Money laundering

Criminal enforcement

Which government entities enforce your jurisdiction’s money laundering laws?

Money laundering offences are principally investigated by the police, the National Crime Agency (NCA) or HM Revenue & Customs (HMRC). The Crown Prosecution Service usually conducts criminal proceedings. The Serious Fraud Office (SFO) investigates and prosecutes matters involving serious or complex fraud or corruption, which can involve money laundering. Where the allegations are linked to regulated entities or activities, the matter may be investigated or prosecuted by the Financial Conduct Authority (FCA).

The FCA, HMRC, the Gambling Commission and 22 other professional bodies act as supervisory authorities under the Regulations, and can take civil or criminal action in relation to breaches of the Regulations or their own regulatory rules. Supervisory authorities may also take other regulatory action in relation to failures in money laundering systems and controls.

Defendants

Can both natural and legal persons be prosecuted for money laundering?

Under UK law, criminal liability attaches to both natural and legal persons. Therefore, a corporate entity may be criminally liable for committing a money laundering offence.

Corporate criminal liability for a substantive money laundering offence must be established under the ‘identification principle’. This requires person(s) representing the 'controlling mind and will' of the company to be identified, who are of sufficient seniority and who have sufficient control such that their acts are attributable to the company itself. In practice, this is limited to a small number of directors and senior managers.

The effectiveness of the identification principle as the basis for corporate criminal responsibility has been a cause for debate. The Law Commission undertook a public consultation on the scope of corporate criminal liability and a report on potential areas of reform is expected to be published in 'early 2022'.

The criminal offences under the Regulations also apply to corporates. Under the Regulations, a corporate commits an offence if it contravenes a relevant requirement in relation to AML policies and procedures. This is a strict liability offence and the directing mind principles are not applicable.

The offence of money laundering

What constitutes money laundering?

The primary money laundering offences are set out at sections 327 to 329 of POCA. In each case, it is necessary to show that the person knows or suspects that the property in question is criminal property (ie, the proceeds of crime). 

The threshold for suspicion in this context is low. Suspicion for these purposes is defined in the decision of the Court of Appeal in R v Da Silva (2006) (EWCA Crim 1654), where the court held that a person 'must think there is a possibility, which is more than fanciful, that the relevant facts exist'. A vague feeling of unease would not suffice; however, the statute does not require the suspicion to be 'clear' or 'firmly grounded and targeted on specific facts', or based upon 'reasonable grounds'.

Qualifying assets and transactions

Is there any limitation on the types of assets or transactions that can form the basis of a money laundering offence?

'Property' under POCA includes property of any kind wherever it is situated (section 340(9) of POCA).

However, under sections 327(2C), 328(5) and 329(2C) of POCA, a deposit-taking body, electronic money institution or payment institution does not commit an offence if it commits any of the acts forming the basis of the primary offences, so long as the act is done in the course of operating an account that it maintains, and the value of the property concerned is less than £250.

Predicate offences

Generally, what constitute predicate offences?

Substantive money laundering offences

Money laundering offences under POCA are on an 'all crimes' basis. This means that the money laundering offences are not restricted to a particular type of predicate offence. Tax offences have always been predicate crimes for the purposes of the money laundering offences under POCA.

For the purposes of the primary money laundering offences, ‘criminal conduct’ means conduct that constitutes an offence in any part of the UK or would constitute an offence in any part of the UK if it had occurred there. It is also immaterial who carried out the criminal conduct, who benefited from it and whether the underlying criminal conduct occurred before or after the coming into force of POCA.

 

Currency exchange

The UK does not have currency exchange laws in place, though law enforcement has considered that methods used to violate other states’ currency exchange laws to remit funds to the UK can involve the commission of ancillary offences under UK law.

Defences

Are there any codified or common law defences to charges of money laundering?

It is a defence to the primary offences if an authorised disclosure is made to the NCA and appropriate consent has been given (before the act is done). It is also a defence if a person intended to make a disclosure but had a reasonable excuse for not doing so. These disclosures are made via a SAR seeking the appropriate consent. They are sometimes called consent SARs or a ‘defence against money laundering’ SAR (DAML SAR).

A DAML SAR gives the NCA an opportunity to consent (or refuse consent) to the relevant transaction. If no response is given by the NCA within seven working days starting from the first working day after the DAML SAR is made, consent is deemed to have been given. If, however, within that seven working day period, consent is refused, a moratorium period of 31 calendar days begins (starting from the day on which consent is refused), after which consent is deemed to have been given (section 335 of POCA). The moratorium period can be extended by the Crown Court a number of times up to a maximum of 217 days, including the initial 31 days (section 336A of POCA). The moratorium period allows law enforcement time to take further investigative steps and/or seek to freeze or forfeit property.

It is also a defence to an offence under section 329 of POCA to acquire, use or possess the property for “adequate consideration”. This defence is available, for example, where the criminal property has been acquired through receipt of monies in connection with the provision of services by a professional advisor (such as a solicitor or accountant). The limitations of this defence are set out at section 329(3) of POCA. The adequate consideration defence does not apply to the money laundering offences under sections 327 and 328 of POCA.

Resolutions and sanctions

What is the range of outcomes in criminal money laundering cases?

The substantive money laundering offences under POCA are punishable with a maximum penalty of 14 years’ imprisonment and/or an unlimited fine. The offences of failing to disclose, prejudicing an investigation and tipping off are offences triable either summarily or on indictment and are punishable with a maximum of five years’ or two years’ imprisonment respectively, or an unlimited fine, or both.  

