money laundering and the united kingdom: a haven for dirty money and an endless cycle? a critical...

Money laundering and the United Kingdom: a haven for dirty money and an endless cycle? A critical reflection on the United Kingdom’s anti-money

laundering policies’

Dr. Nicholas RyderProfessor in Financial Crime

Department of Law

Introduction

• What is money laundering?• The global scale of money laundering• How is money laundered?• Where does money laundering occur?• United Kingdom money laundering policy

Introduction

• UK Legislative Approach• Proceeds of Crime Act 2002• Terrorism Act 2000• The Money Laundering Regulations 2007• The Financial Conduct Authority• The National Crime Agency• Recent Developments• The Financial Crisis and Financial Crime

What is money laundering?– Processing of criminal

proceeds to disguise their origin

– Concealing – Disguising– Converting– Transferring or removing– Facilitates the

acquisition

– Retention– Use or control– Acquisition– Use– Possession

• Above relate to proceeds of criminal activity

The Scale of Money Laundering

• International Monetary Fund:– Between 2 and 5 % of Global GDP

• United Nations:– 3.6% of global GDP, with 2.7% (or USD 1.6

trillion) being laundered (2009). • Financial Action Task Force:– Between $590bn and $1.5tn per year

The Scale of Money Laundering

• The calculation of its extent is hampered • There is no visible data on the amount of money

laundered. • This has been referred to as the:– shadow economy, – or a nation’s unrecorded economic activity.

• Estimated this amounts to 19% of UK GDP (Yeandle et al, 2005)

The Scale of Money Laundering

• United Kingdom:–£10bn via the regulated sector (HMT, 2007),–£25bn to £57bn (FSA, 2011),–£48bn (Transparency International, 2011),–£57bn (Financial Action Task Force 2013) and–£100bn (The Independent, September 2015,

citing Transparency International).

How is money laundered?

• Three stages:

– Placement

– Layering

– Integration

How is money laundered?• Financial institutions,• Lawyers,• Accountants• Virtual currencies,• Cash intensive

businesses (bureau de change),

• Smurfing,• Casino’s,• Shell corporations,

• Property transactions,• Stocks, shares and

other investments,• Case intensive

businesses,• Mobile devices,• Cash couriers or money

mules,• Currency smuggling,• Gambling machines and • many more.

Key Players

International Institutions

• United Nations,• European Union,• Financial Action Task

Force, • international

industry best practices.

Domestic Institutions

• Financial Conduct Authority,

• National Crime Agency,

• Home Office,• Solicitors Regulation

Authority.

The United Kingdom – A Policy Overview

• Implementation of international AML legislative measures

• Recognition of international best practices

• A risk based policy• Competent authorities• Criminalisation

• Mutual legal assistance• Preventative measures• Confiscation of the

proceeds of crime (Ryder, 2013)

The UK Legislative Approach

• The current system of money laundering legislation is contained within:– Financial Services and Markets Act 2000 (as amended)

– Terrorism Act 2000

– Part 7 of the Proceeds of Crime Act 2002

– The Money Laundering Regulations 2007

Proceeds of Crime Act 2002

• Three main offences– Concealing the proceeds of criminal conduct

(s.327)– Assisting another to retain the benefits of criminal

conduct (s.328)– Acquisition, use and possession of the proceeds of

crime (s.329)

Terrorism Act 2000

• Creates several offences of terrorist financing:– Fund raising (s.15),– Use and possession (s.16),– Funding arrangements (s.17),– Insurance against payments made in response to

terrorist demands (s.17A), – Money laundering (s.18),– Failure to disclose: regulated sector (s.21A) and– Tipping off: regulated sector (s.21D).

The Money Laundering Regulations 2007

Scope of the Regulations• credit institutions, • financial institutions, • auditors, • insolvency practitioners,

external accountants, • tax advisers, • independent legal

professionals,

Scope of the Regulations• trust or company service

providers, • estate agents, • high value dealers and• casinos

The Money Laundering Regulations 2007

• Regulation 7:– requires them to apply customer due diligence

measures where they suspect the transaction concerns money laundering or terrorist financing

– This means that the firm is required to authenticate the identity of the customer and monitor their business relationships

The Money Laundering Regulations 2007

• If a firm suspects that it is being used for the purposes of money laundering, it is required to notify its Money Laundering Reporting Officer (MLRO)

• Complete a suspicious activity report (SAR) and file it with NCA, who determines if further action is to be taken

The Money Laundering Regulations 2007

• How do you define suspicion?– R v Da Silva [2006] EWCA Cro,. 1654.– K v National Westminster Bank, HMRC, SOCA

[2006] EWCA Civ 1039.– Shah v HSBC Private Bank (UK) Ltd. [2010] EWCA

Civ 31; [2010] Lloyd’s Rep F.C. 276 (CA (Civ Div).

