General climate and recent developments
State of legal development
In general terms, how developed are the laws on money laundering, terrorism financing and fraud in your jurisdiction?
The United Kingdom has one of the strictest and most highly developed set of laws on money laundering, terrorist financing and fraud in the world. It has broadly defined money laundering offences which adopt an all-crimes approach and may be committed by merely the possession of property and the suspicion that it represents the proceeds of crime. In terms of enforcement, the United Kingdom has a notably strict regime affecting the regulated sector (which includes financial institutions, accountants and most lawyers) with extensive reporting requirements and criminal sanctions for any breach. Its investigators and prosecutors have extensive powers – albeit with often limited resources – and they benefit from numerous international cooperation agreements.
Have there been any notable recent developments in relation to anti-money laundering, terrorism financing or fraud law and enforcement, including any regulatory changes, case law and convictions?
Notable recent developments include:
- the availability of Deferred Prosecution Agreements (a handful of which have been reached and publicly announced);
- significant amendments to money laundering provisions in the Criminal Finances Act 2017;
- the adoption of the new Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017;
- the creation of the Office for Professional Body Anti-money Laundering Supervision, a new body to oversee the supervision of professional bodies’ compliance with those regulations; and
- the creation of a new body to coordinate the UK authorities’ response to economic crime, the National Economic Crime Centre.
Legal and enforcement framework
What primary and secondary legislation applies to money laundering, terrorism financing and fraud in your jurisdiction?
The principal primary legislation now comprises:
The principal secondary legislation is the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
To whom does the legislation apply? May both individuals and organisations be held liable under the legislation? Does the legislation have extraterritorial effect?
These laws apply to individuals and organisations, although generally corporates are not liable unless guilt can be ascribed to an individual source. Though the principal offences in the Proceeds of Crime Act, the Terrorism Act and the Fraud Act apply to everyone, the secondary offences in the Proceeds of Crime Act and the requirements in the regulations apply to those in the regulated sector (including financial institutions, accountants and most lawyers).
Traditionally the basis for jurisdiction in the United Kingdom (including for fraud offences) is territorial. However, a recent judicial authority (R v Rogers  EWCA Crim 1680) held that the money laundering offences in the Proceeds of Crime Act have extraterritorial effect. Although this has been doubted by commentators, it has been applied in at least two extradition cases.
It is undeniable that a person can be guilty of laundering the proceeds of a predicate offence committed overseas. The obligations of those in the regulated sector under the Proceeds of Crime Act and the regulations apply in the course of business carried out in the United Kingdom. The principal terrorist financing offences also have extraterritorial effect, including conspiring to commit an offence (ie, conduct that would amount to an offence if conducted in the United Kingdom) overseas, under Section 1A of the Criminal Law Act 1977.
Is your jurisdiction a party to any international cooperation agreements to combat money laundering, terrorism financing and fraud?
The United Kingdom is party to numerous agreements with other states to cooperate in measures to combat money laundering, terrorist financing and fraud, including by way of:
- extraditing individuals;
- issuing and acting on alerts via Interpol;
- assisting criminal investigations and prosecutions;
- imposing targeted sanctions; and
- freezing assets.
It is a member of the Financial Action Task Force, the recommendations of which are the source of the EU Money Laundering Directives, which in turn are the basis of much of the law regarding money laundering and terrorist financing.
As a member of the European Union, the United Kingdom is subject to certain cooperation measures with other EU member states (including expedited measures to enable asset-freezing, extradition and the transmission of evidence in criminal investigations) and is involved in other cooperation agreements between the European Union and third states. The effect on these measures of the United Kingdom’s decision to leave the European Union on March 29 2019 is unclear. There has been no indication, and it would seem unlikely, that it intends either to relax its laws on money laundering, terrorist financing or fraud, or withdraw its Financial Action Task Force on Money Laundering membership. Therefore, the substance of the relevant law seems unlikely to change. However, the mechanisms of investigating and enforcing these laws may change and their application and enforcement may diverge from that of the European Union over time.
Which government authorities enforce the law on anti-money laundering, terrorism financing and fraud, and what is the extent of their powers?
