Comparative Analysis of the Criteria and Progress in the AML/Compliance Regimes of the USA and the United Kingdom
By: Benjamin M Musau
Comparative Analysis of the Criteria and Progress in the AML/Compliance Regimes of the USA and the United Kingdom
United States
According to FinCEN[1], the following is the history of Anti-Money Laundering Laws in the U.S.:
The Bank Secrecy Act of 1970
The Bank Secrecy Act (BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) was originally passed by Congress of the U.S. in 1970, and amended several times since then, including provisions in Title III of the USA Patriot Act[2]. The BSA is also at times referred to as an “anti-money laundering” law (“AML”) or jointly as “BSA/AML”.
The BSA requires financial institutions in the United States –
- To assist U.S. government agencies to detect and prevent money laundering.
- To keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of US$10,000 or more (daily aggregate amount).
- To report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.
- Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution.
Money Laundering Control Act (1986) (MLCA), passed in 1986, is a U.S. Act of Congress consisting of two sections[3] that made money laundering a Federal crime. The MLCA, for the first time, criminalized money laundering.
- Made money laundering a Federal crime.
- Criminalized money laundering.
- Section 1956 prohibits individuals from engaging in a financial transaction with proceeds that are generated from certain specified crimes, known as “specified unlawful activities” (SUAs).
- The law require an individual specific intent in making the transaction to conceal the source, ownership or control of the funds.
- There is no minimum threshold of money, nor is there the requirement that the transaction succeed in actually disguising the money.
- A “financial transaction” has been broadly defined, and need not involve a financial institution, or even a business.
- Section 1957 prohibits spending in excess of US$10,000 derived from an SUA, regardless of whether the individual wishes to disguise it. This carries a lesser penalty than money laundering, and unlike the money laundering statute, requires that the money pass through a financial institution[4].
The Anti-Drug Abuse Act of 1986 (ADAA) was the first major law passed by the U.S. Congress on the war on drugs.
- ADAA changed the system of federal supervised release from a rehabilitative system into a punitive system.
- The 1986 Act also prohibited controlled substance analogs.
- The Act also enacted new mandatory minimum sentences for drugs, including marijuana[5].
The Anti-Drug Abuse Act of 1988 enacted on November 18, 1988:
- Established the creation of a drug-free America as a policy goal.
- Established the Office of National Drug Control Policy.
- Expanded the definition of financial institution to include businesses such as car dealers and real estate closing personnel and required them to file reports on large currency transactions.
- Required the verification of identity of purchasers of monetary instruments over US$3,000.
The Annunzio-Wylie Anti-Money Laundering Act (1992) contained the following salient features:
- Strengthened the sanctions for BSA violations.
- Required Suspicious Activity Reports and eliminated previously used Criminal Referral Forms.
- Required verification and recordkeeping for wire transfers.
- Established the Bank Secrecy Act Advisory Group (BSAAG).
Money Laundering Suppression Act (1994) (MLSA) was a 1994 amendment to the BSA. The main features of the MLSA:
- MLSA required liberalization of the rules for exemption of transactions from the currency transaction reporting requirement.
- The Act also authorized the Treasury Department to designate a single currency to receive reports of suspicious transactions from financial institutions.
- The Act also required all money transmitting businesses to register with the Treasury.
- Required banking agencies to review and enhance training, and develop anti-money laundering examination procedures.
- Required the banking agencies to review and enhance procedures for referring cases to appropriate law enforcement agencies.
- Streamlined CTR exemption process.
- Required each Money Services Business (MSB) to be registered by an owner or controlling person of the MSB.
- Required every MSB to maintain a list of businesses authorized to act as agents in connection with the financial services offered by the MSB.
- Made operating an unregistered MSB a federal crime.
- Recommended that states adopt uniform laws applicable to MSBs.
The Money Laundering and Financial Crimes Strategy Act (1998) contains the following key provisions:
- Required banking agencies to develop anti-money laundering training for examiners.
- Required the Department of the Treasury and other agencies to develop a National Money Laundering Strategy.
- Created the High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Force to concentrate law enforcement efforts at the federal, state and local levels in zones where money laundering is prevalent. HIFCAs may be defined geographically or they can also be created to address money laundering in an industry sector, a financial institution, or group of financial institutions.
Uniting and Strengthening America by Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act).
Title III of the USA PATRIOT Act is referred to as the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001.
- Criminalized the financing of terrorism and augmented the existing BSA framework by strengthening customer identification procedures.
- Prohibited financial institutions from engaging in business with foreign shell banks.
- Required financial institutions to have due diligence procedures (and enhanced due diligence procedures for foreign correspondent and private banking accounts).
- Improved information sharing between financial institutions and the U.S. government by requiring government=institution information sharing and voluntary information sharing among financial institutions.
- Expanded the anti-money laundering program requirements to all financial institutions.
- Increased civil and criminal penalties for money laundering.
- Provided the Secretary of the Treasury with the authority to impose “special measures” on jurisdictions, institutions, or transactions that are of “primary money laundering concern”.
- Facilitated records access and required banks to respond to regulatory requests for information within 120 hours.
- Required federal banking agencies to consider a bank’s AML record when reviewing bank mergers, acquisitions, and other applications for business combinations.
Intelligence Reform & Terrorism Prevention Act of 2004
- Amended the BSA to require the Secretary of the Treasury to prescribe regulations requiring certain financial institutions to report cross-border electronic transmittals of funds, if the Secretary determines that such reporting is reasonably necessary” to aid in the fight against money laundering and terrorist financing.
