Money laundering and the United
Kingdom: a haven for dirty money and
an endless cycle? A critical reflection
on the United Kingdom’s anti-money
laundering policies’
Dr. Nicholas Ryder
Professor in Financial Crime
Department of Law
Introduction
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What is money laundering?
The global scale of money laundering
How is money laundered?
Where does money laundering occur?
United Kingdom money laundering policy
Introduction
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UK Legislative Approach
Proceeds of Crime Act 2002
Terrorism Act 2000
The Money Laundering Regulations 2007
The Financial Conduct Authority
The National Crime Agency
Recent Developments
The Financial Crisis and Financial Crime
What is money laundering?
– Processing of criminal
proceeds to disguise
their origin
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Concealing
Disguising
Converting
Transferring or removing
Facilitates the
acquisition
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Retention
Use or control
Acquisition
Use
Possession
• Above relate to
proceeds of criminal
activity
The Scale of Money Laundering
• International Monetary Fund:
– Between 2 and 5 % of Global GDP
• United Nations:
– 3.6% of global GDP, with 2.7% (or USD 1.6
trillion) being laundered (2009).
• Financial Action Task Force:
– Between $590bn and $1.5tn per year
The Scale of Money Laundering
• The calculation of its extent is hampered
• There is no visible data on the amount of money
laundered.
• This has been referred to as the:
– shadow economy,
– or a nation’s unrecorded economic activity.
• Estimated this amounts to 19% of UK GDP (Yeandle
et al, 2005)
The Scale of Money Laundering
• United Kingdom:
– £10bn via the regulated sector (HMT, 2007),
– £25bn to £57bn (FSA, 2011),
– £48bn (Transparency International, 2011),
– £57bn (Financial Action Task Force 2013)
and
– £100bn (The Independent, September
2015, citing Transparency International).
How is money laundered?
• Three stages:
– Placement
– Layering
– Integration
How is money laundered?
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Financial institutions,
Lawyers,
Accountants
Virtual currencies,
Cash intensive
businesses (bureau de
change),
• Smurfing,
• Casino’s,
• Shell corporations,
• Property transactions,
• Stocks, shares and
other investments,
• Case intensive
businesses,
• Mobile devices,
• Cash couriers or money
mules,
• Currency smuggling,
• Gambling machines and
• many more.
Key Players
International Institutions
Domestic Institutions
• United Nations,
• European Union,
• Financial Action Task
Force,
• international
industry best
practices.
• Financial Conduct
Authority,
• National Crime
Agency,
• Home Office,
• Solicitors Regulation
Authority.
The United Kingdom – A Policy
Overview
• Implementation of
international AML
legislative measures
• Recognition of
international best
practices
• A risk based policy
• Competent authorities
• Criminalisation
• Mutual legal assistance
• Preventative measures
• Confiscation of the
proceeds of crime
(Ryder, 2013)
The UK Legislative Approach
• The current system of money laundering legislation
is contained within:
– Financial Services and Markets Act 2000 (as amended)
– Terrorism Act 2000
– Part 7 of the Proceeds of Crime Act 2002
– The Money Laundering Regulations 2007
Proceeds of Crime Act 2002
• Three main offences
– Concealing the proceeds of criminal conduct
(s.327)
– Assisting another to retain the benefits of criminal
conduct (s.328)
– Acquisition, use and possession of the proceeds of
crime (s.329)
Terrorism Act 2000
• Creates several offences of terrorist financing:
– Fund raising (s.15),
– Use and possession (s.16),
– Funding arrangements (s.17),
– Insurance against payments made in response to
terrorist demands (s.17A),
– Money laundering (s.18),
– Failure to disclose: regulated sector (s.21A) and
– Tipping off: regulated sector (s.21D).
The Money Laundering Regulations 2007
Scope of the Regulations
• credit institutions,
• financial institutions,
• auditors,
• insolvency practitioners,
external accountants,
• tax advisers,
• independent legal
professionals,
Scope of the Regulations
• trust or company service
providers,
• estate agents,
• high value dealers and
• casinos
The Money Laundering Regulations 2007
• Regulation 7:
– requires them to apply customer due diligence
measures where they suspect the transaction
concerns money laundering or terrorist financing
– This means that the firm is required to
authenticate the identity of the customer and
monitor their business relationships
The Money Laundering Regulations 2007
• If a firm suspects that it is being used for the
purposes of money laundering, it is required
to notify its Money Laundering Reporting
Officer (MLRO)
• Complete a suspicious activity report (SAR)
and file it with NCA, who determines if further
action is to be taken
The Money Laundering Regulations 2007
• How do you define suspicion?
– R v Da Silva [2006] EWCA Cro,. 1654.
– K v National Westminster Bank, HMRC, SOCA
[2006] EWCA Civ 1039.
