The London Wine Fair is taking place this week. Exhibitors have come from around the world, over 14,000 wine buyers will attend and Olympia will be full for three days. Little wonder: wine is a massively popular commodity in this country and the market is incredibly diverse. At the top end of that market sits investment-grade wine. And with wine – as with any investment – there is risk. For most, the risk is simply the investor’s ordinary commercial risk. For a few, however, the risk sits with the wine merchant and is that of being involved in a money laundering scheme.

Let me explain. It is risky for a criminal to hold large amounts of money obtained from criminal activities because the money may be traced back to the original crimes. So he or she needs to find a way to distance themselves from that money’s origins and make it appear legitimate. Money laundering is the process whereby they do so. Money laundering schemes come with varying levels of sophistication. Criminologists agree however that most involve three distinct stages:

  1. placement – the process of getting criminal money into the financial system;
  2. layering – the process of moving the money through the financial system through layers of transactions; and
  3. integration – the process whereby the money is finally integrated into the economy, perhaps in the form of an investment.

The state’s response to money laundering is to be found in the Proceeds of Crime Act 2002 and the various regulations which have from time to time been made to sit alongside it. Those regulations are currently to be found in the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. Together the Act and the regulations form a legal regime made up first of criminal sanctions for those who operate money laundering schemes and those who assist them, and secondly of controls over certain types of business that provide a route into the financial system. I will deal with both in turn.

The main three offences are contained in sections 327, 328 and 329 Proceeds of Crime Act 2002. Section 327 is aimed at those who conceal or remove proceeds of crime from the jurisdiction and section 329 is aimed at those who acquire, use or possess them. Those sections stand either side of the provision, at section 328, that criminalises money laundering arrangements. Participation in such arrangements is punishable by a term of imprisonment of up to 14 years. The offence is made out where:

  • the defendant enters into or becomes concerned in an arrangement;
  • which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control;
  • of criminal property;
  • by or on behalf of another.

The test for suspicion is a subjective one. In other words, the prosecution must prove that the defendant thought there was a possibility the person with whom they were dealing was or had been engaged in criminal conduct or had benefited from it. That possibility has to be more than fanciful. A vague feeling of unease is not enough.

There is a defence for the person who discloses the arrangement to the National Crime Agency within specified timescales, ideally so as to provide the NCA (or indeed any other law enforcement body) with an opportunity to prevent any suspicious transaction from going ahead.

The regulatory scheme is aimed at protecting the gateway into the financial system. It applies to a range of businesses all of which stand at that gateway and includes high value dealers. Such dealers are firms or sole traders who, by way of business, trade in goods when the trader makes or receives, in respect of any transaction, a payment or payments in cash of at least 10,000 euros in total, whether the transaction is executed in a single operation or in several operations which appear to be linked. At today’s exchange rate 10,000 euros is equivalent to £8,749.

It is important to note that the definition of cash extends to notes, coins or travellers’ cheques in any currency, and that a payment in cash takes place not just where cash is handed directly to the payee but also where the payment is made to a third party for the benefit of the payee or into a bank account for the benefit of the payee. It is the business’ responsibility to determine whether, on the particular facts of the case, payments are in fact linked.

A business which acts as a high value dealer needs to register as such with HMRC, and then to co-operate with them as they exercise their supervisory functions and powers, including carrying out unannounced visits. It must also conduct business in accordance with the terms of the regulation. The regulation is detailed and complex but includes the following requirements.

  • A requirement to assess the risk of money laundering and terrorist finance to which the business is subject.
  • A requirement to establish and maintain policies, controls and procedures to manage the risk effectively.
  • A requirement to maintain written records of anti-money laundering/anti-terrorist finance policies and how they have been communicated within the business.
  • A requirement to conduct customer due diligence.
  • A requirement to conduct enhanced customer due diligence where that customer is a politically exposed person, or a family member or a known associate of a politically exposed person.
  • A requirement to maintain written records of due diligence activity.

There is another important consequence of a business being a high value dealer. As with any other regulated business, people working within the business are placed under a duty to report to the NCA that a person is engaged in money laundering when they know or suspect it to be the case or when they have reasonable grounds for knowing or suspecting it. A failure to meet this reporting duty is punishable by up to five years imprisonment.

It is inevitable that, when laws are passed and regulations imposed, concerns are expressed that they stifle business development. But there is no prospect of these laws or regulations being dispensed with. Last week, the NCA published its Annual Strategic Assessment in which it estimated the scale of money laundering activity in the UK last year as amounting to hundreds of billions of pounds, and public concern at the way our economy has been misused in this way is mounting. The statutory scheme I have described is aimed at protecting our economy from this threat, and there are signs that prosecutors and regulators, including HMRC, are becoming more assertive in the exercise of their functions. Wine merchants, like any other reputable business, would be well-advised to inform themselves about the danger to their business and to the people who work within it of becoming implicated in money laundering, and to take action to protect themselves from the legal and reputational risks it presents.