The law on money laundering is continually evolving at both a national and EU level, as EU governments struggle to combat ever increasing levels of economic crime. The latest legislative change is the transposition into UK law of the fifth EU Anti Money Laundering Directive (5MLD) in regulations published shortly before Christmas 2019 (The Money Laundering and Terrorist Financing (amendment) Regulations 2019), which came into force extremely quickly on 10 January 2020. These regulations make relatively limited changes to the UK Anti Money Laundering (AML) regime, but such changes that were made will have a significant impact on businesses which are now brought within the scope of the regulated sector including high value letting agents, art dealers, crypto-asset exchange providers and custodian wallet providers.
What is less clear is how the UK will approach the Sixth EU AML Directive (6MLD), which will have a greater impact as it focuses on standardising the approach of EU member states by establishing minimum rules concerning the definition of criminal offences and sanctions. However, the UK exercised its right to opt out of the 6MLD in September 2017 and, of course, left the EU altogether on January 31, 2020.
The reason given by the UK government for its decision to opt out is that the UK’s domestic legislation is already largely compliant with the Directive’s measures, and in fact goes further. This is to a large extent true, as for example, the maximum penalty for money laundering is fourteen years, far exceeding the four-year minimum required by the 6MLD, and the UK already criminalises inchoate offences of assisting, encouraging and attempting to launder money.
However, one requirement that UK law does not at present contain is a failure to prevent money laundering offence. Article 7 of 6MLD requires EU member states to ensure that legal persons can be held liable where the lack of supervision or control has made possible the commission of money laundering by a person under its authority (such as an employee or agent) for the legal person’s benefit.
There has already been much debate in the UK about the potential expansion of corporate criminal liability to include a failure to prevent economic crime or money laundering offence. The focus has moved on from whether legislation is even necessary onto the format that such a ’failure to prevent economic crime’ offence will take. The SFO have been lobbying for an extension of the failure to prevent offence for some time.
However, organisations representing businesses and lawyers have repeatedly expressed concerns about the introduction of a wide failure to prevent offence and the additional burden that this would place on businesses. The Law Society warned that in an already complex legislative and regulatory landscape, additional laws would require businesses, particularly in the financial sector, to develop new training and compliance frameworks at a time when they are already facing significant compliance-related costs. UK Finance also stressed that there has been a reduction in public sector resources in this area. In particular, banks, as a highly regulated sector, being “increasingly required to deliver functions to supplement that of the state.”
One alternative that has been proposed is the introduction of more specific failure to prevent offences. However, some of the concerns raised about an umbrella offence come even more sharply into focus when discrete offences are considered. Taking failure to prevent or report money laundering as examples of potential discrete offences, it is of note that the Treasury Select Committee in 2018 criticised the UK’s anti-money laundering system as being fragmented and not fit for purpose. The introduction of further money laundering ’failure to prevent’ offences would add yet another layer of complexity.
There is also a real concern that further legislation could actually prove to be counter-productive, as underlined by the Law Society in their response to the Law Commission’s consultation on the reform of the Suspicious Activity Reporting system. It is widely acknowledged that the NCA is overwhelmed with the number of SARS it currently receives and the focus should be on the quality of reports, rather than the quantity. The concern is that the introduction of a ’failure to report’ offence will encourage even more defensive reporting.
All EU member states are expected to bring into force the laws and administrative provisions necessary to comply with the 6MLD by December 3, 2020. Despite the fact that the UK will no longer be a member state (and has opted out of this directive regardless), the UK will be under significant pressure to remain aligned with the EU on anti-money laundering measures if it is to obtain a favourable trade agreement.
Furthermore, the changes made by the 6MLD will be of importance to UK businesses, including those outside of the regulated sector, trading in the EU or with European subsidiaries or branches, as once the directive is in force, member states will have jurisdiction over offences committed in whole or part on their territory or by EU nationals. The 6MLD is also likely to have extraterritorial reach into the UK, as conduct that occurs in the UK amounting to an offence could be prosecuted by a member state if it was committed by either a national of that state or an organisation domiciled in that state. Therefore, the 6MLD will have an impact on any UK businesses trading in the EU, regardless of the fact that the UK will no longer be a member.
Whether the UK will maintain its reputation as a world leader in the fight against money laundering post Brexit remains to be seen. As it appears highly unlikely that the UK will introduce a failure to prevent money laundering offence by December 2020, especially given the lengthy delay in even publishing a consultation on the issue, the approach of EU member states and the UK to corporate liability for money laundering will have already diverged by the end of this year.