HM Treasury (HMT) have published the results of their consultation on the UK’s implementation of European Union (EU) Regulations 44/2009 and 45/2009, requiring Currency Exchange Offices and Money Transmitters to have procedures in place selectively to check euro notes and coins using an approved method.

Following the consultation, the Government has decided to create a new criminal offence for failure to comply with the checking requirements of the EU regulations in relation to counterfeit euros.

You can read the full report by following the link below.

UK enforcement measures for EU Regulations 44/2009 and 45/2009 on counterfeit euros on the HMT website (Opens new window)

With the agreement of Richard Braysher of 2 High Road, Eastcote, Pinner, Middlesex, HA5 2EW, the Investigation Committee made an order that the member be severely reprimanded, fined £5,000 and pay costs of £1,280 with respect to a complaint that:

1 Between 28 September and 3 March 2010 Mr Braysher failed to comply with written assurances he had given on or about 28 September 2006 following a Quality Assurance Visit that he would:

Under the Money Laundering Regulations 2007:
a. have procedures in place to perform on-going client due diligence;
b. attend external training on the money laundering regulations and;
c. undertake a compliance review.

The Court of Appeal in London ruled on 13 October that HSBC Private Bank did not have to disclose the identity of employees who had made internal reports which had led to suspicious activity reports (“SARs”) being filed with the authorities unless there was a firm suggestion on bad faith on their part.

The judgment is the result of satellite litigation arising from the more famous 2010 case of Shah v HSBC, in which the Court of Appeal ruled that parties which had suffered loss as a result of SARs being filed were entitled to demand proof from the regulated institution responsible that the suspicion on which the SAR was founded existed.

On the particular facts of the original case, the High Court ordered HSBC to identify the employees by function, but not by name. The Shahs appealed the court’s refusal to order the disclosure of the names of the employees, and HSBC cross- appealed against the court’s finding that its obligation to make standard disclosure required their names to be revealed in the first place (with the names only being protected by PII, and not as of right).

The Judgement of the Court of Appeal
Within HSBC there were three stages of AML reporting:
1. The relationship manager with a particular client would report any AML suspicion to the compliance department;
2. The compliance department would report the matter internally to the MLRO;
3. The MLRO would then, if appropriate, file an SAR with SOCA.

HSBC had disclosed a series of memos, internal reports, and similar documents. With the exception of the MLRO, the identity of all employees concerned had been redacted; they were identified only by the department (client relationship, compliance or MLRO) that they worked for. The documents did however reveal the information based on which the MLRO formed his suspicion.

The Test for Disclosure

The court found that the redacted identities of the employees concerned was not material on which HSBC relied to prove its case. As a result, the relevant question was: is the material either material which would adversely affect HSBC’s case or material which would support the Shahs’ case?
In answering the question it was important to remember that the issue remaining in the wider case of Shah v HSBC after the previous decision of the Court of Appeal was a narrow one: did HSBC have a genuine suspicion at the time when the SARs were filed? Accordingly, the Shahs did not put forward a positive “case”; they simply sought to test the bank’s case that it did have such a suspicion. For that reason, the court ruled that the only circumstance in which the employee identities would be disclosable was if they adversely affected HSBC’s case.
The Shahs had stated that two employees of HSBC (“Ms S” and “Mr J”) might have had the motivation to make an internal AML report in bad faith. One had asked for a loan from Mr Shah and been refused; the other had received an abusive email from him after a transaction had been delayed. The Shahs submitted to the court that if any of the anonymous employees concerned in making an internal report turned out to be Ms S or Mr J, they might be able to allege bad faith.

Refusing disclosure, Lord Justice Lewison commented:
The more I listened to the explanation of why the claimants wanted the names, the more convinced I became that, to use the familiar cliché, this was a fishing expedition… [the Shahs] did not say that even if Ms S’s name was revealed as one of the sources [the Shahs] would be able to assert bad faith; merely that they might be able to do so. Even that possibility was only tentatively advanced. It is all speculation and surmise.

The court concluded that, absent a firm suggestion of bad faith by the Shahs, HSBC was entitled to withhold the identity of the staff concerned as being irrelevant to the matter under dispute. For that reason, the bank did not have to rely on the doctrine of public interest immunity.
Conclusion

This important judgment provides reassurance to employees of firms in the regulated sector of England and Wales that their identities will be protected if they make internal AML reports, unless there is a firm suggestion that in doing so they acted in bad faith. It also makes clear that there is no absolute requirement to disclose the identity of the MLRO who makes an external SAR, although as a regulated firm is now required to show that it had suspicion if its reporting is challenged, it may be that it will be necessary for the MLRO (if no one else) to come to court and explain why he made the report that he did.

