining to tackle money laundering. Those in business need to at least match this commitment with anti-money laundering efforts of their own.

Checking a current or potential client or trading partner’s background is essential if your relationship with them involves the moving of money or assets. Even issues such as proof of identity and establishing who exactly stands to gain from a deal have to be addressed properly, as failure to do this can provide the potential opportunity for the money launderer.

If checks are made, those making them need to know what to do next. Companies, therefore, must have a clear set of procedures in place about to whom such suspicions about third parties should be reported. Similarly, a defined whistle blowing procedure should be introduced for staff to report any concerns they have about the conduct of their colleagues.

It is worth emphasising here the point that Deutsche Bank did have procedures in place but they were weak and not properly enforced. Paying lip service to the idea of money laundering prevention will never be adequate; either when it comes to stopping money laundering or when you have to mount a defence against accusations that you allowed it to happen. If you can be shown to have ignored the signs of money laundering you will find it difficult to mount a successful defence.

If procedures are introduced, they have to be regularly reviewed and, when necessary, revised, so that they are fit for purpose. In order to do this, training among at least some senior staff is necessary, otherwise such procedures will fail like Deutsche Bank’s did.

Signs

While there is no manual that lists the signs of money laundering, certain types of behaviour must arouse suspicion in the mind of anyone intent on keeping money laundering away from their business affairs.

If someone suggesting a business transaction is vague about the money or people involved, why it is happening or why you’ve been approached, you must consider whether it all seems logical. You have to make sure you are not the main component of an elaborate cover for money laundering. However innocent you may be, you will face very difficult questioning if money laundering has been committed by someone using you or your company.

Policies that limit the cash amounts involved in deals, make certain trained staff responsible for checking third party funding sources and restrict use of company accounts can all be obstacles to money laundering.

But such approaches must be enforced, not just introduced.