Growing pains for money laundering regulations

Most of you will recall the hideously painful gestation of the 2003 money
laundering regulations. The maternity nurse (let’s call her HM Treasury)
originally told us they would be delivered in June 2003.

Finally, following the legislative equivalent of an emergency Caesarean, the
regs entered the world on 28 November 2003. In fact, they contrived not to make
their first public appearance until after Christmas, leaving many of us
nervously checking the name to make sure there hadn’t been a mix-up in the
delivery suite.

The delay also left precious little time before the 2003 regulations became
effective (1 March 2004 for most purposes) to get to know the latest member of
the regulatory family – and most of us did not like what we saw.

There were a fair few clustered round the cradle because one of the key
consequences of the 2003 regulations was to usher new gatekeepers into the front
rank of the fight against money laundering and crime – including accountants and
lawyers.

So what has been achieved in those two years? All sensible accountants,
lawyers and others in the regulated sector for anti-money laundering purposes
now have detailed procedures covering the gamut of anti-money laundering
activity.

But what has not been achieved is any obvious impact on the level of money
laundering or crime, or any real sense of equal partnership with law
enforcement. Far too many in the regulated sector are left with the
uncomfortable feeling that the obligations imposed on them by the regulations
are all burden and risk and little or no benefit.

It would, though, be rather too easy to moan on about what has not been
achieved. Some of the more positive developments since March 2004 have,
admittedly, taken place below the waterline – and they are worthy of more
attention than they have achieved to date.

Many do not necessarily relate directly to the 2003 regulations, but almost
all result from the introduction of lawyers and accountants to the regulated
sector.

First, we have brought about changes to the substantive law in the Proceeds
of Crime Act 2002 to deal with some of the more absurd aspects of that piece of
legislation.

While it is true that amendments contained in the Serious Organised Crime and
Police Act 2005 are a muddle and, in some cases, make things worse, they are
nonetheless a step in the right direction.

Key changes in the act relate to the need to make ‘limited value’ (aka
useless) reports where neither the perpetrator nor the proceeds can be
identified.

When the secretary of state eventually decides which offences are exempt from
this, there will still be a need to report the proceeds of activity that is
legal where it takes place, but that would be illegal in the UK.

Second, we have put some steel in the government when it comes to standing up
to further regulation from the EU.

The Treasury’s rapid response team established to deal with the third EU
money laundering directive was an excellent example of cooperation between the
public and private sector to ensure that UK businesses were not subject to more
badly thought out legislation. Again, the result was not perfect, but it was a
lot better than nothing.

Third, we have managed to deal with some of the iniquities of the anti-money
laundering regime in the courts.

Examples of resounding successes are predictably few and far between in this
area, given the extreme position adopted by government in the legislation and
the enthusiasm with which some branches of law enforcement sought to apply it.

But there are examples of the courts reining back law enforcement. For
example, in order to convict someone of money laundering, the prosecution must
first be able to prove that the assets said to have been laundered were in fact
the proceeds of crime.

Statutory informants in the regulated sector are also entitled to all the
same consideration and protection when it comes to revealing their identity to
the defendant in subsequent criminal proceedings as an ‘ordinary’ informant.

This was a concept that some parts of law enforcement were painfully slow to
grasp, thinking it perfectly acceptable to tell a defendant that the
investigation leading to his or her arrest and subsequent prosecution resulted
from a report made by his lawyer/accountant/banker (delete as applicable)
because they had no choice.

Fortunately, this heresy has now been laid to rest, to some extent, in
guidance issued by the attorney general in December.

All in all, if we were marking the 2003 regulations, we might be tempted to
give them a ‘C’, based more on effort than intelligence. But there are signs of
improvement.

Let us hope that those improvements continue and that some sensible
accommodation can be reached between those whose job it is to catch money
launderers and other criminals, and those whose statutory obligation (and, lest
it be forgotten, inclination) it is to help.

Jon Holland is banking and finance litigation partner at law firm
Lovells