Money Laundering and Role of Professional Ethics

Money laundering controls require high level of professional ethics from professionals. For example

 many professionals including attorneys, accountants and bankers are often accused of engaging themselves in money laundering. This article accordingly examines role of professionals and professional ethics. For that purpose this study is based on the UK's Proceeds of Crime Act, 2002 (P.O.C.A).

Attorneys 

In essence law firms are being accused of providing the respectable interface between organised crime and financial institutions and structures. The often quoted example is that of accounts being opened for clients by law firms at banks where the latter already have an existing relationship, thus the probity of the law firm's client will not be questioned. Whilst it is obvious that such scare stories do have more than a basis in fact, it is perhaps interesting to note that one of the major complaints that National Criminal Intelligence Service, (NCIS) have is that although lawyers have to report suspicious transactions and customers, the level of such reporting in the United Kingdom is very low. Thus as no United Kingdom lawyers have been charged with money laundering offences (or if any have they are small fry and not on or of the scale that has been alleged in the reports), one does begin to wonder whether the point that is being made by NCIS concerns the justifiable plea about the very low level of suspicious transaction reporting from law firms. And then there is the other side of the coin in that one of the weaknesses in the UK system of money laundering regulation has been the inability of NCIS to keep up with the number of suspicious reports sent to them.

Accountants 

The role of accountant's arid similar professional advisers is very rarely out of the money laundering spotlight, for very good reasons: the low level of suspicious reports usually generated by such professions compared with the fact that their core business centers on money and detailed knowledge of financial patterns, Structures and systems. The complex systems, products and transactions are ideal laundering mechanisms, particularly when they are established and operated by professionals with a sound reputation. Just as with solicitors, probability suggests that there will be rotten apples among professional groups, and their standing is not enhanced if (rightly or wrongly), there is a perception that it is not taking the threads of money laundering seriously.

Money managers 

In moving the money offshore, Money Managers have a greater role to play. Moving money across jurisdictional lines makes tracing and recovery far more difficult for law enforcement. Many of the financial heavens are extremely reluctant to initiate action. In these circumstances the role of Money Managers to support AML regulations is very important. He can help, where the entire compliance requirements are met.

Compliance offences 

The compliance officers are required to meet the requirements of law and regulations. Where compliance officer stacks, the money laundering is free to move money. Compliance officers are a key to anti-money laundering (AML) effort's success.

Compliance and trust advisers 

A trust is a legal structure that is created to hide money. It authorizes legal transfer of money from jurisdiction to jurisdiction. A trust adviser can play an important role in thwarting the efforts of money laundering.

Computer specialists 

Computer and internet have become a key player in cross border movement of money. There a number of cash transfer forms like wire transfer, cash payments, credit cards etc where by large sums of money can be transferred. The role of computer specialist is very important to check the marked areas of such transfers and reporting of suspicious transfer.

The rules of professional ethics

Liabilities 

The most important liability is to maintain the integrity of the profession. Integrity of profession is jeopardized when a professional misconduct is committed. The question arises what is professional misconduct: A professional misconduct is committed when one:

(a) Violates or attempts to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another;

(b) Commit a criminal act that reflects adversely on the professional's honesty, trustworthiness or fitness as a professional in other respects;

(c) Engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

(d) Engage in conduct that is prejudicial to the administration of justice;

(e) State or imply an ability to influence improperly a government agency or official or to achieve results by means that violate the Rules of Professional Conduct or other law; or

(f) Knowingly assist a judge or judicial officer in conduct that is a violation of applicable rules of judicial conduct or other law.

Tipping-off 

"Tipping off ",1 is an offence where a person discloses the vital information that may cause prejudice in the investigation which might be brought following a protected or authorized disclosure, when that person knew or suspected a protected or authorized disclosure had been made. Although law provisions did not make any reference to the mens rea required, it is evident 2 that no offence stands committed unless the individual knew or suspected the disclosure was likely to prejudice any investigation. It may further be stated, no offence stands committed if no suspicious activity report (SAR) had been made at all.

