The Limits of the Law: An Analysis of the Interrelationship of the Criminal and Civil Law in the Control of Money Laundering

Pages209-224
Publication Date01 Jan 1999
DOIhttps://doi.org/10.1108/eb027188
AuthorBarry A.K. Rider
SubjectAccounting & finance
Journal of Money Laundering Control Vol. 2 No. 3
The Limits of the Law: An Analysis of the
Interrelationship of the Criminal and Civil Law
in the Control of Money Laundering
Barry A. K. Rider
INTRODUCTION
In recent years the divide between areas of law,
which have hitherto been perceived, in most
systems of jurisprudence, as relatively and mutu-
ally distinct, has narrowed and in some instances
all but disappeared. This tendency is perhaps no
more dramatically illustrated than in, which for a
better description, might be termed the area of
financial regulation. When the present author
started teaching a course in the University of
Cambridge on financial services regulation in 1979,
the perception among those of his colleagues who
regarded such things, was that this formed part of
the corpus of corporate law. Of course, this analy-
sis is only partly justified, and beyond the area of
corporate finance law is misconceived. On the
other hand, the commercial lawyers, who at
least in Cambridge, have been regarded or perhaps
more accurately tolerated, as being a little more
academically respectable than pure corporate law-
yers,1
were distinctly unsympathetic to the notion
that financial services law is in part akin to banking
law and therefore a subject more suited to mercan-
tile law. Given the author's predilection to weigh
more heavily those aspects of the law that are pro-
tective of society, rather than facilitative of enter-
prise, it is not surprising that he ventured more
and more into the realm of prohibitions, sanctions
and even the criminal law. Take for example, the
abuse of price sensitive information2 obtained by
those in a confidential position, by virtue of that
privileged relationship, to trade on the basis of that
information in corporate securities in other
words, insider dealing. Is this properly regarded as
a matter for the traditional law relating to directors
and officers, and thus, company law, or given the
fact that most countries today seek to curb such
activity on the basis that it harms confidence in the
integrity of public markets, a matter of public, and
in particular criminal law?3 While such a debate
may appear somewhat academic, even if it does
result in the demarcation of courses and the like, it
can and occasionally does have a very real practical
significance. For example, in some jurisdictions,
such as the USA, the Federal Legislature is compe-
tent to legislate on matters pertaining to inter-
national trade and finance, and thus the protection
of the markets, but not matters of traditional com-
pany law. On the other hand, it has been con-
tended in jurisdictions such as Canada4 that given
the uncertainty attaching to the Federal Legisla-
ture's competence in regard to the financial
markets, it is better to consider insider abuse as a
matter of company law. Similar issues arise in the
context of the competence of specific organs of the
European Union and, of course, are not uncom-
mon in the demarcation of competence between
domestic agencies, whether of law reform or
enforcement.
In Britain, until very recently, it has long been
considered right to inhibit insider abuse, on the
basis that it does undermine confidence in the
integrity of the nation's capital markets, by result
to the criminal law.5 Therefore, insider dealing has
been regarded as a serious criminal offence since
1980,
and although the enforcement of the crimi-
nal law has encountered very significant problems,
the relevant government department opposed the
suggestion, even by House of Commons Select
Committees,5 that thought should be given to
adopting procedures akin to those used seemingly
with greater effect in the USA, involving essen-
tially civil enforcement. The Department of Trade
took this stand on the basis that what is at issue is
a public wrong, and it is therefore the province of
the traditional criminal law to vindicate it.7 The
fact that the traditional criminal justice system has
manifestly failed to achieve minimal effectiveness
against serious economic crime, in most if not all
common law jurisdictions, was irrelevant 'to the
pure theory of
law'.
However, things are changing,
and on 6th May, 1998 the Chief Secretary to the
Treasury announced that the government would
be introducing legislation to provide the new
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The Limits of the Law
Financial Services Authority, in Britain, with
enhanced statutory powers enabling it to resort to
civil enforcement proceedings and also to impose
civil penalties for insider abuse. What is interest-
ing, however, is that these potentially important
developments have received little attention among
those practising in commercial, corporate and even
financial services law, let alone the academic com-
mentators. Rather it is those who practise in the
area of administrative law and human rights that
have sat up.
While the present author welcomes the more
realistic appreciation of law as a tool in the hands
of
society,
rather than as a discipline best suited for
the cloisters, virtuous or otherwise, he is con-
cerned that given the nature of scholarship and the
way in which lawyers carve out their practices,
there is little thought given to the interface
between what are very different areas of law. It
cannot be assumed that all have the same struc-
ture,
character or objective. The rules are quite
rightly different and taken out of their context, can
well prove perverse if not dangerous. Thus, to illu-
strate the point by reference to the English law, it
is arguable that compliance with the criminal law
relating to the unauthorised disclosure that an
investigation into a suspected case of money laun-
dering is afoot, may well expose a financial inter-
mediary to civil liability. The problem is, that
those who prepared the criminal legislation were
obviously unaware of developments that had taken
place in the civil law. This is something which will
be addressed towards the end of this paper. There
are many other examples, not just in English law.
The control of money laundering has become
an issue for those who are interested in the com-
mercial and financial sectors. For example, the
British Government has announced that the
Financial Services Authority will be one of the
front-line agencies in policing such activity within
the area of its statutory authority. Therefore it is,
perhaps, appropriate to focus on the prevention
and control of money laundering as an example of
a problem which not only throws up cross-border
issues in the usual sense, but also impacts and
influences the application of law across a very wide
spectrum of the legal system.
The aims of this paper are to explore the inter-
relationship of different areas of the law, the
burden that is increasingly being cast on those who
venture to look after other people's money, and
perhaps most importantly, to gaze a little into the
future.
LAUNDERING OF WEALTH
The acquisition of and control over wealth is the
motivation for most serious crimes involving pre-
meditation.8 This is all the more so when the
criminal activity resembles an enterprise which
inevitably requires capital to operate and with
which to lubricate its aspirations.9 Money, or
rather wealth, in its disposable form, is therefore
not only the goal of criminal enterprises, but the
life blood of the enterprise. Therefore until the
profits of crime are taken away from subversive
and criminal factions, there is little chance of
effectively discouraging criminal and abusive con-
duct which produces great wealth or, through its
profits, allows power and prestige to be acquired.
As soon as the state devises methods for the trac-
ing and seizure of such funds, there is an obvious
and compelling incentive for the criminal to hide
the source of his ill-gotten gains in other words
to engage in money laundering.
Like most social, let alone economic, evils,
money laundering is nothing new. It is as old as is
the need to hide one's wealth from prying eyes
and jealous hands, and concern about the uses and
misuses of hidden money is not just an issue in
this century. Of course, the modern money laun-
derer will no doubt adopt rather more sophisti-
cated techniques than the gem carriers of India or
the Knights Templar, but his objectives and essen-
tial
modus operandi
will be the same. The objectives
will be to obscure the source and, thus, the nature
of the wealth in question and the modus
operandi
will inevitably involve resort to transactions, real or
imagined, which will be designed to confuse the
onlooker and confound the inquirer.
It is not surprising that those who are tasked to
follow the wealth in question whether for the pur-
pose of taxation, restitution or confiscature,10 will
require the assistance of those who knowingly or
otherwise facilitate the processes of laundering.
Therefore, in recent years an increasing burden has
been placed on those who handle other people's
money and wealth to record transactions and even
in some measure inquire into the provenance of
funds and even the nature and integrity of a
specific transfer. The legal and administrative bur-
dens that have been cast upon bankers and other
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