Money Laundering in England and Wales
| Pages | 195-210 |
| Date | 01 April 1994 |
| DOI | https://doi.org/10.1108/eb025647 |
| Published date | 01 April 1994 |
| Author | Michael Hancock |
| Subject Matter | Accounting & finance |
Money Laundering in England and Wales
Michael Hancock
Michael Hancock
read law at Manchester University,
graduating in 1983. He joined Durrant
Piesse's banking litigation department in
1986 and, after the merger with Lovell
White and King in 1988, was seconded
by Lovell White Durrant to its Hong Kong
office.
He returned to London in 1992
and,
shortly thereafter, was seconded for
six months to Standard Chartered Bank's
Group Legal Department. Returning in
1993,
he worked in a team which
specialises, amongst other things, in
combating money-laundering.
Michael Hancock is presently
participating in the EC's Executive
Training Programme in Tokyo.
ABSTRACT
This paper assesses the significance and
impact of the Criminal Justice Act 1993 and
the Money Laundering Regulations in the
context of previous legislation and
examines the extent to which the law has
been strengthened by the new legislation. It
also highlights the major international initia-
tives which have been responsible for
exposing the extent of the money-launder-
ing phenomenon and which have helped
shape the present legislative framework.
The banking and financial system is
finding itself in the front line of the war
being waged internationally against
money launderers. Traditional concepts
of banking secrecy are being under-
mined as governments struggle to pre-
serve the integrity of the banking system.
The war is on a vast scale. The Financial
Action Task Force (created in 1989 by
the seven major industrial nations and
the President of the European Commis-
sion) estimated that the amount of
money being laundered through the
financial system was US$85bn per year.
The extent of the problem was recog-
nised in the International Narcotics
Control Strategy Report for 1993 which
found that eight of the world's major
money-Iaundering states are located in
Europe.
Europe has responded to the growing
crisis in the financial sector with the
Money Laundering Directive which was
due to be fully implemented across the
Community by 1st January, 1993. The
directive, which applies to credit institu-
tions and financial institutions, includ-
ing Community-based branches of
non-Community institutions, reflects a
number of key international initiatives
and attempts to harmonise the anti-
laundering legislation of the Member
States, though with varied success.
This paper outlines the directive and
its antecedents, before tracing the con-
siderable developments within the UK
since the Drug Trafficking Offences Act
1986,
which marked the beginning of
the Government's campaign to deprive
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THE JOURNAL OF ASSET PROTECTION AND FINANCIAL CRIME VOLUME TWO NUMBER THREE
HANCOCK
criminals of the fruits of their crime,
culminating in the Criminal Justice Act
1993 (CJA 1993). The secondary legisla-
tion is also analysed, in the form of the
Money Laundering Regulations (the
'Regulations'), which came into effect on
1st April, 1994.
The CJA 1993 introduces and defines
the ambit of the new money-laundering
offences, whilst the Regulations clarify
the procedures which must be adopted
by anyone carrying on 'relevant financial
business'. For the sake of brevity the
focus has been only on the position in
England and Wales, since Scotland and
Northern Ireland are governed by
dif-
ferent statutes.
WHAT IS MONEY LAUNDERING AND
WHY IS THERE A PROBLEM?
Money laundering is the process by
which the origin of the financial pro-
ceeds of crime is concealed with the
object of allowing the subsequent use of
such proceeds in legitimate commercial
activities. The goal of the money laun-
derer is to transform 'dirty' money into
'respectable' money or other derivative
assets and in so doing to leave as little
trace as possible of the means of such
transformation.
The process of laundering money can
involve a series of complex international
transactions, where money is channelled
through institutions in a number of
jurisdictions, exploiting varying degrees
of banking secrecy rules along the way.
The criminal's objective is to make each
isolated stage appear unsuspicious to the
financial institution involved. However,
there are essentially three basic stages of
money laundering:
Placement —
the physical disposal of
cash proceeds derived from illegal
activity;
Layering — the structuring of complex
layers of financial transactions so as to
conceal the source of the funds and
make it as difficult as possible to
follow the audit trail created in the
process;
Integration —
the provision of appar-
ent legitimacy to the financial pro-
ceeds of crime by returning them into
the economy, at the end of the layer-
ing process, as bona fide business
funds.
It is widely accepted that the 'placement'
stage is the most crucial in the money-
laundering process and this is reflected
in the Regulations, discussed in the final
section of this paper, which are designed
not only to make it much more difficult
for money launderers to introduce
money into the financial system, but also
to facilitate the identification and track-
ing of such illegal money as manages to
penetrate the defences.
PAVING THE WAY FOR THE EC
MONEY-LAUNDERING DIRECTIVE
There were three international develop-
ments which prepared the way. These
were the Basle Committee on Banking
Regulation and Supervisory Practices,
the 1988 Vienna Convention, and the
1990 Council of Europe Convention on
Laundering.
In December 1988 the Basic Com-
mittee, which comprises representatives
from the central banks and supervisory
authorities of Belgium, Canada, France,
Germany, Italy, Japan, the Netherlands,
Sweden, Switzerland, the UK, the USA
and Luxembourg, published a 'State-
ment of Principles'. Its purpose was to
guide bank regulators towards a com-
mon approach to protect the financial
institutions and their payment systems
from being abused by money launderers.
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