Where three conditions are met, the facts constitutes an offence:3 (i) a person discloses that there has been a disclosure 4 to a constable, an officer of Revenue and Customs, or a nominated officer or a member of staff of Serious Organised Crime Agency (SOCA) of information which came to the person making the disclosure in the course of business in the regulated sector; (ii) the disclosure is likely to prejudice any investigation which might be conducted following the disclosure; and (iii) the disclosure is based upon information which came to the person in the course of a business in the regulated sector. The actus reus is very similar to the old section 333 save that (i) the new offence focuses on tipping off where a SAR has been made and (ii) the new offence can only be committed by a person who acquired knowledge of the SAR whilst acting in the course of a business in the regulated sector. The mens rea requirement are the same as had been prescribed under the old section 333. No offence 5 is committed where the person did not know or suspected that the disclosure was likely to prejudice any investigation.

The offence 6 also occurs when (i) a person discloses that an investigation into a money laundering offence is contemplated or underway, (ii) the disclosure is likely to prejudice the investigation and (iii) the information on which the disclosure is based came to the person in the course of a business in the regulated sector. Again the actus reus is essentially the same as the old section 333 save for (i) the focus on a money laundering investigation that is contemplated or underway and (ii) the new offence can only be committed by a person who acquired knowledge of the investigation whilst acting in the course of a business in the regulated sector. The mens rea is the same as for section 333 and requires knowledge or suspicion that prejudice was likely.7

The new offences are subject to four sorts of exceptions. Where institutions make disclosure to each other; No offence is committed when a disclosure is made by an employee, officer or partner to another such individual within the same undertaking;8 No offence is committed when a disclosure is made between credit or financial institutions situated in the European Union or in a country with equivalent money laundering requirements and both institutions belong to the same group;9 Group is defined as10 (essentially parent and subsidiary companies). No offence is committed when a disclosure is made by a professional legal adviser or a relevant professional adviser (meaning an accountant, auditor or tax adviser) to another such adviser in a different undertaking that shares common ownership, management or control.11

No offence is committed when a disclosure is made (i) by a credit institution, financial institution, professional legal advisor or relevant professional advisor to an equivalent party (which is situated in the European Union or a country with equivalent money laundering requirements), (ii) which relates to a client or former client or a transaction or service involving both parties, (iii) the disclosure is for the purpose of preventing a money laundering offence and (iv) both parties are subject to equivalent duties of professional confidentiality and personal data protection.12 This is an exclusion which encourages the exchange of information between different professionals and entities in order to combat money laundering.

Disclosures made to a supervisory authority or made as part of compliance with POCA are not an offence.13

No offence is committed if a professional legal adviser or a relevant professional adviser makes a disclosure to the adviser's client for the purpose of dissuading the client from engaging in an offence.

(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates) 

1. Section 333(1) of the Proceeds of Crimes Act, 2002.

2. Section 333(2)(a) of the Proceeds of Crime Act, 2002 (POCA).

3. Section 333A(1) of the Proceeds of Crimes Act, 2002.

4. Part 7 of POCA

5. Section 333D(3) of the POCA.

6. Section 333A(3) of the Proceeds of Crimes Act, 2002.

7. See Section 333D(4) of the Proceeds of Crimes Act, 2002.

8. Section 333B(1) of the Proceeds of Crimes Act, 2002.

9. Section 333B(2) of the Proceeds of Crimes Act, 2002.

10. Directive 2002/87.

11. Section 333B(4) of the Proceeds of Crime Act, 2002.

12. Section 333B(2) of the Proceeds of Crimes Act, 2002.

13. Section 333D of the Proceeds of Crimes Act, 2002.

Random Thoughts on the Philosophy of Law

                        




 Notable German philosopher Emmanuel Kant believed,  there exist  eternal and immutable 
principles which govern and contribute making of laws, and law making was used to be judged in this perspective. According to him, the distinct mark in this regard is free will, which is the ultimate principle leading to the concept of "rights" which was stood deduced from  rational harmonization of free will, nevertheless the ethical basis and theological basis govern the principles of 'Jurisprudence' as a science of philosophy. 

These developments led to the advancement of the concept of rational foundation,  this view was replaced by Kant by advancing the concept of  'metaphysical foundations' which explained the concept of authority behind the precepts required for  an unchallenged authority, in this background he pleaded for recognition of divine law by the  political entity namely State.

In this background by the end of 18th century, the natural law philosophers stood divided into:

A. Natural law philosophers  who believed in the explanatory use of divinity; and;

B. Positive law philosophers who developed the declaratory functions of law.

These concepts were deduced from: 

I). Analytical reasoning ;

II).  Authoritarian nature of law; and

III). Emergence of law as a philosophy.

