Cleaning up on dirty money

Cleaning up on dirty money

Are allegations that UK businesses are being targeted by money launderers putting the UK’s reputation at risk?

Joseph Kotrie-Monson, managing solicitor in the fraud department at Mary Monson Solicitors, discusses the recent revelations and the actions that need to be taken to protect businesses in the UK.

Original news

Estate agents and law firms UK ‘gatekeepers’ for foreign money laundering, LNB News 17/10/2014 23

Independent, 17 October 2014: Estate agents, solicitors and financial advisors are reportedly helping large amounts of dirty money from foreign criminals enter the UK.

Private schools scrutinised for money laundering, LNB News 17/10/2014 4

Independent, 16 October 2014: Private schools in the UK are coming under increasing scrutiny from international anti-corruption groups for inadvertently accepting laundered money for school fees from rich foreign criminals and corrupt officials.

What has this investigation said to have uncovered?

This investigation has uncovered the use of UK-based companies being used as a conduit for laundered money. The companies, which usually appear to have no legitimate purpose, are parties to fake legal proceedings abroad which give rise to a recorded debt of many millions, or even billions in liability. The funds can then pass to bank accounts held by the UK companies in question. These companies often have puppet directors and secretaries, who are generally vulnerable young people who have been promised a management job, or representatives of companies or professional firms who provide this service for a fee.

Britain is primarily an advantageous place for the company to be based on paper because once a court in a less developed country has been convinced that the fake debt is real, the respect Britain has overseas means that there is less suspicion surrounding the money as it travels to its long intended destination disguised as legitimate money. There is also an argument that UK regulation of company formation agents’ due diligence processes is too light—but this opinion is not shared by all.

Has the UK’s corporate rules structure made it a target for international money laundering?

Other countries have similar rules relating to company formation and privacy for shareholders, but it is most likely the fact that Britain is a highly regarded nation that makes it most attractive to money launderers. That said, it is clear that there is a need for reform in this area. The amounts of criminal money being transferred are massive and reflect real misery of real victims—especially in terms of forced prostitution and people trafficking, not just tax evasion.

This investigation has raised concerns around legitimate businesses—schools, estate agents etc—being used for money laundering. What obligations are regular businesses under in relation to money laundering/investigating the source of money?

Regular businesses are under no specific set of controls in relation to money laundering—although the criminal law under the Proceeds of Crime Act 2002 makes it an offence to receive money where the purpose is to disguise its origins. However, this does not affect good faith payments for goods or services at a fair price.

It is regulated businesses such as charities, money handling businesses, estate agents and lawyers who have extended duties.

How should lawyers be advising businesses who could conceivably receive tainted money?

The advice that any fraud specialist lawyer will give a company depends on the sector. If it is a sector that is regulated, and this includes company formation agents, there are broadly two types of responsibility:

  • to have systems in place to prevent money laundering, and
  • to do due diligence checks on customers and transactions

The failure in this particular fraud has been at the level of due diligence. One cannot help thinking that a number of company formation agents, of course not the majority, are happy to take due diligence as a light touch. HMRC needs to recognise that either stricter guidance is required, or that it needs to get tough with the members of the industry who are making a mockery of the UK’s reputation for legitimate and accountable business.

Interviewed by Jo Edwards.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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