Adequacy of the UK Anti-Money Laundering Regime

Question 2

Professional services providers have a significant role to play, in ensuring that their services are not used to launder money. The United Kingdom’s anti- money laundering regime and reforms to regulated sector liability and compliance obligations have criminalised their activities. Critically evaluate this statement.

In the UK, one of the recent indications of how professional service providers facilitate money laundering was the Panama Papers scandal and one of the revelations of this scandal was the ways in which some members of the legal profession has aided in the processes of money laundering. Members of the legal and finance professions were found to have acted unethically, leading to regulatory violations. One of the revelations of the Panama Papers scandal was that the criminal justice system did not have any specific law preventing lawyers and banks from referring their clients to services so that while these members of the professional services could be said to have acted unethically, they could not be said to have acted illegally. Has the anti-money laundering regime in the UK responded adequately to this problem and has it effectively criminalised activities of the regulated sector is one of the questions that can be raised in this regard. If you are struggling with the complexities of this issue, seeking criminology dissertation help is the best place to get new insights and guidance.

The regulatory mechanism in the UK for dealing with money laundering includes the Financial Conduct Authority, which was established under the Financial Services Act 2012, and which aims to protect the integrity of the financial markets through regulatory action and criminal prosecution. Other laws include the Fraud Act 2006, Money Laundering (Proceeds of Crime Act) 2002, Money Laundering Regulations 2007, and the Bribery Act 2010. The Proceeds of Crime Act 2002 is an important part of the scheme for criminalising and punishing certain activities by professional service providers. Under Section 327 of the Act, it is an offence to conceal, disguise, convert, transfer or remove criminal property from the UK.

Section 328 makes an individual criminally liable for participating in an arrangement that he has suspects or knows facilitates retention, acquisition, control or use of criminal property, which also includes benefits from bribery. Both natural and legal persons can be made liable for this offence. Moreover, under Section 340(3), such property as is a benefit from criminal conduct or represents such a benefit, would be considered to be criminal property. Section 340 is wide enough to cover professional service providers in the scope of the offence because it covers any person who might have gained from this conduct irrespective of who carried out the conduct.

Professional service providers can however avoid criminal liability by making necessary authorised disclosures under Section 338. It is important to note that individuals working in the regulated sector (including banks, accounting firm, financial institutions, tax and insolvency advisors, and lawyers) come within the scope of this offence. Furthermore, under the Proceeds of Crime Act 2002, confiscation of contracts and assets acquired directly or indirectly as a result of bribery can also be done. Secondary money laundering offences for the regulated sector relate to the failure to disclose (Section 330). This happens when the professional service provider has knowledge, suspicion or reasonable grounds for believing that a money laundering offence is being committed but then he fails to make the required disclosure to a nominated officer. However, liability does not arise if the person had reasonable excuse for non disclosure, or if he as a professional legal adviser failed to disclose under privilege or if the money laundering occurred outside UK where it was not unlawful or if he were employed in partnership and information is with respect to that partnership arising out of privileged circumstances. Therefore, there is considerable room provided to legal professionals within which they are excluded from the purview of the offence.

With respect to lawyers, the term arrangement in Section 328 is not said to extend to ordinary legal proceedings so that being concerned in an arrangement would not include injunctions, litigation, freezing orders but may include advice and other legal work (Bowman v Fels [2005]). With respect to bankers, advice or actions like paying a cheque can be a Section 328 offence if knowledge and suspicion is made out (K v Westminster Bank [2006]).

It can be noted that despite these provisions in the Proceeds of Crime Act 2002, there are instances like the Panama Papers which reveal how members of the professional services are still able to take advantage of the gaps in the law to commit money laundering. These gaps in the law can be discussed next. First, a solicitor might be paid from the proceeds of crime without committing an offence under Section 328 if he makes an authorised disclosure. Furthermore, defences to such conduct include overseas conduct which is legal in the foreign country, meaning that even if some conduct may be objectionable in the UK, it may be legal in the foreign country and allow the professional service provider with a defence. Another issue is that under Section 328, a person is liable if knowledge and suspicion is proved as to the arrangement allowing another to acquire criminal property and property constituting benefit from criminal conduct. As some cases in the courts have demonstrated, it is difficult to establish these mens rea elements because suspicion is not defined and courts have tried to but not have been able to clarify what suspicion means; in R v DA Silva [2006], the Court of Appeal observed that suspicion must be more than a mere fanciful feeling as to the nature of the conduct. Similar observation made in K v National Westminster Bank [2006]. There is also a problem for professional service providers in the context of the conflict that they face with respect to their statutory obligations under Proceeds of Crime Act and their contractual duties towards their clients. A recent case of Shah v HSBC Private Bank (UK) Ltd [2010] illustrates the point of what the bank can do if there is suspicion of money laundering without prejudice to their contractual duties to the clients. In this case, the court held that the bank had the right to delay execution of a client’s payment instructions and refuse to provide information due to suspicion of money laundering which they then notified to the Serious Organised Crime Agency. In this case, although the customer sued the bank for damages for this, the court held in favour of the bank. This ruling should give some confidence to the professional service providers that their actions due to suspicions of money laundering will not lead them to breach of their contractual obligations and liability for the same.

