The 2003 Money Laundering Regulations
| Pages | 75-94 |
| DOI | https://doi.org/10.1108/13685200510621262 |
| Date | 01 January 2005 |
| Published date | 01 January 2005 |
| Author | Richard Alexander |
| Subject Matter | Accounting & finance |
The 2003 Money Laundering Regulations
Richard Alexander
INTRODUCTION
For almost the last four years, considerable attention
has focused on the provisions now contained in the
Proceeds of Crime Act 2002. In June 2000, the Per-
formance and Innovation Unit of the Cabinet Oce
produced its report, Recovering the Proceeds of Crime,
which introduced in the UK, for the ®rst time, propo-
sals to recover civilly assets believed to be linked to
crime but which could not be proven to be such to
the criminal standard. In parallel with this, new taxa-
tion powers were also proposed: both this and civil
recovery later appeared in the Proceeds of Crime
Bill, now the 2002 Act. The Act also, of course, both
simpli®es and widens the money laundering regime.
All of these measures have, since their inception,
rightly been the subject of debate, both in conference
presentations and indeed in books and academic
articles. Considerably less attention has, however,
been paid to a separate collection of anti-money laun-
dering measures, drafted not long after the 2002 Act
and which arguably have an equally great, if not
greater, impact on the ®nancial services industry.
These are the Money Laundering Regulations 2003.
It is perhaps worth recalling in passing, incidentally,
that the Regulations are not produced by a ®nancial
regulator but are secondary legislation, a Statutory
Instrument passed by the Secretary of State. As such,
a breach of certain of their requirements may result
not merely in administrative, but criminal, penalties.
The ®rst Money Laundering Regulations in the
UK were introduced ten years earlier, in 1993,
1
and
came into force on 1st April, 1994. They had as their
principal purpose the implementation of the EU
Money Laundering Directive and, as such, imposed
the regime now often termed `know your customer',
together with requirements for record keeping and
also training of sta. Like the Directive, they were,
however, speci®cally targeted at the core ®nancial ser-
vices sector. They were then amended in November
2001, following the terrorist attacks in the USA a
few months earlier, primarily to bring within their
scope bureaux de change and money transmission
oces, which had previously not been covered.
They have now, however, been superseded by the
Money Laundering Regulations 2003, the bulk of
which came into force on 1st March, 2004. As with
the 1993 Regulations, the principal purpose is the
implementation of the EU regime, following the
introduction of the Second Money Laundering
Directive
2
at the end of December 2001.
In many ways, the 2003 Regulations build on the
1993 provisions that preceded them, just as the 2001
Directive amends, rather than replaces, the 1991
Directive which preceded it. It is therefore useful to
consider ®rst the 1993 Regulations and then the
changes which the 2003 Regulations brought about.
WHICH TYPES OF BUSINESSES ARE
COVERED?
The 1993 Regulations were introduced in July 1993,
explicitly in order to implement the 1991 Money
Laundering Directive. In their original form, they
were speci®cally addressed to the ®nancial sector:
`relevant business' was de®ned in Regulation 4 as:
deposit-taking business by banks and building
societies;
wider banking activities as set out in the Annex to
the EU Second Banking Directive;
3
the business
of credit unions;
the business of the National Savings Bank;
investment business as de®ned in the Financial
Services Act 1986;
4
and
insurance business.
On 12th November, 2001, however, the Regulations
were, as mentioned above, amended by the Money
Laundering Regulations 2001 to include money trans-
mission oces and bureaux de change. As with the
changes at the EU level, this extension was heralded
with considerable publicity: both the Prime Minister,
Tony Blair, and the Home Secretary, David Blunkett,
proclaimed in the wake of the events of 11th Septem-
ber of that year that they would act swiftly to include
bureaux de change in the remit of the money launder-
ing legislation. But as with the similar extension in the
2001 Directive, it is arguable that this was not necess-
ary. The Regulations speci®cally referred to the list of
activities contained in the Second Banking Directive.
