Blog: A partnership of equals? The government’s new anti-money laundering action plan



Ray Gribben

Ray Gribben examines the government’s proposals for tackling money laundering in the wake of the Panama Papers.

Hot on the heels of the Prime Minister announcing a taskforce to investigate any evidence of illegality found in the “Panama Papers” comes a jointly published Action Plan from the Home Office and HM Treasury to turn up the heat on anti-money laundering and counter-terrorist finance. No “knee jerk” reaction according to Theresa May, but an “aggressive” set of proposals representing “the most significant change to the UK’s anti-money laundering and terrorist finance regime in over a decade”.

As matters currently stand, anti-money laundering legislation can be found in the Proceeds of Crime Act 2002 (POCA) and in the Money Laundering Regulations 2007. Similar legislation is in place to combat terrorist financing.

The Plan has four priorities and no less than 19 action points. Among the priorities, are proposals to create aggressive new legal powers and giving law enforcement agencies a raft of new capabilities to thwart money launderers and terrorists.

To add to existing law enforcement responses new powers are proposed to impose an obligation on an individual or entity to explain the source of their wealth in support of a regulatory investigation. Civil courts could have powers to impose new “unexplained wealth orders”, those failing to satisfy the authorities of the source of their wealth having their property and cash seized.

Further, there could be new powers to designate entities which are of “money laundering concern” and which require the regulated private sector including banks, legal and accounting firms to take “special measures” when dealing with these entities.

How then will these priorities be delivered? The action points tell us more although remain short on the finer detail. Central to its aims, the Plan looks to a new way of working with the private sector with increased sharing of information between law enforcement agencies and the sector. A “partnership” of sorts.

The Plan in this area talks of reform of the Suspicious Activity Reports (SARs) regime and (somewhat vaguely) making “the necessary legislative, operational and technical changes” to deliver the objects of the Plan. It goes on to suggest exploring “legislation to achieve better information sharing between law enforcement agencies and the private sector and between private sector entities”.

One may well ask what additional burden this may place upon a private sector already squarely “in the frame” in this area of legislative compliance and subject to significant penalties for failure to comply. “Partnership” suggests a sharing of the risks and benefits but will the reality be an increased obligation on the private regulated sector to report suspicions and provide information and documents to law enforcement agencies? For instance, might this herald further erosion of the principle of legal professional privilege which inevitably in any increased “sharing” obligation, must come into play?

Much has been made recently of the circumstances in which (for example) the UK’s Serious Fraud Office (“SFO”) will look behind the veil of such privilege. It can safely be said that gone are the days when such privilege was accepted as sacrosanct. Certainly experience in the US has been towards the erosion of Attorney-client privilege in regulatory investigations there.

Alun Milford, SFO General Counsel in a recent speech to compliance professionals made clear that the SFO will not feel constrained to ask for accounts of witnesses spoken to in the course of internal corporate investigations even if they are privileged. If privilege is asserted in that context, the SFO will review that assertion “very carefully” according to Mr Milford. He went on to say that the SFO will litigate over unco-operative, false or exaggerated claims of privilege. Fair enough one might say but he added that it was clear too that even in well made-out claims for privilege, where a company nevertheless rendered the witness accounts sought by the SFO, that would count as a “significant mark of co-operation” as far as the SFO would be concerned. A company’s decision to structure its investigation in such a way so as not to attract privilege claims over witness accounts in the first place would equally be seen as “co-operation”.

Now consider adding into that mix the potentially far reaching aims of the Action Plan with increased powers being afforded to law enforcement agencies such as the SFO. One can see further potential for the erosion of legal professional privilege and increased pressure on private sector entities to “share” information which otherwise might arguably attract privilege. And if those entities are not so inclined to “share” then they may well face increased regulatory scrutiny with all the attendant stress, expense and adverse reputational exposure.

The Action Plan has a six week consultation period and clearly much flesh will have to be added to the bones. There has been no mention of funding for any of this and that too may yet play its part. What does seem clear at least is an increasing appetite to pin down money launderers.  Laudable certainly but, in the midst of austerity, will this mean a heavier burden on the private sector; more sleepless nights and less sanctuary within the church of legal professional privilege? Watch this space.