UK: Update on the Proceeds of Crime Act 2002

The money laundering sections of the Proceeds of Crime Act are expected to come into force in January. The new Act is to be welcomed since it should assist the police in successfully prosecuting those who are deliberately assisting in the laundering process as the reporting threshold will be lower under the new Act. One of the main changes in the Act is that it effectively introduces a whistleblowing obligation to the regulated sector. The Act, however, affects both the regulated and unregulated sector.

• Under the previous regime, some steps had to be taken to launder the criminal property before a money laundering offence could be committed. The new Act introduces a possession offence so that the initial crime gives rise to a money laundering offence before any steps are taken to launder.

• The Act introduces new offences applying only to the Money Laundering Reporting Officer (MLRO). In the past, the MLRO was encouraged to exercise his or her discretion in determining whether an internal report should be passed on to the National Criminal Intelligence Service (NCIS). If they did not, it was unlikely they would be guilty of an offence. Whilst under the new regime MLROs are still to be encouraged to exercise their discretion, this will be more difficult given the new offence which is directed principally at MLROs. In future MLROs may be well advised to pass on all internal disclosures.

• The new money laundering offences will apply to the proceeds of any criminal conduct, not just "serious" crime. There is no lower threshhold.

• The Act extends the offence of failing to report suspicions of drug trafficking and terrorism to any crime. This offence is only committed where information comes to a person in "the course of a business in the regulated sector". It will therefore not apply to those parts of a firm’s business which are not in the "regulated sector".

• For those in the "regulated sector", the Act introduces an objective test with regard to reporting suspicions of money laundering for all crimes. Therefore the new reporting offence will be committed by those in the regulated sector who fail to make a report either to a constable or a nominated officer, i.e. the MLRO, if they have "reasonable grounds for knowing or suspecting that another person is engaged in money laundering" having been told of another’s suspicions, even if they do not share them. The principal defence is to show that the individual has complied with relevant regulatory guidance, for example, the Joint Money Laundering Steering Group Guidance Notes.

• The new reporting offence for those in the regulated sector combined with the changes to the possession offence effectively mean that a whistleblowing obligation is introduced for all crimes where some proprietary benefit is derived, for example, art or money.

The Act introduces a defence of inadequate training for employees. This, coupled with the changes to the reporting regime discussed above, means that those in the regulated sector will need to train staff to report where they have reasonable grounds for knowing or suspecting that a person (be they a client, customer or third party) is engaged in money laundering. Institutions will need to review their internal procedures, revise them and train staff accordingly.

The requirement to make reports where there are reasonable grounds to suspect an offence has been committed leads to an interesting question. Should MLROs review their old files of internal reports where no report was made to NCIS? Those reports may contain information which leads a person to conclude they have reasonable grounds to suspect an offence has been committed. Where the client relationship is continuing the previous reports may contain information which is relevant to subsequent transactions. Consideration therefore needs to be given about what review, if any, should be conducted of those reports.

© Herbert Smith 2003

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