Author: Syedur Rahman
29 November 2016
3 min read
Firms are to be randomly investigated to make sure they are complying with their legal obligations regarding money laundering.
Rob Gruppetta, the head of the Financial Crime Department at the Financial Conduct Authority(FCA), made the announcement earlier this month. Speaking at the FCA’s Financial Crime Conference, Mr Gruppetta said there would be random sampling of firms covered by the Money Laundering Regulations who do not have “higher risk business models’’.
Mr Gruppetta stated that this would include businesses such as financial advisors, stockbrokers, life insurance companies and even safe deposit box providers.
Around 100 of these firms will be investigated each year. The FCA claims it is being done to raise standards regarding prevention of money laundering while giving it “a better picture of the risk posed’’.
But whatever the FCA hopes to achieve, the fact remains that any firm that is obliged to comply with the Money Laundering Regulations will have – at the very least – a lot of explaining to do if a random investigation shows that they are failing to do this. They have to be able to show that they are capable of recognising money laundering and have taken steps to prevent 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. Both of these are offences 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. Suspicion, in such cases, was defined in Da Silva (2006) as “a possibility, which is more than fanciful, that the relevant facts exist’’. If you do find yourself subject to a random check by the FCA and you have been ignorant of - or have turned a blind eye to - money laundering, you will face problems. Anyone covered by the Money Laundering Regulations has to make an “authorised disclosure’’ of such knowledge or suspicion.
Your only valid defence when suspected of allowing money laundering to take place is that you had taken all possible precautions to prevent it.
This means carrying out thorough checks on the identity and background of a client, business associate or any other person involved with the company who is looking to move money around it or out of it. Researching the genuine beneficiaries of a deal and the precise relationship between two parties to a transaction also must be done to prevent problems.
Not carrying out such checks could lead to prosecution for failing to disclose knowledge or suspicion of money laundering. The FCA is at pains to point out that its random investigations are to help improve compliance and gauge the risk of money laundering. But don’t think for a minute that this will mean prosecutions will not follow if an investigation uncovers wrongdoing that has gone unreported.
Every firm, of whatever size, that is covered by the Regulations has to look for the possible indicators of money laundering. It has to be the first to find them: having them discovered for you by the FCA will mean serious legal difficulties.
There is no catch-all, exhaustive list regarding what could be money laundering. But if there is an unwillingness to be open about the sums of money, investors and precise details involved in a deal or an insistence on unusual conditions being attached to it, then alarm bells should be ringing.
If there appears to be no clear reason why your firm has been asked to conduct a deal, why money is being moved around in a certain way or why a transaction seems excessively complicated, money laundering has to be considered a possibility. This is also the case if there is a sudden request for a deal to be completed in cash or if assets appear without explanation.
Many in business will believe that they can “smell a rat’’ but many still find that their companies have been used for money laundering. At Rahman Ravelli, we regularly assess firms’ vulnerability to money laundering and create tailor-made procedures to prevent it happening.
Introducing a policy of no cash on deals above a certain size, having designated staff examine any funding sources for a deal and imposing restrictions on access to, and use of, company bank accounts can all deter the would-be money launderer. They will also go some way to convincing any random FCA investigation that you have done all you can to prevent money laundering.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.