Don’t get caught out

Of all the many perils caused by insufficient IT governance, the one that really chills the spine is leaving your company open to the charge of money laundering, says Andrew Carrington.

Of all the many perils caused by insufficient IT governance, the one that really chills the spine is leaving your company open to the charge of money laundering, says Andrew Carrington

Falling foul of the Proceeds of Crime Act is definitely to be avoided. Lawyer Andrew Carrington of Carrington & Associates warns that it carries a maximum sentence of 14 years' imprisonment under English law.

Even if your company is not regulated by the Financial Services Act, you still need to be aware of processing money-laundering transactions, however inadvertently.

"We're all pretty poor at recognising the movement of criminal funds," Carrington warns.

So what is money laundering, and how does it take place?

"It's processing the proceeds of crime such that the ownership of the funds seems to come from a legitimate source," explains Carrington.

It involves three phases: placement, layering and integration.


This is when dirty (that is, from a criminal source) money enters the banking system from a non-regulated source. This could be cash paid into a bank registered in a state known to attract the suspicions of law enforcement authorities.
"For example, one of the Pacific islands has 3,000 Russian banks registered there," says Carrington.


This is when that originally dirty money passes through a number of transactions for the purpose of making it difficult to investigate its progress. Such transactions can include over-invoicing for goods and casino betting.


This is the process of passing the money into the legitimate system by purchasing assets.

This last stage, warns Carrington, is where companies have to be particularly watchful, as the legitimate banking system will be used for transactions that appear to be completely clean but the money originates from a criminal source. If this happens you could be criminally liable under the Proceeds of Crime Act.

So what should you do if you think a financial transaction coming your company's way could be dirty money in for a wash?

Carrington is clear. Tell the National Criminal Intelligence Service (NCIS) of your suspicions.

"You do not commit an offence if you tell NCIS and disclose your suspicions," he says. "You wait seven days and if you hear nothing back from NCIS in that time, you can then process the transaction."

You may also, he says, process the transaction if NCIS says you can but to keep them informed. Under those circumstances you will not be committing an offence.

If NCIS instructs you not to proceed with the transaction, you must not tell the party who wants to make that transaction that you may not proceed.

You don't have to tell the party who wants to make the transaction that has aroused your suspicions that you have made any disclosure to NCIS.

"Some years ago a lawyer from an African country told me that his client wanted to buy a company, but he was not much concerned about conducting any due diligence before purchase. I mentioned money laundering laws to him, and the transaction did not go through," recalls Carrington.

"Similarly, a North American company wanted to deposit money in an account in London, and pay sums out to different people. We asked them some questions and they withdrew from the transaction."

What about colleagues who may be involved in processing criminal proceeds? Again, alert NCIS to your suspicions, says Carrington.

If, as an employee, you suspect that colleagues are involved in money-laundering, and you disclose your suspicions to NCIS, you cannot be dismissed or sued even if your suspicion proves unfounded.

"It's whistleblowing," says Carrington, and if you are dismissed because of it, "there is no limit on compensation".

What about getting involved in money laundering as a purchaser?

There is, says Carrington, a good faith allowance made by the law for those who purchase goods or property which have themselves been purchased by criminally sourced funds. Providing the value of the goods or property is appropriate to the market – for example, you are not buying a Rolls-Royce for the price of a banger – and there is no reason to think the goods or property have been criminally acquired, "a bona fide purchaser acquires a title".

However money laundering is done, whatever schemes and scams it adopts, one thing is for sure: In today's global economy, at some point, 99.9% of all money – including dirty money – goes through a computer. You don't want to be in charge of the one that processed criminal funds.

Andrew Carrington is a lawyer with Carrington Associates

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