Question 3

It is over seven years since the UK introduced deferred prosecution agreements through the Crime and Courts Act 2013. Critically evaluate the Bribery Act 2010 and whether deferred prosecution agreements have aided in the enforcement of the Act.

Deferred prosecution agreements (DPAs) are in the nature of ‘negotiated relationships’ where regulators or the prosecutors enter into agreements with the commercial organisations instead of prosecuting them and the latter undertakes to perform the terms of the DPAs in order to establish that it should not be prosecuted. DPAs allow self-regulation mechanisms for the companies as they contain certain terms agreed upon by the prosecutor and the company which are in the nature of conditions to be performed by the company if it wishes to avoid prosecution. Such negotiated mechanisms, as will be argued in this essay, are encouraged because they cost less to the prosecutor and are more effective in taking action taken against the erring company as compared to criminal prosecutions.

DPAs were introduced by the Crime and Courts Act 2013, Schedule 17. A DPA can only entered into between the prosecutor and an organisation facing prosecution for bribery or corruption with the purpose of deferring the prosecution of the organisation in lieu of the organisation agreeing to and proving that it has followed the terms of the DPA, which can include the organisation providing aid and cooperation to the investigating agencies and also putting in place mechanisms by which it can prevent or arrest the commission of offences. DPAs were encouraged (also not the basis of the American experience with similar instruments) because of the way in which these instruments can be used by the government for increasing incidence for fine collection for fraud, bribery and money laundering offences, thereby creating some deterrence for the organisations that are committing such offences. It has also been considered that DPAs can held the prosecutors to navigate the difficulties with proof collection against corporations, which are difficult and challenging for prosecutors because of the nature of the financial crimes within organisations that are international in scope.

Therefore, the argument to favour use of DPAs is that it has a greater success rate with investigations against corporations and can help prosecutors investigate organisations and even make the organisation provide cooperation under the agreements. Because organisations are cooperating with the prosecutors, DPAs present an opportunity to get the organisations to divulge information that can help the prosecutors with investigation into financial crimes. This is significant for the effective application of the Bribery Act 2010 because one of the purposes of the law was to reduce bribery not just in the UK but bribery by UK companies abroad. However, investigating bribery allegations into foreign operations of UK companies is operationally and logistically challenging for the prosecutors. In this context, DPAs are useful because these provide opportunities to the prosecutor to get the organisation itself to cooperate.

DPAs are civil solutions for the enforcement of bribery laws. This civil solution becomes important given that the prosecutors struggle to gather evidence and prosecute responsible parties under the criminal law. Against such problems, DPAs are appreciated because they are thought to be convenient, cost effective and effective. Under the terms of the DPAs, companies are themselves required to cover the costs of investigation which reduces the burden on the prosecutor. The burden of proof required is also lowered for DPAs as compared to criminal prosecutions that require a higher standard of evidentiary proof from the prosecutors. Therefore, courts can allow DPAs on lower evidential submissions. This also means that prosecutors can conclude a higher number of DPAs due to lowered burden of proof and consequently have a higher number of organisations cooperate into allegations of bribery and other financial offences under the terms of the DPAs.

Since the DPAs became applicable in the UK, there have been some high profile DPAs entered into between Serious Fraud Office and companies; notable amongst these are Standard Bank, XYZ Limited, Tesco, and, Rolls Royce. Standard Bank was made to pay a fine of 25 million USD. XYZ Limited was fined 6.5 million GBP and some officials are also being prosecuted. Tesco was fined 129 million GBP. Rolls Royce was fined 497 million GBP after four-year investigation. These high profile cases can be used to measure the success of DPAs at least in terms of the financial value of the fines imposed on them.

The support for use of DPAs also comes from the awareness of the problems associated with criminal prosecution of bribery cases involving corporations, especially multinational corporations. The Serious Fraud Office, which is the principal authority that is dealing with cases involving fraud and bribery by corporations may find that civil solutions put lesser pressure on its resources and allows it to deal with corporations on a more even level. DPAs may technically not be criminal prosecutions, but the effect may be similar as prosecutors will be able to take action and enforce the bribery law. Thus, the use of DPAs has been supported by the Serious Fraud Office as it makes the task of the regulator more effective in terms of reducing bribery or ensuring that companies put in place corrective mechanisms.

It is important to note that one of the positive aspects of the DPA regime in the UK is that it includes judicial involvement in the process for reaching agreement between the prosecutor and the organisation which means that oversight of the judiciary is maintained in the process of reaching terms under the DPA. It can be said that DPAs are useful mechanisms in aiding enforcement of the Bribery Act 2010 because DPAs allow prosecuting authorities to pursue complex investigations into financial crimes. DPAs are also useful because these pave way for the setting up of the mechanisms by which the offending organisation is required to with the investigating agencies.

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