London and Kuala Lumpur, 28 November 2007. The latest funding scandal to hit the Labour Party raises the spectre of banks making reports to the Serious and Organised Crime Squad indicating suspicions of money laundering by the Labour Party and, arguably by some of its donors and members.

The Labour Party says it will refund moneys paid to it but that will not help.

In the UK, the range of offences that are regarded as “predicate” offences for the purposes of money laundering is much wider than in other countries. “Predicate” offences are those that generate the proceeds of crime. The definition of predicate offences in the UK is much more stringent than that recommended by The Financial Action Task Force (FATF), which is widely regarded as setting the parameters within which member countries frame their laws. The usual position is “serious offences” which is in turn defined as those for which, on conviction, a person may be sentenced to more than one year in jail.

In 1993, the Criminal Justice Act adopted the FATF approach, which is itself more stringent than the approach adopted in, say, the USA which lists predicate offences in its counter-money laundering laws.

In 2000, the Labour government passed The Political Parties, Elections and Referendums (sic) Act 2000 which provided for a number of offences relating to political contributions – but specifically provided that no penalty under the 2000 Act would amount to imprisonment for a period exceeding one year. Accordingly, under the law as it then stood, there was no conduct that qualified as a predicate offence.

But in 2002, the same Labour government passed The Proceeds of Crime Act. That Act removed the lower limitation on the scope of predicate crime. In fact, alone amongst developed countries, the UK in fact imposed strict “all crimes” legislation, going much further than the FATF Recommendations.

It is that change that raises the problem for banks.

Worse, because money laundering is, by definition, a predicate crime for the offence of money laundering, banks now face a double dilemma – even if they take the view that the money was received by the Labour Party in innocence, now its origins are in question and any attempt by the Labour Party to deal with the money at least raises suspicion of money laundering.

Seemingly, the Labour Party's Bankers have no alternative but to report to The Serious and Organised Crime Agency (SOCA), using the procedure known as Suspicious Transaction Reporting, both the holding of the funds and any attempt to move them either by repayment or other method.

That puts SOCA in the difficult position of investigating not only the party of the sitting government but also, potentially, the second successive prime minister from that party.

But the situation also puts the Labour Party into difficulty: the offence of money laundering involves receiving, holding and dealing with criminal property. That includes money which are generated by reason of a crime.

Nigel Morris-Cotterill, Head, The Anti Money Laundering Network said “Money which is perfectly legal can become illegal by reason of its use.”

On the face of it donations from undisclosed beneficiaries are generally in breach of the 2000 Act. So in passing lawfully earned money into the Labour Party coffers without the required disclosures indicates that at some point the 2000 Act was breached.

Morris-Cotterill said “if the Labour Party seeks to do as it has done several times in the past, and simply send the money back saying “no harm done,” the law as it now stands is enough to at least cause an investigation and possible prosecution of several of those involved in the scheme. And the starting point for that must be a STR from the Party's bankers.”

Notes

 

1. The Proceeds of Crime Act 2002 provides at s340(2)

Criminal conduct is conduct which—

(a) constitutes an offence in any part of the United Kingdom, or

(b) would constitute an offence in any part of the United Kingdom if it occurred there.

 

2. The Proceeds of Crime Act 2002 provides at s340 (11)

Money laundering is an act which—

(a) constitutes an offence under section 327, 328 or 329,

(b) constitutes an attempt, conspiracy or incitement to commit an offence specified in paragraph (a),

(c) constitutes aiding, abetting, counselling or procuring the commission of an offence specified in paragraph (a), or

(d) would constitute an offence specified in paragraph (a), (b) or (c) if done in the United Kingdom.

 

3. The Proceeds of Crime Act 2002 ss327-329 provide as follows:

 

327 Concealing etc

(1) A person commits an offence if he—

(a) conceals criminal property;

(b) disguises criminal property;

(c) converts criminal property;

(d) transfers criminal property;

(e) removes criminal property from England and Wales or from Scotland or from Northern Ireland.

(2) But a person does not commit such an offence if—

(a) he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent;

(b) he intended to make such a disclosure but had a reasonable excuse for not doing so;

(c) the act he does is done in carrying out a function he has relating to the enforcement of any provision of this Act or of any other enactment relating to criminal conduct or benefit from criminal conduct.

(3) Concealing or disguising criminal property includes concealing or disguising its nature, source, location, disposition, movement or ownership or any rights with respect to it.

328 Arrangements

(1) A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.

(2) But a person does not commit such an offence if—

(a) he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent;

(b) he intended to make such a disclosure but had a reasonable excuse for not doing so;

(c) the act he does is done in carrying out a function he has relating to the enforcement of any provision of this Act or of any other enactment relating to criminal conduct or benefit from criminal conduct.

329 Acquisition, use and possession

(1) A person commits an offence if he—

(a) acquires criminal property;

(b) uses criminal property;

(c) has possession of criminal property.

(2) But a person does not commit such an offence if—

(a) he makes an authorised disclosure under section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent;

(b) he intended to make such a disclosure but had a reasonable excuse for not doing so;

(c) he acquired or used or had possession of the property for adequate consideration;

(d) the act he does is done in carrying out a function he has relating to the enforcement of any provision of this Act or of any other enactment relating to criminal conduct or benefit from criminal conduct.

(3) For the purposes of this section—

(a) a person acquires property for inadequate consideration if the value of the consideration is significantly less than the value of the property;

(b) a person uses or has possession of property for inadequate consideration if the value of the consideration is significantly less than the value of the use or possession;

(c) the provision by a person of goods or services which he knows or suspects may help another to carry out criminal conduct is not consideration.

 

4. All financial institutions are required to appoint a “Money Laundering Reporting Officer” who must consider all potentially suspicious circumstances relating to customers and their accounts, including counter-parties, and where suspicion that money laundering may have taken place or may be taking place must make a report to SOCA. There are severe penalties for financial institutions and MLROs who do not make suspicious transaction reports where it is later found that they should do so.

 

5. The Financial Services Authority is responsible for ensuring that financial services businesses have proper systems in place to detect and deter money laundering and for the making of suspicious transaction reports and can issue sanctions against financial services businesses which have inadequate systems.

 

6. Under the Money Laundering Regulations 2003 provide for criminal sanctions against financial institutions that have inadequate systems. The Money Laundering Regulations 2007 come into force on 15 December and include similar sanctions.

 

7. About The Anti Money Laundering Network.

The Anti Money Laundering Network is an international group of companies providing consultancy, information services, client profiling software, e-learning and face to face training for financial institutions, commercial concerns and governments all over the world. With points of presence in London, Kuala Lumpur and Hong Kong, The Anti Money Laundering Network is the leading specialist consultancy for helping combat money laundering and terrorist financing.

 

Contact: url - www.antimoneylaundering.net

Phone: Response centre: Kuala Lumpur +6 03 2078 9152