Professional Scheme
Relevant to Paper 2.2(ENG) and (GLO)

This article is to remind candidates sitting the English or Global variants of Paper 2.2, Corporate and Business Law that money laundering is now included in the syllabus.

This important topic has already been addressed in a substantial article by the examiner for Paper 3.1 Kim Smith in the February 2005 issue of student accountant. That article emphasised the requirement for professional accountants to understand the implications of, and the controls exercised under, the legislation relating to money laundering. However, the concerns raised by such legislation impact on all professionals involved in financial transactions, and that includes lawyers as well as accountants. It will therefore come as no surprise to find that the legal profession, represented by the Law Society, has been just as active in ensuring that its members comply with money laundering rules as the accountancy bodies (Law Society information on money laundering is available at www.lawsociety.org.uk/home.law).

This article focuses more closely on the detail of the legal provision under the Proceeds of Crime Act 2002. It is, however, necessary to begin with a brief introduction to the topic. Money laundering is the process by which the proceeds of crime, either money or other property, are converted into assets, which appear to have a legitimate rather than an illegal origin. The aim of the process is to disguise the source of the property in order to allow the holder to enjoy it free from suspicion as to its source. The process usually comprises three distinct phases:

• placement - the initial disposal of the proceeds of criminal activity into an apparently legitimate business activity or property
• layering - the transfer of money from business to business, or place to place, in order to conceal its initial source
• integration - the culmination of the previous procedures through which the money takes on the appearance of coming from a legitimate source.

Money laundering was first made a criminal offence in the United Kingdom under the Drug Trafficking Offences Act 1986, and is now regulated by the Proceeds of Crime Act 2002 together with the anti-terrorist legislation - the Terrorism Act 2000, and the Anti-terrorism, Crime and Security Act 2001.

The Proceeds of Crime Act 2002 seeks to control money laundering by creating three categories of criminal offence in relation to the activity: laundering, failure to report, and tipping off.

Laundering
The first category of principal money laundering offences relates to laundering the proceeds of crime, or assisting in that process. These offences are set out in Sections 327-329.

Under Section 327, it is an offence to conceal, disguise, convert, transfer, or remove criminal property from England, Wales, Scotland or Northern Ireland. Concealing or disguising criminal property is widely defined to include concealing or disguising its nature, source, location, disposition, movement or ownership, or any rights connected with it. 'Criminal property' is defined in Section 340(3) as property which the alleged offender knows (or suspects) constitutes or represents benefit from any criminal conduct. Criminal conduct, in turn, is defined in Section 340(2) as conduct that:

• constitutes an offence in any part of the United Kingdom
• would constitute an offence in any part of the United Kingdom if it occurred there.

These offences are punishable on conviction by a maximum of 14-years' imprisonment and/or a fine. The section contains defences against committing the offence. For example, the offence is not committed if:

• an authorised disclosure is made under Section 338 as soon as possible after the transaction has taken place
• the disclosure is made before the act has taken place and the discloser has obtained the appropriate consent
• there was a reasonable excuse for not making such a disclosure.

The Section 327 offence would be committed where a person concealed, disguised, converted, transferred or removed criminal property from the United Kingdom. However, it is not uncommon for the police or other enforcement authorities to take possession of criminal property in the course of their official duties, and to convert or transfer it (for example, into an interest bearing account), pending further investigation. Therefore subsection (2)(c) gives them the necessary exemption from the offence. The maximum penalty for the Section 337 offence, and for the other two principal money laundering offences at Sections 328 and 329, is 14-years' imprisonment, as set out at Section 334.

Failure to report
The second category of offence relates to failing to report knowledge or suspicion of money laundering, and is set out in Sections 330-332 of the Proceeds of Crime Act.

Under Section 330 it is an offence for a person who knows or suspects that another person is engaged in money laundering not to report the fact to the appropriate authority. However, the offence only relates to individuals, such as accountants who are acting in the course of business in the regulated sector. What constitutes the regulated sector is set out in Part 1 of Schedule 9 of the Act.

Any individual who is covered by the section is required to make disclosure to a nominated money laundering reporting officer within their organisation, or directly to the National Criminal Intelligence Service (NCIS). This latter organisation is the UK's Financial Intelligence Unit with responsibility for collecting and disseminating information relating to money laundering and related activities within the UK. These alternative reporting procedures allow those in the regulated sector either to disclose information directly to the NCIS, as might be appropriate for a sole practitioner, or to disclose the information to the nominated officer within a larger business. The nominated money laundering reporting officer within the organisation acts as a filter, and subsequently passes on required information to the NCIS. Visit www.ncis.co.uk for information on the structure and role of the NCIS.

Section 332 states that a nominated officer who receives either a disclosure in relation to one of the principal money laundering offences, or a voluntary disclosure, which causes him to know or suspect that money laundering is taking place, will have committed an offence if that information is not disclosed and reported to the NCIS as soon as practicable after the information is received. The offences set out in Sections 330-332 are punishable on conviction by a maximum of five-years' imprisonment and/or a fine.

Tipping off
The third category of offence relates to 'tipping off' and is contained in Section 333. Specifically, Section 333 outlines how it is an offence to make a disclosure likely to prejudice a money laundering investigation already being undertaken, or which may be undertaken by law enforcement authorities. It therefore covers the situation where an accountant informs a client that a report has been submitted to the NCIS. This offence is subject to the general defence that the individual concerned did not know or suspect that the disclosure would prejudice an investigation into a money laundering activity. This particular offence is punishable on conviction by a maximum of five-years' imprisonment and/or a fine.

David Kelly is examiner for Paper 2.2