– Shah v HSBC Private Bank (UK) Ltd. [2010] EWCA
Civ 31; [2010] Lloyd’s Rep F.C. 276 (CA (Civ Div).
The Money Laundering Regulations 2007
• Defensive Reporting?
– In 2008, SOCA reported that it had received
210,524 SARs;
– which increased to 240,582 in 2010,
– 247,601 in 2011,
– 278,665 in 2012,
– 316,527 in 2013 and
– 354,186 in 2014.
The Money Laundering Regulations
2007
• Compliance costs:
– KPMG estimated that annual the costs are
£90m (2003),
– £250m each year to comply with the AML
regulations (Z/Yen, 2005),
– Alexander claims that the annual costs of the
AML to banks in the UK are £650m per year
(2007),
– Currently exceed £1bn per (Harvey, 2004),
Financial Conduct Authority
• All FSMA-authorised firms (except of
mortgage brokers, general insurers and
general insurance brokers) are also subject to
FCA AML rules and guidance
– SYSC 3.2.6 A.R. – SYSC 3.2.6 JG for insurers and
managing agents)
– and SYSC 6.3 (for other firms).
Financial Conduct Authority
• The regulated sector must have systems and
controls which:
– carry out regular assessments of the adequacy of
AML systems so as to protect themselves from
being used to further financial crime;
– allocate of a director or senior manager with
overall responsibility for establishing and
maintaining an AML system; and,
– the appointment of a Money Laundering
Reporting Officer (MLRO).
Financial Conduct Authority
• Regulated firms are required to:
– “establish, implement and maintain adequate
policies and procedures sufficient to ensure
compliance of the firm including its managers,
employees and appointed representatives , with
its obligations under the regulatory system and
for countering the risk that the firm might be used
to further financial crime” (SYSC, FCA Handbook)
Financial Conduct Authority
• The FCA is “the competent authority for
supervising compliance … with the Money
Laundering Regulations”
• It has adopted a policy referred to as credible
deterrence:
– Issuing private warnings, public statements of
misconduct, unlimited financial penalties and a
prohibition order.
Financial Conduct Authority
• deliver a message that breaches of law and/or
regulation will result in offenders suffering
‘meaningful consequences’,
• levied large fines and bans, on firms and
relevant approved individuals who breached
its rules,
• FCA has imposed a record number of financial
penalties since 2007.
Financial Conduct Authority
• Money Laundering Reporting Officers fined:
– Michael Wheelhouse:
• £17,500 (FSA, 2009)
– Sudipto Chattopadhyay
• £14,000 (FSA, 2010)
– Syed Itrat Hussainn
• £17,500 (FSA, 2012)
Financial Conduct Authority
• Firms fined:
– Coutts & Company (£8.75m, 2012),
– EFG Private Bank (£4.2m. 2013),
– Guaranty First Bank (UK) Ltd (£525,000,
2013) and
– Standard Bank Plc (£7.6m, 2014).
• These fines are imposed irrespective is there is
any evidence of money laundering.
Financial Conduct Authority
• The FCA is able to prosecute money
laundering offences under Part 7 of the
Proceeds of Crime Act 2002:
– R v Rollins [2010] UKSC 39;
National Crime Agency
• The NCA was launched following the
enactment of the Crime and Courts Act 2013.
• In relation to money laundering the NCA will
have the functions conferred by the Proceeds
of Crime Act 2002, which includes:
– the role as FIU and
– the management of the confiscation of the
proceeds of crime.
Recent Developments
• From Russia with Cash!
• Property boom and money laundering
• One of the most popular ways to launder money
(NCIS, 2003 and Unger 2011)
• Tough stance on money laundering (David
Cameron, 2015, Singapore)
• Similarities with infamous ‘Day of Reckoning’
speech (2009), ‘We take White Collar Crime
seriously (2011, 2012 and 2015)
Recent Developments
• Fourth Money Laundering Directive
– Comes into effect 2017
– Continues a risk based approach
– Enhances compliance measures
– Revises importance definitions
– Extends the scope of the Directive
– Includes tax crimes
– Increases sanctioning powers
Recent Developments
• Two jailed in £5m money laundering case
(September 2015)
• Woman ordered to pay back £256,000 after money
laundering conviction (September 2015)
• Drug gang members jailed for money laundering
(September 2015)
• Brother in law of corrupt former Nigerian governor
jailed for money laundering (September 2015)
• Law Society (September 2015)
The Financial Crisis and Financial Crime
• Increasing amount of
evidence linking
financial crime to the
financial crisis
• Increased enforcement
by FCA and SFO
• See R v Hayes (2015)
• Increasing levels of
compliance
• Increased use of
financial penalties
• Impact of deferred
prosecution
agreements by the
Crime and Courts Act
2013
• Bribery Act 2010 to be
watered down?