By Anita Rice


The government's draft money laundering regulations are so vague it could be unlawful to prosecute lawyers who may unwittingly fail to comply with them, a leading human rights QC has claimed.



The draft Money Laundering Regulations 2007 seek to implement the third EU money laundering directive by December this year. Trusts, including collective investments such as pensions, will be subject to enhanced money laundering regulation.



The rules expand customer due diligence requirements so practitioners must identify the correct beneficial owners of trusts or risk committing a criminal offence.



Solicitors who breach the regulations - a criminal offence under the UK's draft regulations, although criminal sanctions are not required by the EU directive - may face a maximum sentence of two years' imprisonment and/or a fine.



However, the draft regulations have been condemned for using so vague a definition of beneficial owner - a legal concept uniquely created by English common law - that even lawyers may not know if they are contravening the law.



Rabinder Singh QC and Alex Bailin of Matrix Chambers, in an opinion commissioned by the Law Society, found: 'The definition of "beneficial owner"... is so inadequate as to create real uncertainty in the ambit of the associated criminal offences.



'Lawyers, even those experienced in the relevant field, could not advise with confidence when the onerous anti-money laundering obligations will apply in a variety of commonplace situations.'



They also said the criminal offences did not meet community law, common law and European Convention on Human Rights requirements 'of legal certainty and, accordingly, would be open to challenge'.



The Treasury has so far declined to alter the definition, which has been taken directly from the directive, and expects 'supervisors or industry' to provide guidance on measures practitioners should take to comply with the new regulations.



But Mr Singh and Mr Bailin wrote: 'Such guidance would be taking the place of legislation and would accordingly be constitutionally prohibited. Our view would be unaltered even if, for example, the guidance were drafted by the Law Society and approved by HM Treasury.'



In a letter to Treasury minister Ed Balls, Law Society President Fiona Woolf said failure to redraft the regulations would 'leave a wholly unacceptable risk to be borne by our members, which will have a negative impact on UK plc and fail to achieve the government's anti-money laundering objectives'.



In a submission to the Treasury's consultation, which closed on 2 April, the Society of Trust and Estate Practitioners expressed similar concern that the definition of beneficial owner could cause practitioners to commit offences inadvertently.