The Money Laundering Regulations 2007

• Defensive Reporting?– In 2008, SOCA reported that it had received

210,524 SARs; – which increased to 240,582 in 2010, – 247,601 in 2011, – 278,665 in 2012, – 316,527 in 2013 and – 354,186 in 2014.

The Money Laundering Regulations 2007

• Compliance costs:– KPMG estimated that annual the costs are

£90m (2003), – £250m each year to comply with the AML

regulations (Z/Yen, 2005),– Alexander claims that the annual costs of the

AML to banks in the UK are £650m per year (2007),

– Currently exceed £1bn per (Harvey, 2004),

Financial Conduct Authority

• All FSMA-authorised firms (except of mortgage brokers, general insurers and general insurance brokers) are also subject to FCA AML rules and guidance– SYSC 3.2.6 A.R. – SYSC 3.2.6 JG for insurers and

managing agents)– and SYSC 6.3 (for other firms).

Financial Conduct Authority

• The regulated sector must have systems and controls which:– carry out regular assessments of the adequacy of

AML systems so as to protect themselves from being used to further financial crime;

– allocate of a director or senior manager with overall responsibility for establishing and maintaining an AML system; and,

– the appointment of a Money Laundering Reporting Officer (MLRO).

Financial Conduct Authority

• Regulated firms are required to:– “establish, implement and maintain adequate

policies and procedures sufficient to ensure compliance of the firm including its managers, employees and appointed representatives , with its obligations under the regulatory system and for countering the risk that the firm might be used to further financial crime” (SYSC, FCA Handbook)

Financial Conduct Authority

• The FCA is “the competent authority for supervising compliance … with the Money Laundering Regulations”

• It has adopted a policy referred to as credible deterrence:– Issuing private warnings, public statements of

misconduct, unlimited financial penalties and a prohibition order.

Financial Conduct Authority

• deliver a message that breaches of law and/or regulation will result in offenders suffering ‘meaningful consequences’,

• levied large fines and bans, on firms and relevant approved individuals who breached its rules,

• FCA has imposed a record number of financial penalties since 2007.

Financial Conduct Authority

• Money Laundering Reporting Officers fined:–Michael Wheelhouse:• £17,500 (FSA, 2009)

– Sudipto Chattopadhyay• £14,000 (FSA, 2010)

– Syed Itrat Hussainn

• £17,500 (FSA, 2012)

Financial Conduct Authority

• Firms fined:–Coutts & Company (£8.75m, 2012),– EFG Private Bank (£4.2m. 2013),–Guaranty First Bank (UK) Ltd (£525,000,

2013) and – Standard Bank Plc (£7.6m, 2014).

• These fines are imposed irrespective is there is any evidence of money laundering.

Financial Conduct Authority

• The FCA is able to prosecute money laundering offences under Part 7 of the Proceeds of Crime Act 2002:– R v Rollins [2010] UKSC 39;

National Crime Agency

• The NCA was launched following the enactment of the Crime and Courts Act 2013.

• In relation to money laundering the NCA will have the functions conferred by the Proceeds of Crime Act 2002, which includes:– the role as FIU and – the management of the confiscation of the

proceeds of crime.

Recent Developments

• From Russia with Cash!• Property boom and money laundering• One of the most popular ways to launder money

(NCIS, 2003 and Unger 2011)• Tough stance on money laundering (David

Cameron, 2015, Singapore)• Similarities with infamous ‘Day of Reckoning’

speech (2009), ‘We take White Collar Crime seriously (2011, 2012 and 2015)

Recent Developments

• Fourth Money Laundering Directive– Comes into effect 2017– Continues a risk based approach– Enhances compliance measures– Revises importance definitions– Extends the scope of the Directive– Includes tax crimes– Increases sanctioning powers

Recent Developments

• Two jailed in £5m money laundering case (September 2015)

• Woman ordered to pay back £256,000 after money laundering conviction (September 2015)

• Drug gang members jailed for money laundering (September 2015)

• Brother in law of corrupt former Nigerian governor jailed for money laundering (September 2015)

• Law Society (September 2015)

The Financial Crisis and Financial Crime

• Increasing amount of evidence linking financial crime to the financial crisis

• Increased enforcement by FCA and SFO

• See R v Hayes (2015)• Increasing levels of

compliance

• Increased use of financial penalties

• Impact of deferred prosecution agreements by the Crime and Courts Act 2013

• Bribery Act 2010 to be watered down?