6 minute read
On guard for Money Laundering
MONEY LAUNDERING
Tim Ryan gives clear and concise advice on ways to mitigate the problem and avoid unwittingly committing an offence
Until recently, you might be forgiven for thinking that money laundering is really only a problem for banks, accountants and solicitors to worry about and not something to overly-concern schools. Certainly, schools have never been subject to the same strict anti-money laundering regulations that apply to businesses and individuals who carry out work in the so-called regulated sector. A few wellpublicised cases and warnings from senior police officers and politicians have, however, gone some way to change that perception.
It has been estimated that every year about £90 billion of criminal money gets laundered through the UK, but in 2017 only six out of the 423,000 Suspicious Activity Reports submitted to the National Crime Agency (NCA) came from education institutions. In September 2018, the head of economic and cyber crime at the NCA stated that private schools need to be doing much more to address the issue, and later that year, in announcing a major crackdown on money launderers, Ben Wallace, Minister of State for Security and Economic Crime, threatened to come down hard on those schools ‘who don’t ask many questions if suspicious people come along with cash’.
Whether the criticisms are fair or not, it can no longer be denied that the risks are significant. According to the latest UK Independent Schools Council census, more than 55,000 pupils at its member schools
come from overseas, including more than 2,500 Russians, 1,400 Nigerians and almost 600 from Central Asia. While the vast majority of parents choosing to educate their children at schools in the UK are doing so from perfectly legitimate sources of wealth, there are a small number for whom that won’t be the case.
In a nutshell
Money laundering, put very simply, is the process by which the proceeds of crime are converted into assets which appear to have a legitimate origin. But money laundering is far from simple and can take an almost infinite number of forms, in which money is cycled and recycled through the system, again and again, to prevent it being traced back to the criminal activity from which it first derived.
In the independent school sector, money laundering can include any of the following scenarios: • donations to projects for which an appeal is being run • donations to the school for no obvious reason • payments in advance for fees • the requested return of fees paid in advance.
Or, it might just be the payment of fees from illicit wealth in order to enhance a family’s reputation by having their child in a prestigious school. Clearly you need to be on your guard.
Principal offences
The Proceeds of Crime Act 2002 (‘POCA’) sets out a number of money laundering offences, attracting heavy fines and substantial prison sentences for anyone – including school staff – who commit them.
The three principal offences are: 1. acquiring, using or having possession of criminal property; 2. concealing, disguising, converting or transferring criminal property, or removing it from the UK; 3. entering into or being concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property.
Other offences include disclosing information which prejudices an investigation, falsifying, concealing or destroying evidence, and failing to report suspicions.
‘Criminal property’ is broadly defined as constituting or representing a person’s benefit from criminal conduct, in whole or in part, whether directly or indirectly; it covers not just cash, but pretty much anything, however small and wherever located. An alleged offender will be guilty if he knows or ‘suspects’ the property might be criminal. ‘Suspicion’ does not require firmly grounded facts, but must be more than just a fanciful possibility, and knowing where the threshold lies is not always easy.
In your defence
For each of the principal offences, POCA provides a statutory defence to a criminal charge when a disclosure is made either to a police or customs officer, or to an officer within the organisation nominated for receiving disclosures. This must be done either before carrying out the act or as soon as practicable after the knowledge or suspicion first arises.
In practice, the school should appoint a Money Laundering Reporting Officer (MLRO), usually the bursar or someone of equivalent authority, who can receive any internal suspicion reports from other members of staff and make a formal Suspicious Activity Report to the NCA where needed. While this may provide some comfort against possible prosecution, it provides little in the way of reputational protection if it transpires that your school has been unwittingly targeted by criminals. A more comprehensive strategy is clearly required if you are to be sure of minimising the impact.
Be prepared
You should, at the very least, have a documented anti-money laundering policy and detailed procedures to cover such things as: the appointment of an MLRO; the requirement for comprehensive identity checks; identifying Politically Exposed Persons or ‘PEPs’ (holders of prominent public positions who are regarded as posing a higher risk of money laundering); screening against HM Treasury consolidated sanctions lists; monitoring of payments from high risk jurisdictions; and limits on amounts that may be accepted in cash.
The Independent Schools’ Bursars Association (ISBA) has some helpful guidance, updated in January 2020, which provides an outline of the law, advice from the Charity Commission on due diligence steps to mitigate the risks, information on how to submit a Suspicious Activity Report to the NCA, details of various providers of electronic searches that can be used to supplement in-house checks and a very good policy template schools may wish to adopt.
The problem with money laundering is that until it happens it is very easy to be complacent, and to think it won’t happen to you. That is what the criminals are banking on. Don’t let your school fall into that trap. Get it wrong and you could be facing detention at Her Majesty’s pleasure. Money launderers can be very convincing and very clever; and, increasingly perhaps, even well-educated.
Tim Ryan is a consultant at Warners Solicitors, Tonbridge, where he specialises in criminal and regulatory defence cases. He is a qualified barrister and solicitor and is also the firm’s Money Laundering Reporting Officer.
WARNING
SIGNS ISBA guidance includes a useful list of money laundering ‘red flags’ for bursary staff, which may be indicators of possible money laundering: • Are transactions unusual because of their size, frequency or the manner of their execution, in relation to the parent’s known business type?
Do payments involve complex or illogical arrangements that make it unclear who is making the payment?
Does it appear that a parent’s (or guardian’s) assets are inconsistent with their known legitimate income?
Are a parent’s funds made up of a disproportionate amount of private funding, bearer’s cheques or cash, in relation to their socio-economic profile?
Has the parent taken steps to hide their identity, or is the payer difficult to identify?
Is the parent (or guardian) unusually anxious to complete a transaction or are they unable to justify why they need the payment to be undertaken quickly?
Is the parent (or guardian) engaged in unusual private business given they hold a prominent public title or function?
Is information or documents being withheld by the parent or guardian or their representative, or do they appear falsified?
Are the parents native to, or resident in, a high-risk country?
Have you, or other professionals involved been instructed at a distance, asked to act outside of your usual speciality, or offered an unusually high fee?
