Money laundering is a type of fraud that involves multiple stages and can be associated with other forms of organised crime, such as drugs and human trafficking. In the UK, money laundering legislations are taken very seriously. To ensure your business follows the correct money laundering procedures, let’s discuss the most up-to-date money laundering regulations and the associated penalties.
What are UK Money Laundering Regulations?
The UK’s money laundering regulations were last revised on the 15th September 2020, in preparation for the transition period for Britain leaving the European Union ending on the 31st December 2020. These changes in legislation are outlined in the SI 2019/253, formally known as The Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2019.
The 2017 money laundering procedures applied only to the following financial institutions:
- Insolvency practitioners
- Tax advisors
- Legal professionals
- Service providers
- Estate agents
- High-value dealers
- Gambling providers
The 2019 money laundering regulations extended this list to also apply to:
- Tax advisors
- Letting agents
- Crypto asset exchange providers
- Participants in the art market for cash deals over the value of €10,000
- Custodian wallet providers
The changes in the 2019 money laundering procedures require businesses to become more risk-aware regarding due diligence with ‘high-risk third countries.’ If businesses fail to comply with these changes, they risk being subject to money laundering penalties. Let’s break down these regulations further.
Money Laundering Regulations Explained
- Risk Assessments
As part of money laundering regulations, written risk assessments must be made available to the designated supervisor. These assessments must identify the risks posed to their business by money laundering and the risk factors. For example, areas of operation, customer-base, services or products, and handling of transactions need to be included to help make risks of money laundering clear and avoidable.
Once a risk assessment is finalised, policies, controls and practical procedures need to be approved by senior management. These procedures must be implemented within the business to mitigate and manage the risks identified in the assessment. Both the risk assessment and policies must also be communicated to relevant branches and subsidiaries, regardless of whether they are inside or outside the UK.
- Due Diligence
Customer Due Diligence (CDD) must be applied in certain circumstances for new and existing customers, as outlined in the 2019 money laundering legislation. Businesses must decide on the level of CDD they feel is appropriate to employ, using the risk assessment.
While ‘simplified CDD’ is no longer deemed automatically sufficient at any time, ‘enhanced CDD’ is compulsory in certain high-risk situations, as is enhanced ongoing monitoring.
According to the money laundering regulations, high-risk situations may include business relationships or transactions with a politically exposed person or a ‘high-risk third country’. A comprehensive list of the countries HM Treasury considers high risk under the money laundering regulation 33a can be viewed here.
To identify whether customers are politically exposed, businesses must have the correct systems in place, such as applying compulsory ‘enhanced CDD’ measures to individuals for at least 12 months after they cease to be a politically exposed person.
The 2019 money laundering legislation requires that relevant employees of a business are screened. The screening includes assessing the skills, knowledge, expertise, conduct and integrity of the employee. Employees who require screening include individuals who work for the firm and:
- have any part in the business’s compliance of money laundering regulations;
- identify or mitigate the risks of money laundering;
- prevent or detect money laundering connected to the business.
Relevant employees must also be trained in accordance with the 2019 regulations. This includes:
- making them aware of money laundering legislation;
- training them in how to spot the signs of money laundering or other terrorist financings in transactions; and
- how to deal with it.
Why are there Money Laundering Legislations?
As the UK is a global financial centre, it is viewed as an alluring location for launderers to invest the proceeds of their crimes. Fortunately, the UK and governments worldwide have increased their efforts in the battle against money laundering by putting in place systems that will report suspicious activity.
The money laundering procedures force businesses to put in place policies to prevent potential money laundering fraud or other associated organised crimes. These regulations mean firms have to:
- Obtain records of all relevant customer interactions.
- Provide training to all employees so that they are able to understand and recognise money laundering activity.
- Complete identity checks on all potential customers.
- Put in place company procedures so that employees are able to report activity if they witness anything suspicious.
Money Laundering Penalties
Anti-money laundering breaches are treated with increasing severity as per the 2019 regulations. In fact, it is now a criminal offence to recklessly make a false or misleading legal statement in a money laundering investigation, and you can be subject to a money laundering sentence. The money laundering penalties for this type of offence can be a fine or up to two years in prison.
The Financial Conduct Authority (FCA) will prosecute businesses whose anti-money laundering controls aren’t watertight. This is why we recommend businesses consult an experienced money laundering barrister to advise and, if necessary, represent them.
Money Laundering Sentences
Money laundering sentences are decided by either the Crown or Magistrates Court. Typically, higher value money laundering cases are sentenced at the Crown Court with a jury.
Depending on the level of culpability found, the maximum money laundering sentence the crown court can issue in the UK is 14 years imprisonment. On top of this sentence will be a fine.
The money laundering legislation for the Magistrates Court is that they can sentence you up to a years imprisonment, alongside an unlimited fine. These fines are usually decided by which band the defendant is found guilty of. For example, the fine under Band F could be up to 700% of the guilty party’s weekly income.
However, each money laundering case is individual. Therefore, the judge will look at the defendant’s intentions in the money laundering scam and if they have genuine remorse for their actions. For instance, in some circumstances, the accused may be a vulnerable individual who was coerced into their actions and didn’t understand the repercussions and harm caused.
Can You Reduce a Money Laundering Sentence?
In the UK, money laundering regulations state you may be able to reduce the money laundering penalty if you enter a guilty plea. Nevertheless, a reduction is not guaranteed and has conditions, for example the defendant must be over 18 years old. It also depends on when the guilty plea was made for the judge to consider a reduced sentence.
- If a guilty plea is made before the first stage of proceedings, it’s possible to get up to a third of the sentence reduced.
- If a guilty plea is made up to two weeks following the first proceedings, you may be able to get a fifth off the sentence.
High Profile Money Laundering Cases
In the case of Operation Vista, R v. Mohammed Aslam and Others, St Pauls Chambers barristers, Cameron Brown QC and Hal Watson both acted as junior Prosecution Counsel in a multi-million money laundering case. This case involved VAT fraud, whereby the £40million of laundered money was ‘cleaned’ through the business Omnis FX Capital. In this case, the money laundering sentence was over 20 years for the six defendants.
In December 2020, the money laundering sentence for Thomas Maher was the maximum sentence of 14 years and 8 months following an investigation by the National Crime Agency (NCA). Maher, a Warrington based haulage firm owner and member of an organised crime gang, smuggled laundered money and drugs across Europe. There were signs that suggested money laundering was taking place. For example, Maher was living a lavish lifestyle with expensive cars, jewellery, watches and holidays, yet paid himself below the minimum wage to avoid paying the correct amount of tax He did this for over 20 years.
One of the most high-profile UK money laundering cases was that of ‘Mr Big’, Martin Evans. Evans, from Swansea, was part of a multi-million money laundering, fraud and drug operation to become the ‘Mr Big’ of Wales. The money laundering penalty, in this case, was a 24-year prison sentence in 2006, which was later reduced to 21 years. Evans conjured up an investment fraud scheme to attract investors for his ostrich farm business. It is estimated that, from this scheme, Evans laundered £37 million across Europe and the UK. However, after the opportunity to visit family after six years in prison, Evans went on the run for over three years before finally being reprimanded from a South African housing complex.
Seek Money Laundering Legal Advice
As you can see, money laundering legislation and regulations are exceptionally complex. If you are have been accused of money laundering, or are representing a client facing a money laundering sentence, please don’t hesitate to get in contact with one of our fraud barristers.