The enforcement of these laws is split between a number of national, regional and local organisations (including some that are specific to particular UK jurisdictions – note that England and Wales comprises one jurisdiction, whereas Scotland and Northern Ireland are separate). The principal national authorities involved are the National Crime Agency (NCA) and the Serious Fraud Office (SFO). The compliance responsibilities of the regulated sector are enforced by a number of supervisors, including the Financial Conduct Authority (FCA) and Her Majesty’s Revenue and Customs. Several regulated professionals are supervised by their own professional bodies, subject to supervision by the new Office for Professional Body Anti-money Laundering Supervision, housed within the FCA. The creation of a new body, the National Economic Crime Centre, to coordinate the authorities’ response to economic crime was also recently announced. Among other things, it will have the power to direct the SFO to conduct investigations.
In addition to the general powers to arrest and seek court orders and warrants, the SFO, NCA and FCA also have compulsory powers under various statutes (including the Criminal Justice Act 1987, the Financial Services and Markets Act 2000 and Proceeds of Crime Act itself) to require the provision of information and documents in appropriate circumstances.
Significantly, the authorities also have extensive powers under the Proceeds of Crime Act (which vary according to the jurisdiction involved – England and Wales, Scotland or Northern Ireland) to seek the detention, freezing and restraint of assets in various circumstances, and ultimately their forfeiture, recovery or confiscation. These measures include:
- the restraint of assets that belong to or derive from a suspect in a criminal investigation who may ultimately face confiscation proceedings;
- the making of confiscation orders against convicted defendants; and
- the freezing and civil recovery of assets on the basis that they represent the proceeds of unlawful conduct.
As a subset of the last category, the authorities have long been able to apply in summary proceedings for the detention and forfeiture of seized cash on the basis that it represents the proceeds of unlawful conduct or is intended for use in such conduct. Under changes introduced by the Criminal Finances Act 2017, these proceedings have now been extended to cover various items of personal property, as well as funds in bank and building society accounts. Similar powers exist in relation to terrorist assets.
Notably, in further new provisions introduced by the Criminal Finances Act, the authorities can now apply in certain circumstances for an unexplained wealth order in respect of property thought to belong to a politically exposed person (if it is inconsistent with his known sources of income) or to someone thought to be associated with serious crime. The assets can be frozen while the unexplained wealth order is complied with; if it is not complied with, the owner will bear the burden of proof in civil recovery proceedings.
Statute of limitations
What is the limitation period for bringing actions in relation to money laundering, terrorism financing and fraud offences?
No limitation periods apply to money laundering, terrorist financing or fraud offences. However, the principal money laundering offences under the Proceeds of Crime Act are subject to a defence of assumed consent where a proper report is made to the authorities and a moratorium period has elapsed. Even where this is extended by application to the courts, the threat of prosecution where a proper report is made will effectively expire within approximately eight months.
How are ‘money laundering’, ‘terrorism financing’ and ‘fraud’ legally defined in your jurisdiction?
‘Money laundering’ is broadly defined under the Proceeds of Crime Act 2002 and covers virtually any act (including mere possession of property) that constitutes a person’s benefit from ‘criminal conduct’ (which is again broadly defined).
‘Terrorist financing’ under the Terrorism Act 2000 includes raising, providing, receiving, using or possessing funds or other property that the offender has reasonable cause to suspect may be used for the purposes of terrorism (including for the benefit of a proscribed organisation).
‘Fraud’ is defined in the Fraud Act 2006 as various acts of dishonesty (including making false representations, failing to disclose information or abusing a position) which are intended by the offender to make a gain for him or herself or another, or cause loss to another.
Principal and secondary offences
What are the principal and secondary offences in relation to money laundering, terrorism financing and fraud?
The principal money laundering offences are set out in Sections 327 to 329 of the Proceeds of Crime Act and include various acts in relation to criminal property, from disguising or converting the property to merely acquiring or possessing it, as well as becoming concerned in an arrangement that enables the acquisition or retention of criminal property by another person. ‘Criminal property’ is defined in Section 340 as property that constitutes or represents a person’s benefit from ‘criminal conduct’, which includes overseas conduct that is lawful where it occurs but which would be unlawful if it took place in the United Kingdom.
