Exam, questions and answers Financial Crime Written Assessment PDF

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Financial Crime WA K3 Question 3 Explain how the primary and secondary money laundering offences in the United Kingdom respond to money laundering, and critically assess whether any further reform of the law is needed to improve those offences. The United Kingdom has one of the strictest laws on Money Laundering, and has been subject to notable recent developments such as the adoption of the new Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Money laundering offences can be found in Part 7 of the Proceeds of Crime Act 2002. There are three principal offences of money laundering, and they are categorised as follows; the primary offence strikes at the very heart of money laundering, secondary money laundering offences seek to regulate behaviour in such a way as to prevent potential money laundering, and tipping-off is also an offence. There are two main statutes that aim to regulate this sector – The Proceeds of Crime Act 2002 and the Money Laundering Regulations. We will be looking into each offence in detail, and analysing whether this area is in need of reform. Primary money laundering offences are those that define the very activity itself. Under section 327, PoCA 2002, they technically form five offences – offence to conceal, disguise, convert, transfer or remove criminal property from the UK. This includes concealing/disguising the nature, source, location, movement, ownership or disposal of the property. In section 340(3), PoCA, we can find that criminal property is defined as property that constitutes a person’s benefit from criminal conduct, and the alleged offender knows or suspects that it constitutes or represents such a benefit. Within this first offence, it’s important to know that within the aspect of concealment, the act need not be active, but can also be passive – which would include things such as not revealing or engaging in an investigation. The duty falls onto the prosecution to prove whether the defendant knows or suspects that this property derives from criminal conduct. Money laundering offences are subject to the defence of consent, granted by the National Crime Agency, and authorised disclosure, found in section 338 PoCA. Appropriate consent from the NCA will give the banks something to rely on in the event that it transpires that the funds are illegal. For authorised disclosure, which is a very limited defence subject to extensive inspection, there must be proof that there was intention to make such disclosure but had reasonable excuse for not doing so, or the overseas conduct is legal. They may also claim that they were small-value transactions by deposit-taking bodies. With each of these defences we must note that over the years, banks and other regulated bodies have taken reasonable steps in preventing the potential offences, and have been encouraged in their system to note suspicious patterns in transactions and movements. This will help prevent large scale money laundering activities, such as ‘smurfing’, which requires a high number of individuals to take part in the activity. Section 328 PoCA concerns entering into or becoming concerned in an arrangement knowing or suspecting it to facilitate the control of criminal property on behalf of another person.

Secondary money laundering offences are also known as disclosure, or more accurately, non-disclosure offences. Disclosure is at the heart of the suspicion-based system. The UK doesn’t have a limitation period in regards to money laundering offences. These offences will primarily apply to the regulated sector – banks which are at the front of the fight against financial crime, and other white-collar sectors. The United Kingdom has a notably strict regime in the regulated sector – however, the enforcement of such laws is often regulated and supervised by other national, regional and/or local organisations. Namely the National Crime Agency (NCA) and the creation of new body, the National Economic Crime Centre. Under the Proceeds of Crime Act 2002, these authorities have widespread powers which include, among others, the restraint of assets that derive from criminal conduct, and freezing & recovery of assets that are gained from unlawful conduct. Under section 330 PoCA, an offence is committed if four conditions are met; this would include the relevant business knowing or suspecting that another is engaged in money laundering, and having reasonable grounds for suspecting this behaviour. If he can identify the person known or suspected to be engaged in money laundering or his whereabouts, and doesn’t make the required disclosure as soon as practicable after information was discovered. When assessing this offence, the Mens rea may be formed objectively or subjectively, and because of the difficulty of proof with knowledge or suspicion, it’s likely the objective test will be favoured. Under section 330, money laundering which the defendant knew or suspected also includes any s327-329 offence of attempts to commit. As to the discussion of reform, the Law Commission has published a report examining the Suspicious Activity Report (SAR) regime, for notifying suspected money laundering to the NCA. This report included 19 recommendations for reform. Statutory guidance on the test of suspicion is one of them. R v Da Silva 2006 ‘test’ defined ‘suspicion’ as a possibility more than fanciful. The term isn’t defined in the statute and the Law Commission found that almost 15% of the SARs reviewed didn’t meet the low threshold for suspicion under the aforementioned test. Many were also struggling to apply the test – the recommendation is that the PoCA is to be amended as to issuing guidance on the meaning of suspicion. Another proposition made by the Law Commission incites the importance for collaboration between all regulated organisations and law enforcement agencies, and recommends a standard form for SARs, section 339 PoCA. This is to not only benefit the existing SAR regime, but also for organisations outside the regulated sector. There have also been recommendations to provided further guidance on the ‘reasonable excuse’, when failing for provide disclosure. This was left to interpretation – and based on facts and evidence – however they believe that a stricter approach may reduce the number of inconsequential SARs that are submitted. The most noteworthy recommendation is that of ring-fencing the proceeds of crime. This is a recommendation to amend to create an exemption, allowing property to be ring-fenced by credit and financial institutions. This would not only aid in the previously mentioned reform to lower the number of SARs submitted by banks, but would also prevent banks from