Former ATT President

As a result the Treasury has announced that stocktakers who do not carry out bookkeeping or other accountancy services will be exempt from the Money Laundering Regulations (MLR) 2007 from Saturday 1 October 2011.

This means that they will no longer need to register with HMRC.

This decision also supports the Government’s policy of reducing regulatory burdens on businesses.

HMRC continue to encourage stocktakers to be diligent and report suspicious activity to the Serious Organised Crime Agency (SOCA). More information can be found at www.soca.gov.uk.

Stocktakers who offer bookkeeping or other accountancy services will stay on HMRC’s register.

From Monday 3 October 2011 HMRC will be writing to the stocktaking businesses already registered with them to give the opportunity to de-register for MLR.

If you do not receive a letter from HMRC but wish to deregister, you should write to the registration team to let them know. Your letter should include details of your registration number and the reason you wish to deregister.

The address for applications to deregister is:

MLR Registration Team
7th Floor Central
Alexander House
Southend on Sea
Essex
SS99 1AG

James Thorburn-Muirhead was sentenced on 29th June after a SOCA investigation revealed his links to a drug dealer, his involvement in the theft of clients’ monies and his failure to disclose information under the Suspicious Activity Reports regime.

SOCA’s initial interest was in Muirhead’s relationship with convicted drug trafficker Steven Smith and the suspicion that he was involved in laundering the proceeds of Smith’s criminal activity. However, the investigation soon uncovered other serious offences.

Muirhead had been operating as a sole proprietor solicitor, trading as Thorburn & Co in the affluent Oxfordshire town. Search warrants executed at his offices and home address in July 2007 resulted in the seizure of several hundred conveyancing files along with accounting records and computers. The evidence linked Muirhead with a drug trafficker, but also pointed to other criminality including the misappropriation of money from clients’ accounts.

In July 2009 Muirhead was charged with 10 counts of theft and false accounting, one count of money-laundering and one count of failing to disclose under the Proceeds of Crime Act. Following a plea bargain offered by his defence team with Muirhead pleading guilty to four counts of Theft and False Accounting and the one count of Failing to Disclose.

Muirhead’s benefit from criminal conduct was agreed at £196,198.00 and a Confiscation Order was made for the same amount, payable within 9 months. A two year default sentence will apply if he fails to meet that deadline, and he will still be liable to pay the sum. He was also ordered to pay a Compensation Order of £12,666.67 and will pay £25,000.00 towards prosecution costs.

It separates itself from the obvious areas from which FATF will review their 40 recommendations such as PEP’s and expansion of the regime. These changes will result in the 4th Directive; however with a proposed implementation date of 1 April 2012 we could be in for two sets of new regulations in a short space of time.

After going through the document there is lots of discussions. However the main ones are

• Removal of criminal sanctions
• Increase supervisor powers to mitigate the risk of the removal of the above
• Reliance to be extended to all professional bodies in Schedule 3
• De-minimus exclusion to small businesses of euro 15,000 or below annual turnover
• UK estate agents selling offshore property to be bought into the Regulations, though not letting agents
• Powers for all supervisors to impose penalties when not allowed to enter business premises
• Powers to impose penalties for unreasonable behaviour to provide information
• Supervisor powers to enforce payment of fees and powers of de-registration
• More freedom for the exchange of information for supervisors.

There are a lot of general discussions surrounding policies and procedures and general guidance coupled with the risk based approach and the various sectors. Generally it is perceived that it is not so much as “on the shelf” guidance that does any good but those that promote active participation, the ‘toolkits’, that works. In 7.11 on this subject, I think I can take some pride here, since I believe they may be talking about the one I wrote for one of the supervisors and which is possibly going to adopted by two more.

In reality the document is a reinforcement of the risk based approach, almost a plea to work in that less rigid way, the end of the tick box approach whilst working without fear of prosecution if we should not always get it right. An approach that can only be undertaken if law enforcement, our supervisors and the regulated businesses themselves work towards the same outcome together. If achieved, it should increase compliance at a reduced cost.

Firstly, the FATF 4th round of evaluation, which proposes changes to the way we approach PEP’s and beneficial owners, reinforcing the risk based approach and importantly, including tax evasion, of both direct and indirect taxation as predicate reportable offences of the money laundering regime. These changes will be formally approved at the February 2012 Plenary. It is expected the EEC will have the 4th European directive passed by the end of 2012 to reflect the changes, prompting the UK to adopt the 2013 or 2014 Money Laundering Regulations. 

Further to these changes HM Treasury will shortly issue there proposals for changes to the UK’s own regime following their ‘call for evidence’ and other reviews of the regime. These proposals will be made available for review and consultation by all interested parties and on finalisation will be included with the implementation of the 4th directive. 