There are numerous secondary money laundering offences which mostly apply to persons in the regulated sector (including banks, accountants and most lawyers). The most important offences are failing to report money laundering (where there are reasonable grounds to suspect it) and tipping off a person about a report or an investigation.
The principal terrorist financing offences are outlined in Sections 15 to 18 of the Terrorism Act and include:
- raising, providing, receiving, using or possessing funds or other property that the offender has reasonable cause to suspect may be used for the purposes of terrorism (including for the benefit of a proscribed organisation); and
- becoming involved in an arrangement that makes funds available to another for the purposes of terrorism (likewise) or that facilitates the retention or control by another of ‘terrorist property’, which includes:
- property likely to be used for the purposes of terrorism;
- the resources of a proscribed organisation;
- the proceeds of acts of terrorism; or
- the proceeds of acts carried out for the purposes of terrorism.
Secondary terrorist financing offences include failing to report suspicions about terrorist acts, property and suspects.
The principal fraud offences are outlined in Sections 2 to 4 of the Fraud Act and include:
- making a false representation;
- failing to disclose information which the offender is under a legal duty to disclose; and
- abusing a position in which he or she is expected to safeguard (or not act against) the financial interests of another person.
In each case the act must be committed dishonestly and with the intention to make a gain for the offender or another, cause a loss to another or expose them to a risk of loss.
Secondary fraud offences include possessing, making or supplying articles for fraudulent use, participating in a fraudulent business and obtaining services dishonestly.
How are predicate offences defined?
The United Kingdom has adopted an all-crimes approach to predicate offences for the purposes of money laundering legislation (ie, there are no crimes for which the proceeds would not be capable of being laundered). It is unnecessary for a money laundering prosecution to define the predicate offence involved, provided the circumstances in which the money (or other property) was handled give rise to an irresistible inference that it constitutes or represents the proceeds of criminal conduct (following the judicial authority of R v Anwoir  EWCA Crim 1354). For the purposes of the specific money laundering offence in Section 18 of the Terrorism Act, any act of terrorism is effectively a predicate offence.
De minimis rules
What de minimis rules apply to money laundering, terrorism financing and fraud offences?
There are no de minimis rules in the legislation for money laundering, terrorist financing or fraud, except that under Section 339A of the Proceeds of Crime Act, certain principal money laundering offences do not apply to deposit-taking bodies where the amount concerned is under the threshold amount of £250.
Penalties and plea agreements
What penalties may be issued for money laundering, terrorism financing and fraud offences?
The principal money laundering and terrorist financing offences under the Proceeds of Crime Act 2002 and the Terrorism Act 2000 are punishable by up to 14 years’ imprisonment and the principal fraud offences under the Fraud Act 2006 are punishable by up to 10 years’ imprisonment. Courts must abide by the sentencing guidelines.
Are plea agreements available? If so, how often are they used and what rules, standards and procedures apply?
It is common for prosecutions of individuals and organisations to be concluded by a guilty plea – sometimes on the basis of agreed facts or in cooperation with the authorities – and for this to be reflected in a reduced sentence. It is also possible for investigations to be concluded by way of civil recovery proceedings under the Proceeds of Crime Act rather than criminal prosecution. However, following a series of controversial high-profile examples involving the Serious Fraud Office, this practice is now discouraged.
Since the Crime and Courts Act 2013 took effect, it has also been possible to suspend the prosecution of a company (although not an individual) in appropriate cases by way of a Deferred Prosecution Agreement (DPA). A Code of Practice sets out the basis on which DPAs will be offered, and emphasises, for example, the importance of self-reporting and cooperation with the authorities’ investigation. Only a handful of DPAs have been reached so far, most of which have concerned high-value, high-profile businesses and/or overseas corruption offences.
What defences are available in your jurisdiction to parties accused of money laundering, terrorism financing or fraud?
