Laundered funds could land you in hot water

Sub-sections 327 to 329 of Part 7 of the Proceeds of Crime Act 2002 deal with money-laundering. Section 328 makes it an offence for a person or firm to enter into, or become concerned in, "an arrangement, which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person".

The obligations under s328 of POCA were considered by the Court of Appeal in Bowman v. Fels. The Court of Appeal held that s328 'arrangements' did not apply to solicitors acting in the ordinary conduct of legal proceedings. Further, a disclosure report could not override legal professional privilege. This position was clarified by the Law Society Guidelines, published in the wake of Bowman on 13 September 2005, the main gist of which are that "a solicitor should not make a report unless there is prima facie evidence that he is being used in the furtherance of crime". However, the case of Bowman is only relevant to solicitors that can rely upon legal professional privilege.

If cover is arranged by a broker for a legitimate transaction using the proceeds of crime, the broker could also be implicated with the money-launderer unless they can demonstrate reasonable grounds for not reporting any suspicions. To avoid being implicated with the money-launderer, any suspicion of money-laundering should be reported to the National Criminal Intelligence Service.

Given the risk-management issues, brokers should ensure the systems and controls recommended by the Financial Services Authority are in place for anti-money-laundering, and all staff dealing with client monies are properly trained in these procedures. Compliance with the due-diligence procedures should ensure that clients are carefully identified, whether based offshore or in the UK, and that monies passing through a firm's business account can be traced to the source.

The real cost of due diligence and its proportionality in the insurance sector is currently under review by the FSA, in partnership with the Financial Services Practitioner Panel. A consultation paper was published in July 2005 with a view to streamlining and cutting back on the approved persons regime and also to delete the Money Laundering Sourcebook from the handbook. Responses to the paper are currently under review and it is understood that there has been positive feedback from the industry to remove the Money Laundering Sourcebook. A timeframe for the release of the new policy statement is likely to be issued in the new year.