In the discussion of the anti-money laundering pro-
visions at EU level, this list certainly includes (and
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Journal of Money Laundering Control Ð Vol. 8 No. 1
Journalof Money Laundering Control
Vol.8, No. 1, 2004, pp. 75± 94
HenryStewart Publications
ISSN1368-5201
included at the time the 1993 Regulations were intro-
duced) money transmission oces and it is arguable
that it also includes bureaux de change. As the ®ght
intensi®es to disrupt all means of laundering the pro-
ceeds of crime, it is certainly important to remove
any doubt as to what businesses are or are not covered:
for it merely to be arguable that a given enterprise is
covered is no longer good enough, particularly
when that type of enterprise has for some time been
identi®ed as a popular means of laundering money.
But one must also suspect that the 2001 Regulations
were also motivated, at least in part, by a desire to be
seen to do something, whether or not that something
in fact added substantially to what was already in
place.
Some debate surrounded the position of lawyers
under the 1993 regime. It was clear that they were
covered by the provisions relating to the substantive
oences in the Criminal Justice Act 1988; these applied
to all persons, regardless of their professional position.
Similarly, they were covered by the Drug Tracking
Oences Act 1986, shortly to be replaced by the Drug
Tracking Act 1994; although the obligation to
report suspicions of money laundering applied only
to those who obtained information etc through their
work, not to the population at large, this would
include lawyers. But, just as lawyers were not included
in the scope of the Directive in its original form, it
is not clear that they were included in that of
the 1993 Regulations. They were certainly not expli-
citly included. In certain circumstances, however,
especially where they handle client money, they do
engage in investment business or, as now de®ned, a
regulated activity. They certainly give investment
advice and may on occasion actually engage in the
buying and selling of securities or other investments
on behalf of their clients. Under the regime of the
Financial Services Act 1986, they were therefore regu-
lated in so doing by the Law Society, designated a
Recognised Professional Body (RPB). Although the
system of RPBs has passed with the coming into
force of the Financial Services and Markets Act
2000, solicitors
5
continue to be authorised to carry
on such business, and regulated accordingly by the
Law Society; that said, the Financial Services Auth-
ority (FSA) reserves the right to impose direct regu-
lation should it ever consider it necessary.
6
For the
time being therefore, the Law Society's Guide to
Professional Conduct contains detailed and explicit
rules, very similar to those in the Regulations, with
which solicitors are required to comply. Unlike the
Regulations themselves, however, breach of these
rules does not carry criminal penalties. It does, how-
ever, carry such sanctions as a severe ®ne (albeit a regu-
latory one) or, worse, suspension, or even termination,
of permission, not only to engage in a regulated
activity but to practise as a solicitor at all.
Nonetheless, with the 2003 Regulations, such
doubts are removed. Regulation 2(2) sets out the
types of business which are covered; sub-clause (l)
refers to `the provision by way of business of legal ser-
vices by a body corporate or unincorporated or, in the
case of a sole practitioner, by an individual and which
involves participation in a ®nancial or real property
transaction'.
The description of lawyers seems at ®rst glance
quite extensive. This may be explained, however, by
the variety of ways in which solicitors now operate
their business. They may not act as corporations and
therefore, historically, law ®rms have operated as part-
nerships. This paper is not the place for a detailed con-
sideration of English company law; suce to say that,
while a company is a separate legal entity, distinct
from its directors and ocers, a partnership has no
such separate legal personality. Rather, it is one with
the partners, who are jointly and severally liable for
any wrongdoing, whether in contract or in tort, that
the ®rm may commit. Many, probably even most,
English ®rms of solicitors continue to operate in this
manner. In addition, there are certain sole prac-
titioners, as has been the case for many years.
In 2000, however, the Limited Liability Partner-
ships Act was passed. This created a new type of
corporate entity, the limited liability partnership
(LLP), modelled in large part on that found in certain
US states (notably Delaware) and, more recently, in
Jersey. The LLP, in essence, maintains the essential
features of a partnership, ie the partners have a con-
siderable joint stake in the running of the ®rm in a
way that company directors do not, but introduces
some of the exemption of personal liability for the
®rm's wrongs and debts that are found with a com-
pany. To date, relatively few solicitors' ®rms have
adopted this new form, but those that have are
among some of the largest in the City of London,
including Cliord Chance and Mayer Brown Rowe
& Maw. It was therefore necessary, when that part
of the Regulations relating to lawyers was drafted,
for the wording to be particularly wide, so that all
forms of law ®rms would be covered.
But lawyers are far from the only professional
group to be brought within the scope of the new
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Alexander
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