At yesterday's MLROs.com forum in London, Jan Hagen of Regulatory Finance Solutions Ltd (pictured) updated a large gathering of compliance experts about the UK's ground-breaking bill, which is expected to receive Royal Assent shortly.

Hagen told the large audience, which had gathered in the hall of the law firm of Squire Patton Boggs in Bishopsgate, that the bill had had its third reading in Parliament the previous day "and, depending on the amount of ping-pong, can be presented for Royal Assent immediately."

He added: "The final few amendments have been presented back to the House of Commons. With a bit of luck they can get it done before Parliament breaks up for the general election on 8th June. If it takes longer, they'll have to put it on ice until the next government does the job. There is no expectation of the Bill getting thrown out because it has wide support."

Why have a Bill at all?

Some time ago, the Home Office assessed the effectiveness of British legislation in relation to the proceeds of crime and identified two areas of potential weakness. These were:

• early restraint and seizure of criminal proceeds (and of the proceeds of tax evasion in particular); and
• enforcement and collection.

Key changes

Not many of the changes will affect money laundering reporting officers directly, but Hagen thought that MLROs ought to be aware of them nonetheless. The Bill proposes to affect the UK's suspicious transaction reporting regime; to introduce an information-sharing gateway; to introduce unexplained wealth orders; to strengthen the state's investigative and asset recovery powers; and to make it a crime to fail to prevent tax evasion. Hagen said that this stopped short of the Government's original proposal to oblige CEOs at financial firms to prevent economic crime in general, adding that he thought that politicians would probably 'revisit' the idea in future sallies.

The STR regime

British MLROs were relieved when the Government announced that it did not intend to go ahead with proposals to scrap the country's interesting AML 'consent' regime. This calls on each MLRO to deny a customer who is the subject of an STR access to his account while the National Crime Agency takes up to seven working days (or 31 actual days, if it wants to extend the period) to decide whether to open an investigation (and therefore freeze the account further) or not.

Under section 335 Proceeds of Crime Act 2002 a 'reporter' can defend himself against the charge of committing a money laundering offence if he asks the police for consent to go ahead with a potentially suspicious transaction - the Government was thinking of taking this protective umbrella away and leaving the MLRO exposed to various charges in an 'intelligence-led' minefield of liability. At this point Hagen articulated one of the main themes of the conference: "MLROs need everything they can get their hands on to protect themselves."

After a maximum of 31 days, then, the MLRO can assume that the Government has granted him consent to go ahead with transactions on the account again. When the Bill finally amends POCA, the state will be able to extend this period up to a maximum of 186 days after the end of the original 31, or 217 days in toto. Hagen thought it quite amusing that the Bill says that this should happen "under extreme circumstances" because he thought the State might do it less discriminately. The High Court will have to satisfy itself that the request is reasonable and not because the police have merely failed to get around to investigating.

The Bill also proposes to allow the NCA to come back and ask for more information, giving it yet more power.

All these delays are likely to lead to more litigation from high-net-worth customers. Hagen added: "217 days is a long time. People start litigating after 10-15 days!"

Be careful what you wish for!

He went on: "MLROs are going to be reluctant to file an STR because of the risk of litigation perhaps. It would be impossible to manage the client relationship with this lengthy freezing order, especially if he's innocent."

He did have some good news, however. One delegate asked him whether the sheer length of the delay could be interpreted as evidence that an investigation is going on and that the MLRO is therefore tipping the customer off about it in contravention of s333 POCA. He said: "If at some point the client decides that there's an investigation going on, that's his affair. You're just giving him the same [obfuscatory] answer over and over again."

The sharing of information

The Government set up the Joint Money Laundering Intelligence Taskforce (JMLIT) in May to combat money laundering. The new law is also designed to allow private companies, i.e. banks and asset managers, to share information about suspicious activity between one another with no legal liability. Hagen added: "There are, however, rules. The organisation has to ask for it. You can't just offer it."

Unexplained wealth orders

UWOs are the most shocking product-to-be of the new law. Hagen thought that people had been generating a lot of 'noise' about them. UWOs are designed to require someone who is suspected of obtaining properties with illegal funds to explain the sources of his wealth to the State. The property will, if all goes well, have to be worth more than £50,000 - a figure that can only depreciate in real terms as time goes by. There will have to be reasonable grounds for suspecting that his lawful income was not enough to explain the purchase of the property. To this Hagen added: "unless he's a PEP - if an order is served on a politically exposed person and he can't explain a yacht, for example, it's forfeit.

He went on: "The Financial Conduct Authority like to pop in and see how good your due diligence is around PEPs. If you haven't picked up his disproportionate wealth, you're in trouble. So there could be a lot of tightening up of PEP due diligence as a reaction to UWOs. If we don't pick this up but the police do, we might be in trouble."

A strengthening of powers

The new law allows for the 'revisiting' of state confiscation powers. This, Hagen said, meant that "when a confiscation order is dismissed it can be revisited. It's no longer done and dusted, they can keep coming back." There are also reforms to do with the forfeiture of bank and building society accounts through the civil process, in which the police can freeze an account for up to two years, and more civil recovery powers for the FCA and HMRC.

"MLROs have to do quite a bit of training around this. A lot of MLROs I know are already struggling big time with the amount of orders that exist. Every single one is slightly different. So this actually does create a further level of complexity around these orders. It's really important that financial crime teams should go through extensive training exercises and should not rely on what they've picked up on Google. By the way, a lot of the MLRO training I work with is based on whatever Google tells you."

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