Organised criminals such as fraudsters, drug dealers and people traffickers all deal in large amounts of criminal proceeds. They need some way to manage this money, so they can spend it without the authorities seeing that it is proceeds of crime. They need to clean the money – to launder it. Money laundering is the biggest financial crime there is, because it encompasses all the other crimes.
The money laundering of criminal proceeds is not easy, as most countries have enacted severe legislation (some say draconian) in an attempt to stop the proceeds of crime benefiting the criminals. In the UK the Proceeds of Crime Act 2002 was the beginning of the big thrust against the organsised criminal in an attempt to hit him where it hurst most – in the pocket. The Act and associated Money Laundering Regulations have brought in a raft of measures that include the appointment of professionals such as lawyers and accountants to act as gatekeepers between their potentially criminal clients and the law enforcement agencies.
Now professionals have a legal obligation to firstly ensure that their clients are legitimate individuals or organisations and secondly to report any suspicions they may have, that proceeds of crime may be being transferred. This means that they have to do detailed checks on their clients before accepting work from them, to make sure they are who they say they are, and also to educate all staff to know what to do if they should come across a suspicious transaction that might need reporting to the authorities.
Previously the criminals would recruit professionals in order to give them a veneer of respectability. Lawyers would be asked to set up corporations that would be used to layer the criminal proceeds in different cities or even countries. Accountants would prepare accounts that absorbed proceeds of crime within legitimate accounts. Bankers had already been targeted by the authorities in the fight against money laundering and have similar obligations to fulfil.
Professional negligence is now a major crime. A lawyer or accountant found to be assisting in the laundering of money can face up to 14 years in jail and would no doubt face swinging asset confiscation proceedings as a matter of course. It is not possible to claim client confidentiallity either. Even a lawyer, who is normally able to claim legal priviledge in communications with criminal clients, cannot turn a blind eye from reporting money laundering of the proceeds of crime to the appropriate authorities.
The Proceeds of Crime Act 2002 is often used as the relevant legislation in cases of professional negligence. It is difficult for an accountant to say that he thought criminal funds were legitimate, when as a financial expert he ought to have known something was amiss. The Fraud Act 2006 could also be used, as dealing with client’s ilegitimate funds could easily fulfil its definitions of fraud:
- Fraud by false representation
- Fraud by failing to disclose information, and
- Fraud by abuse of position
The professional must seek to protect himself and his staff by taking all appropriate measures, appointing a Money Laundering Reporting Officer (MLRO), ensuring Know Your Client Checks (KYC) are undertaken per the Anti Money Laundering Regulations, educating all staff and ensuring that appropriate action is taken when suspicious activities are discovered (SAR). There is now no excuse for inadvertant mistakes.