Proceed with caution

As the proceeds of crime act moves a step closer, Louise Delahunty warns that it will send tremors through the legal profession with its emphasis on reporting fraud

The Proceeds of Crime Act (POCA) received Royal Assent on 24 July.

It introduces the Assets Recovery Agency and provides a regime for confiscation orders and money laundering.

It aims to improve the efficiency and increase the recovery of illegally obtained assets.The money laundering provisions should be in force by the end of this year.

These provisions will have a significant effect by widening reporting obligations.

Solicitors must now consider their duties under the POCA, especially the new definition of criminal conduct and the new objective test for failure to report.

Effect of the law

Part 7 of the POCA consolidates money laundering laws and enacts various provisions that widen the obligation to report suspicious transactions.

The Act also changes the definition of criminal conduct for the predicate offence from indictable crimes and drugs offences to all crimes.

The POCA merges existing money laundering offences under the Criminal Justice Act 1988 and the Drug Trafficking Act 1994.

Sections 327-329 and 333 set out the new offences of concealing, arranging and acquisition, use and possession and tipping-off.

Laundering money which is the proceeds of terrorism is governed by the Terrorism Act 2000 and the Anti-Terrorism, Crime and Security Act 2001.

Commentators have expressed concern over the simplification of the existing substantive money laundering offences.

It has been said that the new use and possession offence means that mere possession of criminal property is sufficient to commit a money laundering offence.

This could mean that, under the legislation, a person will have to report knowledge or suspicion that another person is simply in possession of criminal property.

The predicate offence must also be treated with care.

When a solicitor is considering whether he has suspicion or knowledge of money laundering of the proceeds of crime, these are no longer the proceeds of serious or drug-related crime but all crimes, covering even minor offences.

Failure to report

Section 330 defines the failure to report offence for the regulated sector.

It creates an obligation to report a transaction to a nominated officer (a money laundering reporting officer) or to the National Criminal Intelligence Service (NCIS) where a person knows, suspects, or has reasonable grounds for knowing or suspecting that another person is engaged in money laundering.

This adds a 'negligence' or objective test for suspicion.

As with the existing failure to report offence, solicitors will be provided with a defence to this section where information is obtained in 'privileged circumstances', but this will not apply to information which is communicated or given with the intention of furthering a criminal purpose.

New provisions include a defence if the defendant does not know or suspect that another person is engaged in money laundering, and his employer has not provided him with any training.

Further, in deciding whether a person has committed an offence under this section, the court must consider whether he followed any relevant guidance issued by a supervisory authority or other appropriate body that has been approved by the Treasury.

The regulated sector will be expanded before June 2003 by the implementation of the Second EU Money Laundering Directive.

It is anticipated, subject to domestic implementing legislation, that the regulated sector will then cover most if not all solicitors, because solicitors carrying out the following activities will be subject to the directive and become part of the regulated sector.

These activities are assisting in the:

- Buying and selling of real property and business entities;

- Managing of client money, securities or other assets;

- Managing of bank, savings or securities accounts;

- Organisation of contributions necessary for the creation, operation or management of companies;

- Creation, operation or management of trusts, companies or similar structures for their clients, and;

- Acting on behalf of and for their clients in any financial or real estate transaction.

Nominated officers

Under section 331, nominated officers who obtain information through section 330 will be guilty of an offence if they do not report any knowledge or suspicion, or reasonable grounds for knowledge or suspicion, to NCIS as soon as is reasonably practicable.

This burden is not limited to nominated officers in the regulated sector.

Under section 332, nominated officers who have been appointed by firms outside the regulated sector will also be liable for failure to report to NCIS as soon as reasonably practicable actual knowledge or suspicion of money laundering.

Consent

Under the existing regime, NCIS may give permission to transact.

The new law makes more specific provision for NCIS to give consent.

Under section 335, a person will be treated as having the appropriate consent if without NCIS refusal the 'notice' period of seven days has elapsed since the report to NCIS was made.

This may still be too long for some transactions but solicitors should ask NCIS to fast-track their request for consent.

If NCIS has given notice that it refuses permission before the end of the notice period, a person will be treated as having the appropriate consent if a further 31 days have passed from the time notice of refusal was given.

If disclosure is made after the transaction, then appropriate consent will not be required.

However, in these circumstances, the disclosure defence will only apply where the person had a reasonable excuse not to report before the transaction took place.

The Law Society's money laundering and serious fraud task force has established links with NCIS to enable a better understanding of the problems which solicitors experience.

Guidance

In February 2002, Janet Paraskeva, the Society's chief executive, sent a letter and update to the Guidance on Money Laundering to every solicitors' firm in England and Wales.

The guidance suggested that firms should appoint someone now to help prepare for the changes to come.

This should be someone who has sufficient seniority and training and will make training of staff a priority.

The guidance underlines that prevention is better than cure, and vigilance before accepting all new instructions can avoid problems of suspicions arising after solicitors begin acting.

Use of the client account should be avoided except in cases where there is a genuine underlying legal transaction or some other valid reason for holding client money.

The Society will be issuing further interim guidance shortly to alert the profession to the provisions of the POCA and a revised warning card will also be issued.

The task force will be at the Society's annual conference at the Manchester International Convention Centre on 27 to 28 September to offer advice.

We would like to hear feedback of particular concerns under the old and new legislation in order to prepare constructive guidance in the future.

The future: solicitors in the dock?

There has been recent discussion in the press about solicitors, reporting to NCIS, and prosecutions.

Although this causes concern, the profession should not see itself as a scapegoat.

Awareness of the law, training and procedures should provide protection against abuse by money launderers.

Prosecuting authorities must exercise a discretion when considering instituting proceedings.

Public interest is a crucial factor.

A cavalier use of this discretion will only enhance a disinclination to report.

Proper use of this power should ensure that it is only solicitors who are knowingly and criminally active in assisting money launderers who are prosecuted.

Public money should not be spent on ensnaring those who may have failed to report because of an innocent oversight or genuine reason.

Louise Delahunty is a partner with London firm Peters & Peters, and chairwoman of the Law Society's money laundering and serious fraud task force

WHAT THEY SAID

'We want to ensure that those at the forefront of the sectors that are more vulnerable to money laundering report transactions that any reasonable person would regard as suspicious.

The idea is to make life difficult for those who choose to use the UK's financial sector for laundering the gains from their criminal activities.' Lord Rooker, House of Lords Committee, 27 May 2002.

'Where a report is sent to the National Criminal Intelligence Service (NCIS) and the matter is urgent, I am looking into establishing a follow-up hotline with NCIS to operate during daylight hours, so that the discloser is not left in the difficult position of neither being able to effect a transaction nor inform the client that a report has been made to NCIS.' Lord Falconer, House of Lords Third Reading, 11 July 2002.

If you have a query on money laundering, contact the Law Society's Professional Ethics department, tel: 0870 606 2577, between 11am and 1pm or between 2pm and 4pm, Monday to Friday