worrying about committing a substantive money laundering offence. Banks often freeze entire bank accounts awaiting the consent to operate the account. This can have economic consequences not only for business, but also individuals. This exemption would allow banks to give access to the account’s legitimate funds, while the suspected illegitimate funds are investigated.

As I aforesaid, money laundering in the United Kingdom is a highly developed part of the law, which has been under scrutiny with the purpose of ensuring all aspects are clear, and leaves very little room for vague interpretation. The recommendations made to reform this area of law seek to bring clarity and guidance to successfully eliminate illicit use of the financial system.

Question 4 Critically evaluate the Bribery Act 2010 and consider how deferred prosecution agreements have aided in the enforcement of the Act. “We will sell to no man… either justice or right”. This quote from the Magna Carta highlights that justice can’t be bought, nor can rights or privileges, the idea is that you must earn it. At common law bribery is defined as ‘The receiving or offering of any undue reward by or to any person whatsoever in a public office in order to influence his behaviour in office and incline him to act contrary to the known rules of honesty and integrity.’. The Bribery Act 2010 abolished the common law offences of 19th and 20th century Acts, and the idea was to rationalise the law, make it clearer and more straightforward, and facilitate it’s use. Having only been reformed recently, it represents the most radical revision to anti-corruption law in the UK. However, this doesn’t exempt it from insufficient certainty regarding interpretations. Bribery is more widespread form of corruption, and holds back economic development. It doesn’t have to necessarily have to involve actual monies, but can also be in the form of gifts, or performance of favours. The reform served as a demonstration of the UK’s desire to fight bribery and corruption. The previous bribery acts had been described as ‘inconsistent, anachronistic and inadequate’, conclusions found in the Nolan Report 1995. The scandal which prompted this reform, and proved the UK’s inadequacy in this sector was BAE Systems Plc. A whistle-blower who disclosed the $120 million bribery fund triggered a Serious Fraud Offence (SFO) investigation. This investigation was however terminated claiming the UK’s national security was under threat. This was subject to fierce international criticism and prompted the government to ensure effective legislation was applied. The Bribery Act 2010 created four offences – bribing a person (s.1), being bribed (s.2), bribing foreign public official (s.6), and failure by a commercial organisation or partnership to prevent bribery (s.7). Section 1 offence prohibits a person from offering, promising or giving a financial or other advantage, for their own gain. Section 2 prohibits a person from requesting, agreeing to receive, or accepting a financial or other ‘bribe’. Section 6 prohibits a person from offering, promising, or giving any financial or other advantage to a foreign public official. It is important to note that within these sections, definitions for terms such as ‘public international organisations’ s.6(6), and ‘improper performance’ ss.3,4 and 5, have been provided. Over the years, and considering the most recent reform of this act, it has been crucial to provide as much precision in the terms, as to avoid misinterpretation. Section 7 of the UKBA 2010 have proved to be the most problematic. It is a strict liability offence for commercial organisations. The offence means that a company unaware of the occurrence of bribery, will still be held liable for it, even in cases where a third-party committed the crime. This will enforce companies to take the necessary precautions surrounding this issue. Where the commercial organisations can put in place procedures designed to prevent bribery, they will have less risk of committing an offence. It is important to note that part of SFO’s strategy to fight bribery is to push companies to self-report suspected bribery acts – this was initially accompanied with the incentive that there would a reduction in fines or confiscation, however the SFO stated that there was no guarantee a