The proposed changes will include amendments such as including into the regime businesses that offer high value services for cash and a tightening up of how to demonstrate compliance to a supervisor through formal policies and procedures, amongst other adjustments to the regime.

Also included will be the two proposals made by the Chancellor in his budget speech which caused a bit of a debate. Firstly, it will be the Governments intent to remove criminality from the Regulations aimed at the private sector. This approach was confirmed by the Attorney General and further expanded to aspects of PoCA, namely sections 330 to 332, for the failure to report SAR’s it would not generally be in the public’s interest to take criminal action against the private sector, but instead make a referral to the relevant supervisor for them to deal with or commence civil proceedings for the breach. S336 concerning consent, is also an area on concern which will see an overhaul making life easier for the reporter.  

Lastly, the one that got everybody excited, is there going to be an exemption to the Regime for smaller businesses? Yes, they want to propose a £15,000 annual turnover exemption from the requirements of the regulations.  This will help many in the accountancy sector who are caught by the regime, such as part time bookkeepers, semi-retired practitioners and those staff members who do a bit extra on weekends and evenings in their own name.  This will also allow new business to get started, before firstly having to the implement ML Regulations.

I would suggest that the accountancy sector more than any other would benefit from this piece of deregulation.

On 18 June 2010 the case manager wrote to Mr Honeywell asking him to provide additional information to address the outstanding issues arising from the visit. These are summarised as follows:

Details of the steps he has taken to establish the adequacy of the money laundering procedures undertaken by social services on clients that are referred to him and the basis on which he is able to rely on these procedures

Just before the hearing day, the defendant’s solicitors wrote to the tribunal putting forward various points said to be in mitigation. This included that the Practice Assurance visit had ‘passed’ the defendant’s practice in most aspects and that it was unrealistic to expect the Money Laundering Regulations to apply in relation to clients in receipt of social services funding for their care.

The tribunal did not view either of these points as mitigation. First, Chartered Accountants can be expected to comply with professional standards and partial compliance does not excuse what amounted to a wilful refusal to cooperate with the ICAEW with regard to the areas of non-compliance. In relation to the Money Laundering Regulations, whilst the defendant’s conduct did not amount to the most serious of breaches, the defendant had failed to show any willingness to engage with the ICAEW on this. Had he done so and discussed how he could carry out a modified version of identity checks and thereby compliance, the tribunal might have been more sympathetic.

It was the role of the ICAEW to maintain the standards amongst the profession of chartered accountancy. An important part of this is the Practice Assurance. An equally important part of a chartered accountant’s professional standards and indeed the protection of the public, is compliance of money laundering requirements. The defendant had fallen below the professional standards expected of chartered accountants.

The tribunal ordered that Peter Royston Honeywell FCA be severely reprimanded, pay a fine of £5,000 and costs of £2294

UK Passport

Some 10,000 passports a year are probably thrown in bins, says the UK’s Identity and Passport Service (IPS).  Launching a campaign urging people to keep passports safe, it warns the same number are lost in bars and clubs.

The IPS said it had had reports of passports being stolen at gunpoint in Brazil, lost in jail, and left in the pocket of a coat donated to a tramp.

The IPS based its findings on analysis of applications for replacement passports, which cost £77.50.

Men replace more than 162,500 lost and stolen passports a year compared with about 112,000 by women, the IPS says. Of all the lost and stolen passports in the UK, people in their 20s were responsible for 42.8% of the total – more than twice as many as the next nearest age group. 

Lost and stolen by age

• Teenagers – 6.3%
• 20s – 42.8%
• 30s – 20.8%
• 40s – 12.8%
• 50s – 10.2%
• 60s – 5.3%
• 70s – 1.6%
• 80s – 0.2%

Those in their 30s lost 20.8% followed by people in their 40s, who lost 12.8%.

IPS chief executive Sarah Rapson warned that passports were becoming increasingly attractive to criminal gangs wanting to steal identities.

She said: “It’s really important that you keep it safe both when you are at home and when you’re abroad. “Remember to put your passport away after use. Don’t leave it in a trouser or shirt pocket in the laundry pile.”

Some of the colourful reasons given for why people were parted from their passports include:

• Taxi attacked by gunman on way to airport in Brazil
• Fell out of bag while snowboarding
• Drunk boyfriend (now ex) destroyed it
• Last seen in pocket of a coat donated to tramp
• Wallet stolen at children’s party with passport inside
• Passports stored in safe in Turkish villa, thieves stole safe
• Put in bin by infant daughter; and
• Put on a fire with clothes

The service advised people to keep their passport in a place they can remember and to only carry it when absolutely necessary.

It said people should use alternatives if they needed to prove their age and should keep a note of the number to help speed up the issuing of replacements.