Lawyers, couriers and accountants could be jailed if they turn a blind eye to criminal activity they profit from, under Home Office plans.
It wants to see a new offence of “participation in an organised crime group” to target those with reason to suspect they are part of an illegal enterprise.
This offence is not in replacement of any money laundering offences which may not be picked up by an AML supervisory or lack of supervision. It is in fact an offence which brings the fees or charges or salary earned into play, when they are charged to or paid by an organised crime group for the service or works done.
The Proceeds of Crime Act in its predicate offences of Money Laundering already has a ‘professionals’ offence under S328, which state;
A Person Commits an office if: if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.
The predicate offences of Money Laundering including S328 are applicable to all. S328 is backed up by an objective test of negligence covering the blind eye approach but has not been tested in court. Perhaps it is this weakness of PoCA which has spurred on this new offence.
Professionals including accountants have already been jailed under S328 for aiding in the money laundering of organised crime groups. In a recent disciplinary tribunal, I was a part of on behalf on one accounting body, the case was to strike off the member upon release from jail after serving time for a conviction under S327 and S328 of the PoCA, for an organised crime group dealing in drugs. The Judge commented as part of his report that there was no evidence that the professional was involved in anything related to the drugs trade, but the laundering of the proceeds only.
When taking part in the panel for the UK Risk Assessment as part of the FATF recommendations for Government to put in place, each section, be it banker, Government department or law enforcement agency, all had their number one area of concern, for example, tobacco smuggling. However the common number two problem across all strands of law enforcement was the ‘professional enabler’, that is the lawyer, accountant or trust and company service provider who put schemes in place to enable identities of beneficial owners to be kept hidden or help move the proceeds of crime.
This new offence seems to go one step to the side of the S328 offence, rather than a replacement it is an offence on its own, getting into the ‘administration and management’ functions of the crime group, for those who actively participate in these functions, more knowingly rather than under the a suspicion that wrongdoing may be taking place within their normal practice environment. For example the actual fee charged for the services to an organised crime group will be the profiteering subject to the charge.
So you would imagine, as with a drug dealer getting charged with his main criminal offence and money laundering, usually S327, the person aiding the crime group would be charged with ‘participation in an organised crime group’ and possibly money laundering, a S327 and/or S328 offence. This would give a better chance of prosecution.
The Government seems to confirm this point, they say the new offence would also target the “Mr Bigs” in charge of criminal networks who do not always “get their hands dirty”. This seems to be another tool to help law enforcement tackle their problem of the professional enabler more quickly as well.
However will it be limited to a Mr Big or can it run deeper? When the Cyprus banks were bailed out am investigation was commissioned which discovered that over 70% of the banks customers had not passed any due diligence test and had up to 7 layers of beneficial ownership information crossing various jurisdictions designed to conceal true identities. Most of these opaque structures had been designed and setup by lawyers, accountants and company service providers, these are the very professional enablers law enforcement would like to target.
Some accountancy and trust and company service provider firms’ setup company structures involving offshore structures often with nominees in place and say to the client there you go do what you want with it, but yet charge reoccurring fees for the maintenance of the company structure. They enable the beneficial owners to do what they want, even if they are criminals and known to be involved in criminal activity or tax evasion, the agent simply states they are not breaching the Money Laundering Regulations, since they understood the purpose was for legitimate activity and they had verified the identity of the beneficial owner. Prosecution for breaches under the Money Laundering Regulations would only likely carry a civil penalty in these instances.
Under the new offence criminal sanctions may be taken instead for the fees charged. This again is hinted at in the statements of the Home Office.
‘Veneer of respectability’
“If you are helping to oil the wheels of organised crime, you will be prosecuted” stated Karen Bradley, Home Office minister
The Home Office believes too many people and corrupt professionals are helping criminal gangs by not asking questions about why their services are required, and later deny any knowledge of the criminal activity when cases reach court.
It is hoping to target people such as couriers or van hire companies who help to move counterfeit goods, or lawyers and accountants who take a “no questions asked” approach while assisting criminals with services such as writing up contracts.
Those convicted under the new offence would face up to five years in jail and could be subject to further civil measures.
Home Office minister Karen Bradley said: “Nobody is above the law. But for too long corrupt lawyers, accountants and other professionals have tried to evade justice by hiding behind a veneer of respectability.
“This new offence sends out a clear message to those individuals – if you are helping to oil the wheels of organised crime, you will be prosecuted and face being jailed.” The Home Office says it will legislate on the measures as soon as parliamentary time allows.
So what does this mean to the practitioner, the accountant or bookkeeper facing the day to day problems on the Money Laundering Regulations, where you are used unwittingly by your client or a money launderer for your good name and expertise? In reality there should be no difference, make sure your client due diligence is up to date, leaving no holes, use the tools available to you such as electronic verification when necessary. Ensure your risk assessments of the clients are done and robust enough and reviewed as circumstances dictate.
A quick note on risk, look for the country risks, does your client trade with overseas jurisdictions or have significant personal flows of money to or from another jurisdiction? Banks when looking at risk and will invariably look at the country risk first. Remember Spain and Holland have the highest concentration of organised crime groups in the world and many of the targeted criminals in Spain have now moved to South Africa.
What about those practitioners who are not so robust in their procedures, those who may turn the occasional blind eye to things for a quiet life? Remember the money launderer will present to you the persona you expect to see before you, the books, records and transactions you expect, all matching the ‘know your client’ information you have, which in many cases is just what the money launderer has told you and wants you to believe. Suspicion is quite often about what you do not see rather than what is presented to you. If you then get involved in opaque company structures, aggressive avoidance schemes or any other areas designed to provide some form of anonymity without proper care as to the true purpose and legitimacy you may well find yourself caught by this legislation.
For More Information on verifying the client or risk see our pages on Customer Verification