Offences under the Regulations are punishable with a maximum penalty of two years’ imprisonment (for individuals) and/or an unlimited fine.

For a legal entity, the maximum penalty is an unlimited fine under POCA and the Regulations. Unlike an individual defendant, a corporate defendant can enter into a deferred prosecution agreement (DPA) in relation to the money laundering offences under POCA and the criminal offence under the Regulations of contravening a relevant requirement in relation to AML policies and procedures.

A DPA requires an admission of some wrongdoing but avoids a criminal conviction. A DPA usually contains conditions requiring the payment of a fine, disgorgement of any benefit from the wrongdoing and the payment of the prosecution costs. It can also require continued cooperation with an ongoing investigation and a period of monitoring of policies and procedures. A DPA is for a fixed period, agreed between the parties and must be approved by a judge. At the successful conclusion of a DPA, the criminal proceedings against the corporate defendant are concluded.

Whether to prosecute a money laundering offence is subject to the two-stage test applied to all criminal offences: (1) whether there is sufficient evidence to provide a realistic prospect of conviction; and (2) whether a prosecution is in the public interest.

The sentencing process may result in ancillary orders (eg, a confiscation order).

Forfeiture

Describe any related asset freezing, forfeiture, disgorgement and victim compensation laws.

A number of procedures are available to deprive offenders of the proceeds of crime.

 

Confiscation orders

A confiscation order is an order depriving a convicted person of the benefit gained from their criminal conduct. The order is not directed at any specific property but is made for the recovery of a sum said to represent the value of the benefit from criminal conduct. When making a confiscation order, a period of imprisonment in default is set in the event of a failure to satisfy the order.

 Compensation orders

A compensation order is an order made by the court requiring the payment of a sum of money to a victim for loss or damage suffered as a result of the criminal conduct.

 

Civil recovery orders

The UK has a non-conviction-based asset recovery regime, called the civil recovery regime. Civil recovery applies to the proceeds of ‘unlawful conduct’, defined in section 241 of POCA as conduct that is unlawful under UK criminal law or, where the conduct occurred outside the UK, is unlawful under the criminal law of that territory and, if it had occurred in the UK, would be unlawful under UK criminal law. Unlawful conduct also includes conduct that occurs outside the UK, constitutes or is connected with the commission of a gross human rights abuse or violation and, if it had occurred in the UK, would be an indictable offence.

Part 5 of POCA provides for the making of a civil recovery order (CRO) by the High Court for the recovery of property, which is or represents property obtained through unlawful conduct. The question of whether property has been obtained through unlawful conduct is decided on the balance of probabilities. A CRO does not require a criminal conviction or any criminal proceedings; it targets property not the person holding it. An enforcement authority may obtain a CRO against any person it thinks holds recoverable property.

 Asset freezing and forfeiture

As noted above, POCA provides certain authorities with the power to freeze and forfeit monies held in bank and building society accounts and to forfeit cash in summary proceedings.

An account freezing order (AFrO) may be made where there are reasonable grounds to suspect that money (being a minimum of £1,000) held in a bank account is recoverable property or intended for use in unlawful conduct. An AFrO may last up to two years.

Where an AFrO is in place, the court may make an account forfeiture order (AFO) or an account forfeiture notice (AFN) in respect of the frozen account. An AFO allows all or part of the funds in the account frozen under the AFrO to be forfeited to law enforcement. An AFrO can be obtained on the basis of suspicion, but there is a higher bar for forfeiture. To grant an AFO, the court must be satisfied, on the balance of probabilities, that the money or part of it represents the proceeds of crime, or is intended by any person for use in unlawful conduct. 

 Disgorgement

Under the DPA regime, a corporate that enters into a DPA may be required to pay a disgorgement figure representing the profits from any wrongdoing.

Limitation periods on money laundering prosecutions

What are the limitation periods governing money laundering prosecutions?

As is the general rule in UK criminal law, except in respect of summary only offences, there is no limitation period for the prosecution of offences, including money laundering offences. The money laundering offence must be committed after the commencement of POCA; however, the date of the predicate offending is immaterial.

Extraterritorial reach of money laundering law

Do the money laundering laws applicable in your jurisdiction have extraterritorial reach?

The courts have held that the substantive money laundering offences under POCA have some extraterritorial application. A person who is not in the UK can be prosecuted for a money laundering offence in the UK where there is UK nexus; for example, where their conduct took place entirely outside the UK, in circumstances where a substantial element of the overall criminality took place in the UK and its harmful consequences were felt in the UK (see R v Rogers (2014) EWCA Crim 1680, paragraph 55).

Where the proceeds of foreign crimes are laundered in the UK, the essential question is whether the property is criminal property; namely property that is or represents, in whole or part and whether directly or indirectly, a person’s benefit from criminal conduct, and the person knows or suspects that it constitutes or represents such a benefit. Laundering the proceeds of foreign crimes is an offence under POCA if the criminal conduct either constitutes an offence in the UK or would constitute an offence in any part of the UK, if it had occurred there. If the conduct constituting the foreign crime would not constitute an offence in the UK, it would not fall within the definition of criminal conduct and therefore no money laundering offence is committed in the UK.

The reporting obligations applicable to regulated entities attach to money laundering wherever it occurs (assuming the reporter is within the UK).