‘Dirty money’ is increasingly a target of law enforcement agencies across the developed world and the rise of cyber crime means that it is increasingly digitised rather than physical. This can make it much more difficult for prosecutors to trace or seize cash and those accused of holding dirty money are facing ever more draconian powers and increasingly tenacious enforcement.
So widely is money laundering being tackled that it is beginning to seep into popular consciousness – the BBC drama McMafia and the Netflix documentary series Dirty Money both centre around the consequences of cleaning the proceeds of crime. But are these powers proportionate? More importantly, are they actually effective?
Undoubtedly, prosecutors face huge challenges in dealing with sophisticated modern money laundering. The internet, and particularly internet banking, has made it far easier not only for criminals to steal money, but also to move it out of the original jurisdiction and dispose of it within a matter of minutes. While the ultimate aim may be to convert digital funds into cash, that process can now take place thousands of miles from the location of the original fraud. Cyber crime is big business.
Governments have met these challenges by creating an array of criminal offences and powers of almost unprecedented scope. In the UK, the Proceeds of Crime Act 2002 contains offences which require only a ‘suspicion’ that money the defendant has dealt with was derived from criminal activity. Such broad offences can be tacked on – appropriately or not – to almost any criminal case in which funds alleged to be the proceeds of crime have been moved. In over a decade and a half, these powers have proved potent prosecutorial weapons.
Nevertheless, the UK government has sought to further expand its anti-money laundering (AML) arsenal. In 2017, the UK introduced the new phenomenon of ‘Unexplained Wealth Orders (UWO)’. This new power allows a court to require an individual to provide an explanation of how they acquired certain assets over £100,000. Failure to provide an explanation renders the assets liable to forfeiture and making a false response made deliberately or recklessly is an offence in itself. Assets can also obviously be seized if a court disbelieves the explanation for their origin.
Yet for all the fanfare of anticipation surrounding UWOs, they may not be the unstoppable money gobbling juggernaut they first appear. To make an order a court has to have reasonable grounds to suspect that the respondent does not have sufficient income to have generated the asset and that they or an associate of theirs has been involved in serious crime. As a general rule, English Courts are hesitant to allow the state to confiscate private property and it may well be that judges rigorously enforce these requirements.
Moreover, in the case of high net worth individuals who receive income from numerous different sources and in quantities that fluctuate with market conditions, proving that income is, or even may be, insufficient to justify a given level of wealth may be exceedingly difficult. Importantly, the requirement to show substantial grounds to believe that a person has been involved in serious crime does not apply when the respondent is a politically exposed person, which includes politicians and their family members.
However, in many cases, the issues surrounding sufficiency of income are likely to remain. Something very similar to the UWO power already exists under Part 5 of the Proceeds of Crime Act (POCA). Those powers aim to recover property gained through “unlawful conduct” and allow assets to be frozen and forfeited. The new UWOs may slightly expand the circumstances under which property can be seized, for example through the introduction of a “reasonable grounds to suspect” test, but they are by no means dissimilar to the Part 5 powers. In short, the UWO may have less of an impact than anticipated.
Another measure that may not fulfil the promise of its name is OPBAS – the Office of Professional Body AML Supervision. Yes, that is an acronym within an acronym. The new body will oversee professional bodies which are themselves responsible for AML, which the FCA believes are not communicating with each other sufficiently and are inconsistent in the guidance they offer. The new body is to be housed with the Financial Conduct Authority (FCA).
Money laundering is clearly a social evil but that should only engender greater scrutiny. It remains to be seen how effective this new regulator will be. Clearly, information sharing between those exercising AML functions is desirable, but whether the best way to achieve this is the creation of another regulator may be questioned by some.
Whatever the long-term impact of UWOs and OPBAS, they are largely curative measures. Such action is of course necessary but must be combined with prevention. If money laundering is growing in cyber space then cyber security may be a better option than expensive regulation and prosecution. Of course, such state enforcement has its place, but it will ultimately be more effective for firms and individuals to develop and use more effective tools to prevent loss in the first place.
Fortunately, such prevention is increasingly possible. As of 2016, the UK has a National Cyber Security Centre which aims to provide guidance and support to businesses and other organisations at risk of cyber attack. This step will surely go some way to tackling apparently low levels of awareness about cyber crime among both businesses and the public. After all, it is individuals, rather than the state, who have the greatest and most immediate interest in preventing themselves being used as conduits for money laundering.
Inevitably, the rise in cyber money laundering has taken many by surprise. Quite rightly, governments have sought to meet this threat with new powers but, ultimately, the best approach must be one of prevention rather than cure.
While money laundering will undoubtedly continue to entertain TV audiences, there do appear to be measures businesses can take to prevent the real life impact of such operations. It is to be hoped that governments adopt a preventative approach rather than simply rolling out the powers of the state still further. While the state’s powers of enforcement are now extensive and there have been many prosecutions, the ‘new powers’ approach has so far failed to stem the rising tide of dirty money.
This article was originally published in Financier Worldwide’s March 2018 issue and can be accessed here.