Defence Against Money Laundering

How firms can avoid the risk and how Twelve Tabulae can help

Money laundering remains a serious concern across many sectors, particularly for professionals whose role often places them in close proximity to significant financial transactions. Ensuring compliance with money laundering regulations is vital to avoid severe penalties and reputational damage.

With ever-evolving legislation like the Money Laundering Regulations 2017, the Economic Crime and Corporate Transparency Act 2023, and the Proceeds of Crime Act 2002, businesses must take active steps to defend against potential money laundering risks.

This article will explore two key angles. First, we will discuss the importance of firms avoiding money laundering and how they can meet their reporting obligations. Second, we will examine how Twelve Tabulae can assist professionals and businesses in defending themselves against a money laundering offence, providing expert guidance throughout the legal process.

The Importance of Avoiding Money Laundering

For any firm, especially those in the legal sector, taking proactive measures to prevent involvement in financial crime is crucial. The question is, how do firms shield themselves from the risks of becoming entangled in money laundering offences?

The answer lies in the implementation of the three lines of defence strategy. This structured approach helps mitigate risks and ensures compliance with anti-money laundering (AML) regulations.

What are the three lines of defence for money laundering?

The First Line of Defence: Operational Controls

The first line of defence involves creating and enforcing internal operational controls that focus on preventing money laundering activities. This means ensuring compliance with Money Laundering Regulations 2017 by conducting client due diligence (CDD) and keeping comprehensive records of all client interactions.

• Client due diligence: Firms are required to gather information about the identity of their clients, understand the nature of the client’s business, and evaluate the risk of potential criminal property being involved.
• Risk assessments: Firms must perform a risk analysis of each client to detect the potential for money laundering, ensuring that higher-risk clients are scrutinized thoroughly. For example, clients from high-risk jurisdictions should receive additional attention.

Operational controls should be integrated into the daily workflow of the firm. Effective control measures include appointing a reporting officer responsible for monitoring activities, identifying suspicious activity, and ensuring that reports are filed with the National Crime Agency (NCA).

The Second Line of Defence: Compliance and Risk Management

The second line of defence is about oversight and ensuring that the organisation follows its operational controls and remains compliant with relevant laws, including the Proceeds of Crime Act 2002 and the Economic Crime and Corporate Transparency Act 2023.

This layer is typically managed by compliance officers or risk management teams within a business, who monitor whether the firm is following its internal money laundering guidance.

They ensure that legal obligations, such as reporting obligations, are met. Regular audits and reviews help identify areas of improvement, where firms can strengthen their defence against financial crime.

• Money laundering guidance: It is crucial for firms to stay up to date with the latest regulations and best practices for identifying signs of money laundering, such as unusual transaction patterns or the use of multiple layers of corporate entities to obscure financial origins.
• Reporting obligations: If suspicious activities are detected, the compliance team must ensure timely and accurate reporting to the NCA or the firm’s reporting officer.

The Third Line of Defence: Internal Audits and Independent Reviews

The third line of defence involves external oversight to ensure that a firm’s controls are effective and that the risk management processes are being followed. This may involve internal audits or hiring external consultants to perform independent reviews of the firm’s AML procedures.

• Auditing and monitoring: These audits serve as a critical check, helping to identify gaps in compliance and assess whether the firm is effectively adhering to the Money Laundering Regulations 2017.
• Improvement recommendations: Auditors often provide recommendations on how to improve operational and compliance controls, reducing the risk of exposure to financial crime and enhancing overall corporate transparency.

By following this structured three lines of defence approach, firms can significantly reduce their risk of involvement in money laundering and better position themselves to meet the stringent obligations imposed by regulations.

How Twelve Tabulae Can Help

Despite best efforts, there are occasions when professionals or firms may face allegations of money laundering. In such cases, it is crucial to understand the available defences under UK law and how senior corporate disputes lawyer Simon Caltagirone, at Twelve Tabulae, can assist in mounting a strong defence.

What is the Defence to a Money Laundering Offence allegation?

Under UK law, the Proceeds of Crime Act outlines the main defence against money laundering offences. These defences can help professionals and firms avoid liability if they can demonstrate specific actions or circumstances that absolve criminal responsibility. Here are some key defences:

Lack of Knowledge or Intent

Most money laundering laws require a mens rea (guilty mind) component, meaning the accused must have intentionally committed the act. If the defendant can demonstrate that they acted innocently or negligently, without criminal intent, they may be acquitted.

Duress

• In cases where the defendant can prove that they were forced or coerced into committing the offence, duress may serve as a defence. This involves demonstrating that there was a credible threat to the defendant or their family that forced them to take part in the laundering activity.

Entrapment

• If the defendant can show that law enforcement officers or other agents induced them to commit a money laundering offence that they otherwise would not have committed, they may claim entrapment. This defence can be used when law enforcement oversteps legal boundaries in sting operations.

Absence of Criminal Proceeds

• A defence could be based on proving that the money involved in the transaction did not originate from criminal activity. If the defendant can show legitimate origins for the funds, the money laundering charge may be dropped.

Inadequate Evidence

• Like any criminal case, the prosecution must prove the defendant’s guilt beyond a reasonable doubt. If the evidence linking the defendant to the money laundering is weak, circumstantial, or insufficient, the defence may challenge the adequacy of the prosecution’s case.

Mistaken Identity

• In cases where the defendant can prove they were wrongfully identified as the perpetrator of the crime, this defence could be used. If someone else carried out the illegal transactions and falsely implicated the defendant, mistaken identity could be a valid defence.

Legitimate Business Transactions

• The defendant may argue that the financial transactions in question were part of a legitimate business and not intended to launder money. This defence requires providing proof of a bona fide business operation and that the funds were lawfully obtained.

It’s important to note that the defences available may vary depending on the specific laws and regulations of the country where the charges are brought. Legal advice from an experienced lawyer is essential in forming a robust defence tailored to the specific facts of the case.

Contact Us for Assistance with Defence Against Money Laundering

Money laundering regulations impose stringent obligations on businesses to prevent the movement of illicit funds through legitimate channels. Ensuring compliance with these laws is critical to protecting your business from severe penalties, reputational damage, and legal action.

Despite best efforts, there are occasions when professionals or firms may face allegations and require defence against money laundering. In such cases, it’s essential to have expert defence strategies in place.

Contact us today for expert advice and the best legal representation in navigating money laundering regulations. Our team ensures your business is fully equipped to identify, mitigate, and defend against money laundering risks while providing strong legal representation if allegations arise.

Simon Caltagirone
CEO and Senior Solicitor