FSA gets tough to clean up money laundering suspicions

The Financial Services Act 2000 will herald sweeping new powers, discovers Jeremy Fleming

When the Financial Services Act 2000 comes into force next year - the exact date has not yet been set - one area that will be strongly affected is money laundering.

Currently, the British money laundering regime consists of various Acts (Drug Trafficking Act 1994, Criminal Justice Act 1988, Prevention of Terrorism Act 1989), which criminalise assistance in, and failure to report knowledge or suspicion of money laundering.

In addition, the money laundering regulations require law firms and other businesses to put systems into place to detect and prevent money laundering.

These protect individuals from 'failure to report' offences, provided that they report to an appropriate person - the money laundering reporting officer (MLRO) - within their businesses.

The MLRO then reports to the National Criminal Investigation Service (NCIS), in the event that there are suspicious transactions.

This makes the current system reliant on the level of disclosures and the efficiency of NCIS.

NCIS has regularly complained about the lack of disclosures it receives from law firms.

The FSA will issue new money laundering rules and monitor their compliance.

These will be published in the near future following a consultation period.

The FSA's financial crime liaison unit will connect more strongly with NCIS.

Businesses' - including law firms' - MLROs will be required to produce annual reports on their procedures and these will be available to NCIS.

In addition, the FSA will have investigative powers which it can use if NCIS believes that an organisation wilfully fails to report suspicious circumstances.

Currently, lawyers can only be prosecuted for failing to report drug-trafficking offences; however, plans to unify all money-laundering regulations, announced last month, means that this exposure could be widened.

Also a reasonableness test for suspicion is planned, rather than the current test of actual suspicion.Another threat to lawyers comes from the second money laundering directive currently before the European Parliament.

Reporting obligations are likely to be extended to planning or carrying out financial transactions where legal proceedings are not involved, although probably not to initial advice, as originally planned.

There is much to play for as the money laundering regime goes through the cleaners this year.