All principal money laundering offences under the Proceeds of Crime Act 2002 are subject to a defence of consent, whereby a report is submitted to the authorities and either consent is actively given, or given by default where there is no refusal within an initial notice period of seven working days or after a moratorium period of a further 31 calendar days. The authorities can apply to the court to extend the moratorium period for up to six further periods of 31 calendar days, following amendments instituted by the Criminal Finances Act 2017. An overseas conduct defence applies where the predicate conduct took place in a jurisdiction where it is lawful and the maximum sentence if it took place in the United Kingdom would not exceed 12 months. The offence of acquiring or possessing criminal conduct is also subject to a defence of adequate consideration, where the property was acquired in return for something of approximately equal value (unless the person acquiring it knew or suspected that he or she was thereby assisting an offence).
The principal terrorist financing offences under the Terrorism Act 2000 are also subject to a defence of consent, or where a report is submitted to the authorities and either consent is actively given, or where there is no refusal within an initial notice period of seven working days. Under the Terrorism Act the specific offence of entering into money laundering arrangements with respect to terrorist property is subject to a defence if the person did not know and had no reasonable cause to suspect that the arrangement related to terrorist property.
Record keeping, disclosure and compliance
Record-keeping and disclosure requirements
What record-keeping and disclosure requirements apply to companies and relevant individuals under the anti-money laundering, terrorism financing and fraud legislation?
In addition to the requirements of data protection law of general application in the United Kingdom, businesses in the regulated sector (which include financial institutions, accountants and most lawyers) are subject to specific obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. These include requirements to keep records for a specified period (Regulation 40) subject to data protection safeguards (Regulation 41).
What internal compliance measures are required and/or advised for companies in relation to the anti-money laundering, terrorism financing and fraud legislation?
The obligations of the regulated sector under the regulations also include requirements to:
- conduct a risk assessment (Regulation 18);
- establish and maintain policies, controls and procedures (Regulations 19 and 20); and
- train employees (Regulation 24).
Depending on the size and nature of the business, an individual or entity in the regulated sector should also consider appointing a compliance officer, screening relevant employees and establishing an independent audit function (Regulation 21).
Increasingly, businesses both within and outside the regulated sector that have operations in the United Kingdom are advised to conduct a risk assessment and establish proportionate policies and procedures in order to manage the risks created by various legislation related to money laundering, terrorist financing and fraud, as well as related areas such as:
- bribery (noting the offence of failing to prevent bribery in Section 7 of the Bribery Act 2010);
- sanctions (noting the broadened reporting requirements in the European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017); and
- tax evasion (noting the offences of failing to prevent the facilitation of UK or foreign tax evasion in Part 3 of the Criminal Finances Act 2017).
What customer and business partner due diligence is required and/or advised for companies in relation to the anti-money laundering, terrorism financing and fraud legislation?
The regulations also require regulated sector businesses to conduct customer due diligence (CDD) in certain circumstances (under Regulations 27-32), which in some cases must be enhanced (Regulations 33-36) and in other cases may be simplified (under Regulations 37-38). For example, CDD must be enhanced where the customer is a politically exposed person, or a relative or known associate of a politically exposed person, on which the published guidance of the Financial Conduct Authority (FCA) is useful. Again, increasingly, businesses outside the regulated sector may also be advised to conduct CDD on their customers and partners in order to manage risks under the Proceeds of Crime Act and other legislation.
Can private actions be brought in your jurisdiction for damages arising from money laundering, terrorism financing or fraud? If so, who may file such actions and what filing procedures apply?
Civil actions of various kinds (eg, for breach of contract, breach of trust or fiduciary duty or the tort of deceit) may be brought against alleged fraudsters or, in some circumstances, money launderers. Individuals and companies can bring such claims (in most cases more rapidly than the authorities would launch a prosecution) by issuing a claim form against the defendant in accordance with Part 7 of the Civil Procedure Rules. A breach of criminal law or money laundering regulations may feature in the case, but is neither a precondition of a claim nor a guarantee of success. No cause of action can be founded on a breach of terrorist financing legislation.
How are damages calculated?
Damages in fraud cases are calculated on normal civil principles and in some cases exemplary damages may be awarded.
What other remedies may be awarded to successful claimants?
Depending on the circumstances, a claimant may seek restitution of appropriated monies, as well as (or instead of) compensatory damages. In the interim, he or she may seek freezing orders and injunctions to require the provision of relevant information.