The UK Parliament is in the process of debating the Economic Crime and Corporate Transparency Bill (the Bill), which is expected to be finalised by the end of the year and come into force during 2024.
There has been much discussion of the new failure to prevent fraud offence (for more detail see our article here and watch our on-demand webinar here) and recent proposed reforms to widen the test for corporate criminal liability (see our article here).
The Law Commission report containing recommendations on corporate criminal liability published in June 2022 discussed the introduction of a failure to prevent money laundering offence, but did not recommend it be introduced. Since then, its inclusion has been debated – and disregarded – at various stages during the process.
However, proposals to include a failure to prevent money laundering offence have been tabled again, and this is now included in the current draft of the Bill.
What would a failure to prevent money laundering offence look like?
Whilst the precise form of the offence (and whether it would actually be included) is still to be determined, it is expected that the proposed offence would take a form very similar to the proposed failure to prevent fraud offence and the existing failure to prevent bribery offence.
An offence would be committed by an organisation where a person associated with the organisation (including, for example, an employee, service provider, agent, subsidiary or anyone else providing services for or on behalf of the organisation) commits a money laundering offence with the intent to benefit the organisation, or to benefit another person to whom the organisation provides services.
Currently it is proposed that the offence would apply to the following five money laundering offences:
- Concealing, disguising, converting, transferring or removing criminal property (section 327 Proceeds of Crime Act 2002 (POCA 2002).
- Arrangements facilitating the acquisition, retention, use or control of criminal property (section 328 POCA 2002).
- Acquisition, use and possession of criminal property (section 329 POCA 2002).
- Failing to disclose knowledge or suspicion of money laundering (section 330 POCA 2002).
- Tipping off (section 333A POCA 2002).
This would be a strict liability offence, with organisations being able to rely only on a defence that they had ‘reasonable procedures’ in place to prevent money laundering. This will effectively require all organisations, including those outside the regulated sector, to put in place anti-money laundering compliance programmes.
How does this differ from the current anti-money laundering regime?
Currently, for an organisation to commit a money laundering offence under POCA 2002 someone so senior as to be considered the “directing mind and will” of that organisation would have to have the requisite knowledge and intent (which in large organisations has proven extremely challenging). Whilst there are proposals to expand this principle to include senior managers, an offence of failure to prevent money laundering would be much broader: an organisation could be liable for a money laundering offence where this was committed by junior employee or third party service provider where the organisation had no knowledge or involvement. It is important to note that money laundering offences can arise even where no serious crime has occurred, for example a company could commit a money laundering offence by receiving funds arising out of a relatively minor criminal offence (e.g. breach of a tree preservation order).
However, there are a number of questions regarding how any offence would interface with the current regime (particularly in the regulated sector), and we expect the UK Government will have to consider this carefully. These include:
- Defences: First, it is unclear how the new proposed failure to prevent offence would interface with the current Suspicious Activity Report (SAR) regime. Currently, for underlying money laundering offences, there is a defence in some circumstances where a SAR is made to the NCA and a defence is granted. It remains to be seen how this will interface with the new proposed offence: there is a potential risk that any new offence would significantly increase the number of SARs filed at the NCA, which already receives a significant number of “defensive” SARs (with 901,255 SARs received and processed in 2022).
- Compliance Programmes: The current Money Laundering Regulations 2017 (MLRs 2017) already require companies within the regulated sector to have in place anti-money laundering systems and controls. The proposed offence raises the possibility of potentially competing requirements and investigations (e.g. by the SFO and FCA).
In terms of next steps:
- Companies should continue to monitor the Bill closely as it makes its way through UK Parliament;
- Companies in the regulated sector should ensure that their anti-money laundering policies and procedures are operating effectively; and
- Subject to the progress of the Bill, companies outside the regulated sector should start to consider putting place tighter anti-money laundering regimes, starting with conducting an anti-money laundering risk assessment.