Martin Taylor works within the British legal system. He is deeply troubled by the latest round of anti-money laundering laws.
During the course of this past month the Proceeds of Crime Act 2002 has come into force. This is the legislative instrument which has introduced US-style asset forfeiture into UK law. But the Act goes much further than that. It also consolidates and widens the existing anti-money laundering laws and places a quite terrifying onus on those who are charged with enforcing them.
Prior to this Act the UK already had an anti-money laundering regime in place. It was aimed at the proceeds of drug trafficking and potential terrorist funding. The regime established a ‘regulated sector’ which consists of people such as bankers, accountants, lawyers, financial advisers, stockbrokers and anybody else who is broadly engaged in the business of money management.
The laws imposed an obligation on professionals working in that sector to establish and maintain procedures for obtaining and then keeping personal and business information about their own clients so that this could be used to assess whether or not, at any later time, there are unusual or unexpected patterns of spending or behaviour which may indicate money-laundering activity.
But that is not all, for it is professional advisers who are required to police their own clients. If the professional adviser suspects, for any reason, that his or client may be engaging in money-laundering then he or she is required their client and the circumstances of the transaction in question to a special police agency. Once a report has been made the professional adviser can take no further action on behalf of the client until they have been given express permission to do so by the police.
Penalties for non-compliance can be severe. In the case of non-disclosure of a suspicion of money-laundering, the maximum penalty is 14 years in prison. That was the situation up until this month, but the Proceeds of Crime Act has taken things much further.
As far as the anti-money laundering regime is concerned the relevent clauses are Sections 327 to 330. Sections 327 to 329 extend the definition of ‘money-laundering’ from handling the proceeds of drugs or terrorism to the proceeds of any criminal activity regardless of how petty.
However is Section 330 of the new Act which introduces the most worrying element:
“It is extremely important for all lawyers to note that s330(2)(b) introduces a negligence or ‘objective’ test which will mean that failure to disclose information about money laundering will amount to the commission of an offence where a person has ‘reasonable grounds’ for knowing or suspecting that another person is engaged in money laundering, even if they did not actually know or suspect that money laundering was taking place. A solicitor working in the ‘regulated sector’ will therefore commit an offence if they fail to report money laundering and a reasonable professional should have known or suspected that it was going on. In effect, incompetence or oversight will result in the commission of a criminal offence and probably imprisonment.
On the face of it, this might seem a trivial change, but in fact it is a dramatic and potentially very dangerous extension of the advisers liability. Up until now, advisers were only obliged to report their suspicions. Now, they will be liable to prosecution if it turns out that they should have had suspicions. In effect, they are second-guessed. It is no longer of question of what he or she knew, but of what he or she should have known.
The result of this is that where the police do uncover a case of money-laundering in a transaction touched upon at some stage by a professional adviser, then it will be near-as-dammit impossible for that professional adviser to defend themselves against criminal charges.
One should also bear in mind that a sentence of imprisonment for a professional person means not just loss of liberty but also the termination of his or her career and the loss of everything they have worked for. The destruction of somebody’s entire life for simply making a mistake strikes me not as justice but vendetta. How can this possibly be fair?
In the short term, at least, the understandable paranoia among those regulated professionals will cause them to file reports on just about every matter that crosses their desk. Now it is true to say that one cannot be too careful. Thus no significant financial transaction will take place in the UK without police knowledge and approval. This resembles more the febrile imaginings of Franz Kafka than the country I grew up in.
It would not surprise me in the least if ample numbers of professional advisers find the damoclean strain of coping with this from day-to-day to be intolerable and make the perfectly rational decision to earn their living by other means. Such an exodus would not be without national consequences for the financial sector in this country has earned a global reputation for efficiency, honesty and innovation. As a result, it is a sector which provides a generous proportion of Britain’s GDP. A ‘brain-drain’ (or maybe a ‘strain-drain’) would be an economic catastrophe.
I do not suppose that even the most vigilant public servant honestly believes that we are a nation of clandestine drug smugglers, wannabe-bank robbers or aspiring terrorists. I can only conclude, then, that the demand to monitor every material financial transaction is motivated by a concern over tax ‘leakage’. If that is the case, then I submit that the cure will prove far worse than the disease.
Was this not contemplated when our lawmakers drafted these proposals? Or was it contemplated but they simply didn’t care? I am not sure which is more disturbing.
Regardless of what behaviour it is that our government is trying to squeeze into extinction it is, nonetheless, encumbant on any civilised administration to enact provision that are both reasonable and measured. To my mind, the provisions of the Proceeds of Crime Act are greedy, vindictive and criminally short-sighted.