The proceeds of Crime Act 2002, and the Money Laundering Regulations 2003 require "Relevant Businesses" to put certain anti-money laundering procedures into place.  The definition of "Relevant Business" has widened and now includes a number of businesses previously thought to be outside of the relevant legislation. In particular, firms where large amounts of cash can change hands namely, in excess of 15,000 Euros in one or a series of transactions, can now be considered a "Relevant Business" and need to put certain administrative procedures into place to prevent money laundering and ensure that all of their staff are properly trained in such processes.

The main requirements of the scheme are as follows:-

1.  The identity of any person with whom we form a business relationship needs to be verified.

2.  Records of evidence of identity that were verified any transactions carried out for that person, must be kept for at least 5 years after the relationship ends.

3.  Internal reporting procedures for reporting suspicious transactions must be established and a Money Laundering Reporting Officer must be nominated.

4.  Staff should be trained and procedures maintained to prevent money laundering.

A business relationship is any relationship in the course of business which continues over a period of time resulting in payments to or from one party to another of 15,000 Euros or more, or if there is a one off transaction where a payment of 15,000 Euros or more is made, then it is necessary to obtain a persons identity. If evidence of identity is not obtained, the relationship or one off transaction must not proceed any further.  Guidance talks about prime pieces of evidence, these would usually be a passport (or other acceptable photo identification) together with evidence of proof of address.  Obviously these should be taken and kept on the file.

It is interesting that high class jewellers, car salesmen and auction houses are now covered by this requirement and may well need to ask for proof of identity.

Money laundering covers a wide variety of offences involving the proceeds of crime (including tax evasion and fraud) and will also include terrorist funds. It is the way in which dirty money is changed so that the proceeds appear to originate from legitimate sources.  The new wider definition of crime includes "possessing, dealing with or concealing" the proceeds of any crime or similar activities in relation to terrorist funds, which include funds from legitimate sources which are likely to be used for terrorism as well as the proceeds of terrorism. The broad definition means that if a professional suspects any of the above he is under a duty to report. Together with that duty he must not warn his client and warning his client can in itself be a breach of the rules. What makes matters particularly difficult is there is no lower limit so if a lawyer knows a client has cheated the Inland Revenue out of £5, the law requires they should be reported. Clearly this makes excessive demands on professionals.  It would be sensible if a lower limit was put into the regulations to make the amounts being discussed meaningful. (Say £10,000)

The new regulations came into force on the 1st March 2004 and in addition to the points raised above, if there are any suspicions these should be reported to the National Criminal Intelligence Service.

The new rules and regulations make heavy demands on professionals and it has become a matter of practice for us to obtain evidence of identity in any case. This has already happened with Banks in the tightening up of Banking regulations and many firms and banks, even if they've been dealing with customers for a long period of time, now need to ensure that they have evidence of identity on the file.

Failure to report a suspicion can lead to criminal proceedings and confiscation of assets.  The regime is now been tightened up all over Europe and things will not get easier. It is therefore important to be able to prove the origins of funds and also have the necessary evidence to prove identity.

Further information on how matters are reported, the rules and what is required can be found on the Government website for the National Criminal and Intelligence Service at www.ncis.gov.uk/disclosure.asp.

Simon S. Aronsohn

Law Firm Ltd
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London W1T 7PD
Tel: +44(0)20-7907-1460

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