Failure to Prevent Money Laundering

Failure to Prevent Money Laundering

Blog WilmerHale W.I.R.E. UK

On 10 June 2022, the Law Commission published its long-awaited options paper on Corporate Criminal Liability (“the Paper”).The Paper discussed a “failure to prevent money laundering offence” (the “FTPML Offence”), but did not recommend one.2  Although the purpose of the Paper was only to provide options for reform, Transparency International and the All-Party Parliamentary Group on Anti-Corruption and Responsible Tax have both criticised the Law Commission for failing to push for the FTPML Offence.3

A study published in February 2022 found that the UK ranked second among OECD countries for the total sum of money laundered on an annual basis, at £87.9 billion, and estimated that it accounts for 4.3% of GDP.4 However, given that the misconduct targeted by the FTPML Offence would largely be caught by the UK’s existing money laundering regulations (“the MLRs”), it is unlikely that more regulation is the answer to the problem.5

Failure to Prevent Money Laundering

What is the offence?

The Paper does not fully flesh out how the FTPML Offence might look. However, based on the “failure to prevent economic crime” offence (which is fleshed out), the FTPML Offence would be committed by a company where an associated person (an employee or an agent) launders money with intent to benefit the company, or to benefit another person to whom they provide services on behalf of the company.6 It would therefore mirror current failure to prevent bribery and tax evasion legislation in that it would involve a predicate substantive offence triggering a strict liability offence.7

By contrast, the MLRs can be breached without any money laundering having taken place. A breach will be made out where a person contravenes the various anti-money laundering requirements imposed by the MLRs. Although the offences are therefore triggered by different events (money laundering versus failing to comply with requirements), it is difficult to envisage circumstances where the FTPML Offence would not also contravene the MLRs.

What are the defences?

Under the FTPML Offence, the corporation would have a defence if it had in place such prevention procedures as were reasonable to expect.8 Due to the broad jurisdiction of the offence, for sectors with a negligible money-laundering risk, it would be reasonable for a business to have no AML procedures in place.

Under the MLRs, a person has a defence if they “took all reasonable steps and exercised all due diligence to avoid committing the offence.” The wording of the defence is not identical, but the defences are broadly similar.

Who does it apply to?

Both the FTPML Offence and the MLRs apply to companies. One of the main differences between the proposed FTPML Offence and the MLRs, is that the MLRs apply only to particularly at-risk sectors (accountancy, legal services, etc). In contrast, the proposed FTPML Offence would be unrestricted, although the nature of the defence means that in practice it is likely to primarily apply to the same at-risk sectors.

Conclusion

The proposed FTPML Offence substantially overlaps with the existing MLRs, which means that its regulatory burden would probably be low, but also begs the question of whether it would have much value.

Such a requirement should be supported by comprehensive guidance from the U.K. government and bolstered by sanctions for noncompliance.


1 Corporate Criminal Liability: an options paper, Law Commission, 10 June 2022.

2 At 8.99. The Paper did not make “recommendations” per se, but outlined options for reform.

3 Press release: Law commission review a missed opportunity to hold banks, accountants and law firms accountable for money laundering, Transparency International, 10 June 2022;  Press release: Response to Law Commission’s Corporate Criminal Liability Options Paper, All Party Parliamentary Group on Anti-Corruption and Responsible Tax, 10 June 2022.

4 OECD Money-Laundering Leader Board, Credas Technologies.

5 The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

6 8.105, the Paper.

7 Section 6 of the Bribery Act 2010 and section 45 of the Criminal Finances Act 2017 respectively.

8 1.43(3), Ibid.

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