criminal prosecution wouldn’t follow. It’s easy to see why this provision has been subject to disapproval, as the risk-factor for companies or organisations is high and doesn’t provide much protection to those who were unaware. The defence of ‘adequate procedures’ has not been given a specific definition. This is one of the areas of the UKBA, that many wish to clarify. Only one company has been able to provide some sense to this term. Skansen Interiors Limited chose to fight a prosecution, rather than opt for a DPA. This case gave us guidance on the defence of adequate procedures. Ironically, it was found by the jury that the company did not have adequate procedures in place, therefore, it can be used to determine what should not be considered to be adequate, but still hasn’t given a thorough explanation as to what would be enough to constitute adequate parameters. Another provision that has garnered a significant amount of criticism, is that of corporate hospitality. It has been said that this can’t be reasonably enforced, as ‘lavish’ hospitality could be viewed as an aid in establishing cordial relations – no necessarily bribery. There is still some ambiguity regarding certain terms used within the provision, though a great number of them have been defined within the Act in a bid to facilitate understanding and application. Offenders of acts 1,2 and 6 can face up to ten years imprisonment and/or an unlimited fine, and section 7 offenders will face an unlimited fine. Upon the new reform, it seems that cases have been approached in a much stricter manner, meaning that often custodial sentence appears inevitable. Deferred Prosecution Agreement (DPA) aims to give prosecutors and the courts an alternative to civil recovery orders and no criminal action. It’s an agreement between the prosecutor and the company involved, if the company complies with strict conditions, the prosecution may be suspended. They are available to companies, partnerships or unincorporated associations - not individuals - under section 45 and Schedule 17 of the Crime and Courts Act 2013. This will aid in a number of ways. DPA’s must be approved by the court before they can be entered into. In order to apply for one, you must show evidence that (a) demonstrate cooperation with the SFO that goes beyond expectations; and (b) some element of self-reporting. If these two requirements aren’t met, then a DPA will not be offered. The first DPA was entered into by the SFO in 2015, with ICBC Standard Bank Plc, and was the first successful resolution of an allegation against an organisation to prevent bribery. The monetary penalty for Standard was that of $4.2 million, but no individuals were prosecuted. The courts have commented that the self-report aided in the investigation by the SFO, and that being a UK firm, the self-report suggested that Standard’s approach could help repair and enhance its business. Cases that have highlighted the potential inequity between the corporate and SFO, and the negotiations under a DPA, are those of Tesco Plc and Rolls Royce. The charges against Tesco were of accounting fraud. This requires the guilt of a senior executive. SFO’s case in relation

to Rolls Royce was for, but not only, five counts of failing to prevent bribery. These two cases, and the way they were handled by the SFO, showed that there was little to no cooperation between the organisations, as the DPA was released by the SFO, although certain facts had been anonymous until that point. Contrary to sections 1,2, & 6, section 7 and its ability to use a DPA where permitted has aided in numerous contributions by companies or organisations to self-report bribery acts. It also offers a medium ground for companies looking into reporting a crime, but being wary of consequences they may face. Although this has potentially increased the number of SFO’s, it has decreased the cases going to court over matters that can be resolved in a much faster prosecution. The question has been raised as to whether this approach could be offered to individuals. It’s a relatively new reform, which is still in need of modification and development, but may eventually offer the same advantages as it has for commercial cases. In 2017, the head of the Anti-Corruption at SFO commented that DPA would become the ‘new normal’, and the incentive of avoiding collateral damage would aid in protection reputation damage, job cuts etc. There has been extensive reform of the Bribery Act 2010, following severe criticism and international criticism stemming from the BAE scandal. The reform proved to be essential in the UK’s initiative to implement a tougher approach to bribery and offence surrounding it. Despite this though, there is still change needed, especially in areas which haven’t been defined such as ‘corporate hospitality’, ‘relevant commercial organisation’, and ‘adequate procedures’ defence, amongst others. Albeit these pending clarifications, the UK has proven and asserted their zero-tolerance attitude concerning bribery offences, and taken approaches such as DPA’s to provide a more resource-efficient prosecution tool as opposed to arguing a case at trial....