United Kingdom
The following are the main statutes dealing with money laundering in the U.K.:
The Terrorism Act 2000 is the first of a number of general Terrorism Acts passed by the Parliament of the U.K.
- It superseded and repealed the Prevention of Terrorism (Temporary Provisions) Act, 1989 and the Northern Ireland (Emergency Provisions) Act, 1996.
- The powers provides the police have been controversial, leading to noted cases of alleged abuse, and to legal challenges in British and European courts.
- The stop-and-search powers under section 44 of the Act have been ruled illegal by the European Court of Human Rights.
The Anti-Terrorism, Crime and Security Act 2001 was formally introduced into the Parliament of the United Kingdom on November 19, 2001, two months after the terrorist attacks on New York on September 11.
- The Act received Royal Assent and came into force on December 14, 2001.
- Many of its measures are not specifically related to terrorism, and a Parliamentary Committee was critical of the swift timetable for such a long Bill including non emergency measures[6].
- On December 16, 2004 the Law Lords ruled that Part 4 was incompatible with the European Convention on Human Rights, but under the terms of the Human Rights Act 1988 it remained in force.
- The Act has since been replaced by the Prevention of Terrorism Act, 2005.
- Part 12 specifically deals with the issues of bribery and corruption.
- The Part extends the laws against bribery to cases where “functions of the person who receives or is offered a reward have no connection with the U.K. and are carried out in a country or territory outside the U.K.”.
- It extended the laws against corruption so as to make prosecutions possible for “acts(s that) would, if done in the U.K., constitute a corruption offence”.
The Proceeds of Crime Act 2002 is an Act of Parliament of the U.K. which provides for the confiscation or civil recovery of the proceeds of crime and contains the principal money laundering legislation in the U.K.
- The main issues involved confiscation orders against convicted individuals (requiring payment to the State based upon the benefit obtained from their crimes), civil recovery of proceeds of crime from un-convicted individuals, taxations of profits generated from crime, UK anti-money laundering legislation, powers of investigation into suspected proceeds of crime offences, and international cooperation by UK law enforcement agencies against money laundering.
- The money laundering provisions in Part 7 of the Act are supported by the UK Money Laundering Regulations 2007[7].
- The main anti-money laundering legislation in the UK includes provisions requiring businesses within the “regulated sector” (banking, investment, money transmission, certain professions, etc.) to report to the authorities suspicions of money laundering by customers or others[8].
- Money laundering is widely defined in the UK[9]. In effect any handling or involvement with any proceeds of any crime (or monies or assets representing the proceeds of crime) can be a money laundering offence.
Comparison of U.S. and U.K. criminal offences on Anti-Money Laundering
In comparison, therefore, unlike in the U.S., U.K. money laundering offences are not limited to the proceeds of serious crimes, nor are there any monetary limits, nor is there any necessity for there to be a money laundering design or purpose to an action for it to be a money laundering design or purpose to an action for it to amount to a money laundering offence.
A money laundering offence under U.K. legislation need not involve money, since the money laundering legislation covers assets of any description. Technically, therefore, an individual who steals even a paper clip in the U.K. commits a money laundering offence (possession of the stolen paper clip) in addition to the predicate offence (of theft of the paper clip).
In consequence any person who commits an acquisitive crime (i.e. one from which he obtains some benefit in the form of money or an asset of any description) in the U.K. will inevitably also commit a money laundering offence under the U.K. legislation.
There is no obligation upon banks or others to routinely report all deposits or transfers having a value greater than a specified amount even in the absence of any suspicion that money laundering may be involved (as there is in the case of the U.S.).
The reporting obligations in Part 7 of the U.K. Proceeds of Crime Act include reporting suspicions relating to gains from conduct carried out abroad which would be criminal if it took place in the U.K[10].
The offence of failing to report a suspicion of money laundering by another person carries a maximum penalty of 5 years imprisonment in the U.K[11].
The U.S. three core offences focus on:
- Conducting a transaction using the proceeds of crime with the intent to disguise its origins, avoid a transaction report or commit another offence;
- Transporting the proceeds of crime into, out of, or through the U.S. with the intent to disguise its origins; and
- Conducting transactions with funds represented as the proceeds of crime.
The U.S. also criminalizes conducting transactions in illicit funds to the value of US$10,000 or more, using a statute commonly known as the “spending statute”.
The U.K.’s three core criminal offences of money laundering differ from those of the U.S. The U.K. offences are:
- Concealing, disguising, converting, or transferring criminal property or removing it from the U.K.;
- Entering into or becoming involving in an arrangement known, or suspected, to facilitate the acquisition, retention, use or control of criminal property by another person; and
- Acquiring, using or possessing criminal property.
References:
- http://en.wikipedia.org/wiki/Proceeds_of_Crime_Act_2002.
- http://en.wikipedia.org/wiki/Anti-terrorism,_Crime_and_Security_Act_2001.
- Transnational Crime Brief No. 4, March 2009, see also http://www.aic.gov.au/publications/current%20series/tcb/1-20/tcb004.aspx.
I am a Kenyan Advocate and the Managing Partner of B M Musau & Co., Advocates, a position I have held since 1999. My work encompasses regulatory reforms, reduction of administrative burdens, the structure of business entities, joint ventures, acquisitions, banking, foreign investment and other general corporate areas
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