The Government’s new anti-money laundering regulations came into force on 1 March 2004 and individuals, businesses and their advisers could be exposed to criminal sanctions if they are not complying.

There has been a plethora of legislation to combat crime and terrorism over recent years with the most recent being “The Criminal Justice and Police Act 2001”, “The Anti-Terrorism, Crime and Security Act 2001” and “The Proceeds of Crime Act 2002”.

New Money Laundering Regulations came into force on 1 March 2004. These new Money Laundering Regulations significantly widen the impact of the legislation in terms of reporting responsibilities for professionals in particular but also for many others, especially high value dealers.

In the meantime, the Proceeds of Crime Act 2002 widened the definition of Money Laundering. It is now an offence to “acquire, use, possess, conceal, disguise, convert, transfer or remove criminal property OR to facilitate its acquisition, retention, use or control by or on behalf of another person OR the aiding, abetting or conspiring with a person to commit such offences”. The Act, together with the new Money Laundering Regulations, will mean that the knowledge or suspicion of almost any criminal activity, without any de-minimis limit, will be reportable by professionals to NCIS (National Criminal Intelligence Service). The subject of the report cannot be advised or warned when such a report is or has been made.

There is concerted national and international effort to combat the significant growth in criminal and terrorist activity post 11 September 2001. These tighter laws are to force the confidential reporting of known or suspected criminal activity to NCIS to enable them to build up their knowledge base in the fight against crime. The information available to NCIS will then be passed to the appropriate authorities including the police, H M Customs & Excise and the Inland Revenue.

Potentially all businesses and advisers - either in terms of reporting or in terms of being reported - will be affected.

So practically how does the legislation affect advisers?

There are three main areas:

(i) Appointing a Money Laundering Officer and having the appropriate internal systems and controls.

(ii) Being able to demonstrate that clients identities and addresses have been verified.

(iii) Recognising and reporting suspicions of money laundering and potential criminal acts involving the proceeds of crime.

The first of these should already have been dealt with by responsible firms and procedures should be in place which are clear for all firms to follow.

However obtaining proof of identity and address for clients is not always as simple as it may appear. Furthermore it is not always clear precisely who is the client.

For example as a forensic accountant I may be instructed to assist in a matrimonial case instructed by solicitors acting for say the wife. Is the client the Court, the instructing solicitors or the wife? It assists greatly if the instructing solicitors can confirm that they have verified the identity and address of their client.

Alternatively I have been instructed by solicitors defending individuals against criminal proceedings - do I need to report when clearly the authorities are already fully aware of potential criminal activity?

There will have to be a certain amount of co-operation between professionals in dealing with the preliminary aspects of the Money Laundering Regulations, e.g. in confirming identities and addresses and in sharing documentary evidence of such issues.

However the nub of the issue is the reporting of suspicions of money laundering and the proceeds of crime. The offences covered are extremely wide ranging.

By way of example only, the type of situations affecting businesses which may be reported include knowledge or suspicion of tax evasion, non-commercial or unexplained transactions, collusion in price fixing arrangements, any criminal activity as well as drug trafficking and terrorism funding.

When undertaking forensic assignments issues may arise which were not anticipated with the original instructions. For example in a matrimonial case one party may make allegations that there are undeclared takings being retained by their spouse. This may represent a wild allegation or wishful thinking. Alternatively it may give rise to real suspicion of tax evasion and/or theft from the company. In such cases a Money Laundering Report may be required.

If a report is made then issues arise over whether the fact a report has made should be disclosed to the instructing solicitors and ultimately to the Court. To do so may be seen as tipping off whereas not to do so may restrict the Court from reaching a proper conclusion on the income and assets of the parties.

The difficulties surrounding this area were highlighted in the case of P -v- P [2003] EWHC 2260. This case involved the lawyers making a report to NCIS. It was ruled that they were entitled to tell their own client or their opponent that a report had been made.

This appears to contradict the general rule that clients cannot be tipped off that a report has been made.

All professionals need to be aware of their obligations under the Acts and be prepared to report ALL relevant suspicions to NCIS. Failure to do so might leave advisers with extreme problems with the authorities and the very real possibility of a criminal conviction and custodial sentence.

We all need to be on our guard.

Jeremy Rowe is a senior manager in the Forensic Department at Pierce Chartered Accountants in Blackburn, Lancashire. Jeremy is part of a team of five forensic accountants working in the areas of personal injury, matrimonial finance, commercial litigation, fraud, criminal work. Please telephone Jeremy Rowe on 01254 688100 if there are any matters you wish to discuss, alternatively you can email him j.rowe@pierce.co.uk..