In this background, the most common source of law namely, "Custom" emerged as a recognized and applied principle of law. The fact is that in the enforcement of a  'Custom' there was no act of creation and as a source of law it was recognizing  a fact which was already in existence as a popular action. Accordingly, the " natural law school" recognized  that law is to be discovered as the same stands as  an immutable and eternal fact.

On the other hand, "historical school" believed that positive law was not an outcome of human wisdom, and that the idea of right and wrong did itself progressively developed through the  experience which humans gained through the practice of  administering Justice.

Jurisprudence: The science of jurisprudence emerged from the ethical concepts. In this way, it demanded  socio-political considerations relating to:

i. Freedom; and

ii. "Rights".

Over a period of time, ethical considerations gradually stood ejected as being the source of law from historical jurisprudence. And  the 'Custom' emerged as being the fundamental source  of law:  In this perspective  following considerations were notable:

iii. Behavior formation and acceptance of 'custom' as force of law;

iv. "The structure of law" thus  fall in the realm of  historical theory of jurisprudence,  this idea fundamentally became dependent on  tradition or  "Custom" leading to a strong  foundation of law.

Developments in the 19th Century: Orthodox historical jurisprudence rejected  creative participation of Judges , Jurists, and the law givers. But despite all that, 'Custom' emerged as an undisputed source of law.

The characteristics of norms based  customary law: 

I).  Normative form of law emerged from the practice of popular actions.

II). Foundation of Normative law is based on judicial reasoning.

III) It is based on doctrinal writings , scientific discussions and  legal principles.

IV). Justinian code for examples, became, the source of law and a foundation for legislation.

The Roman era: This era was plagued with the following issues:

a) Culmination of Rational discovery .

b) Through Roman Senate Legislation became a new source of law.

c)' Custom' became an enforceable norm.

A contrasting view of the legal systems appeared in the laws of Germanic people. These Laws had their foundations in:

i. Norms declared as practicable  by Custom;

ii. Religious usages;

iii. Social Customs;

iv. Traditional mode of social customs.

The basis of authority in this regard was long and undisturbed usage. Custom and traditions grew and law also grew.  Legislation became an instrument to restate the usages and traditions in a systematic and organized way. Morals at that time were out of the domain of judges.

Historical jurisprudence: The philosophers of historical jurisprudence believed that customary precepts were independently given effect in judicial course of action while analytical Jurists believed that sanction of law was used for enforcement through judicial and administrative organs. As regards social rules, one has to consider pressure behind the legal rules. For example: 

Sanctions:

Habit of obedience;

Displeasure by one's fellow men;

Public sentiment;

Social standard of Justice.

And in this background, jurists all through were trying to find out answer to the question namely,  What is law?

All through these ages the historians, jurists and philosopher were able to establish a body of enforceable precepts from sources where from legal precepts were drawn. And gradually religion became a political and organised society. These institutions stood intermingled in religion, law and morals. The Geeks for example, treated law as consisting of traditions, religious usages and traditional social customs. And through social control of customs, gradually legislation stood recognized as source of law.

Sources of enforcement for social controls: In this regard, politically organised societies contributed, for example, Roman law was not divine, it was based on social Customs, but still impact of divinity on it is quite strong. For example, the Romans supported enforcing of good faith in transactions, keeping the promises, and performing the agreements. And gradually law adopted all these concepts.

2nd stage in the development of law: In this era law was made stricter and the State became powerful.  Views of analytical jurists had their impact on the developments of this era.In this age, law was defined as a system of remedies based on  procedural rules. The state and its departments were to operate in these given norms. The law now stands codified and crystallized. Custom, as a source of law stood, outstripped by morality, while the law of this stage became highly immoral.

In the next stage: Assimilation of ideas from other legal systems became more organised for example, development of court of chancery in England and philosophic ideas of juristic writers.

Base line: Law must coincide with morals, and moral principles became equitable principles. Accordingly 'law of Nature School' links itself to somewhere between law and morals. The views of analytical jurists also had the impact: And concepts of rights, duty, power, liberty and privilege emerged as being devoid of any moral content.

In the 19th century, legal rights and legal duties stood recognized as part of natural right and moral duties. Morals were now treated as duty, and legal creditor who sought equity had to do equity himself.

"Maturity of law" in this sense emerged through moral institutions which stood legalized. Moral ideas and statutory provisions worked as raw materials from which the courts made the law by judicial decisions based on the sources of law.

(The writer is an advocate and is currently working as an associate with Azimuddin -Din Law Associates Karachi)