The prevention of money laundering and combating the financing of terrorism
2 - Legal background
The Financial Action Task Force (FATF) Recommendations
The Financial Action Task Force (FATF) is the inter-governmental body responsible for setting the international standards for anti-money laundering (AML) and countering terrorist financing (CTF).
They issue recommendations which member countries should implement in order to combat money laundering and terrorist financing. These recommendations are implemented by over 190 countries.
The FATF Recommendations (opens in new tab) set out the essential measures that countries should have in place to:
- identify the risks, develop policies and provide domestic coordination
- pursue money laundering, terrorist financing and the financing of proliferation
- apply preventative measures for the financial and other designated sectors
- establish powers and responsibilities for competent authorities and implement other institutional measures
- enhance the transparency and availability of beneficial ownership information of legal persons and arrangements
- facilitate international cooperation.
The Proceeds of Crime Act (POCA)
Criminal offences of money laundering were first introduced in the United Kingdom in the Criminal Justice Act 1988 (opens in new tab) and the Drug Trafficking Offences Act 1986 (opens in new tab).
POCA consolidated, updated and reformed the criminal law relating to money laundering to include any dealing in 'criminal property', which is defined widely as the proceeds of any type of crime, however small the amount.
POCA establishes several money laundering offences including:
- the principal money laundering offences
- offences of failing to report suspected money laundering
- offences of tipping off about a money laundering disclosure, tipping off about a money laundering investigation and prejudicing money laundering investigations.
The principal offences criminalise any involvement in the proceeds of any crime if the person knows or suspects that the property is criminal property.3
These offences relate to the concealing, disguising, converting, transferring, acquisition, use and possession of criminal property, as well as an arrangement which facilitates the acquisition, retention, use or control of criminal property.
Section 327 of POCA provides that a person commits an offence if the person:
- conceals criminal property. For example, by depositing funds obtained through criminal activity into a gambling account
- disguises criminal property. For example, by placing funds obtained through criminal activity into a gambling account and then withdrawing them later
- converts criminal property. For example, by placing bets in a gambling establishment and then cashing in the winnings
- transfers criminal property. For example, by transferring property to another person or to a casino operator
- removes criminal property from the UK. For example, by taking their winnings overseas.
Concealing or disguising property includes concealing or disguising its:
- movement or ownership
- any rights with respect to it.
Whilst 'converting' criminal property is not defined in POCA, it is suggested that this be given its conventional legal meaning, that is that the 'converter' has dealt with the property in a manner inconsistent with the rights of the true owner of the property. For example, a criminal steals cash in a bank robbery and then uses that cash to open a gambling account and gamble.
Section 328 of POCA (link opens in a new tab), provides that a person commits an offence if they enter into or become concerned in an arrangement which they know or suspect facilitates, by whatever means, the acquisition, retention, use or control of criminal property by or on behalf of another person.
An example of this in the gambling industry would be for a casino operator knowingly to accept stakes that are the proceeds of criminal activity.
Section 329(1) of POCA provides that a person commits an offence if the person:
- acquires criminal property
- uses criminal property
- has possession of criminal property. For example, via stakes.
Acquisition, use and possession under section 329(1) (link opens in a new tab) includes, for example, when a person carries, holds or looks after criminal property or acquires criminal property for 'inadequate consideration'. This means when a person buys or exchanges something which is significantly below market value (inadequate consideration). However, a person does not commit such an offence if they acquired or used or had possession of the property for adequate consideration.4
The principal money laundering offences are wide and can be committed by any person. For example, a casino employee who has knowledge or suspicion that a customer is using the proceeds of crime, or has possession of the proceeds of criminal activity.
The offence of money laundering and the duty to report under POCA apply in relation to the proceeds of any criminal activity, wherever conducted, including abroad, that would constitute an offence if it took place in the UK. However, a person does not commit an offence of money laundering where it is known or believed, on reasonable grounds, that the relevant criminal conduct occurred outside the United Kingdom and the relevant conduct was not criminal in the country where it took place and is not of a description prescribed by an order made by the Secretary of State. 5
The money laundering offences assume that a criminal offence has occurred in order to generate the criminal property which is now being laundered. This is often known as a predicate offence. No conviction for the predicate offence is necessary for a person to be prosecuted for a money laundering offence. 6
In addition, POCA contains provisions for the recovery of the proceeds of crime and forfeiture can be granted, regardless of whether a conviction for any offence has been obtained or is intended to be obtained. Under certain circumstances, criminal property can be recoverable even if it is disposed of to another person.8
The Terrorism Act
The Terrorism Act 2000 (the Terrorism Act) (link opens in a new tab) establishes several offences about engaging in or facilitating terrorism, as well as raising or possessing funds for terrorist purposes. It establishes a list of proscribed organisations that are believed to be involved in terrorism. In December 2007, tipping off offences and defences to the principal terrorist property offences were introduced.9
The Terrorism Act applies to all persons and includes obligations to report suspected terrorist financing. The offences of failing to disclose and tipping off are specific to people working in firms covered by the Money Laundering Regulations (the Regulations), and who are therefore in the regulated sector, which includes casinos.
The Money Laundering Regulations
The Regulations 10 represent the UK's response to the FATF Recommendations and implement the law in the UK on this topic. They set requirements for the AML and CTF regime within the regulated sector, which includes casinos.
The Regulations apply to non-remote and remote casinos, licensed by the Commission, who act in the course of business carried on by them in the UK.
This includes remote casinos which either:
- have at least one piece of remote gambling equipment situated in Great Britain
- do not have remote gambling equipment situated in Great Britain, but the gambling facilities provided by remote casino are used in Great Britain.11
The Regulations impose additional requirements on the regulated sector
- risk assessments and requirements in respect of written policies procedures and controls
- internal controls
- customer due diligence (CDD)
- record keeping
This guidance sets out how casino operators must and can comply with the law governing money laundering and terrorist financing. The law places responsibilities on the Commission as the supervisory authority for casinos. The Commission should produce guidance that helps casino operators to meet the requirements of the law, is workable in the remote and non-remote casino environments and is approved by HM Treasury. This guidance, therefore, covers the full requirements of the UK law as it affects casinos.
3 Sections 327 (link opens in a new tab),
328 (link opens in a new tab) and
329 (link opens in a new tab) of the Proceeds of Crime Act.
4 Section 329(2)(c) of POCA (link opens in a new tab).
5 Sections 327(2A) (link opens in a new tab), 328(3) (link opens in a new tab)and 329(2A) (link opens in a new tab) of POCA.
6 Following the decision in relation to R v Anwoir (2008) 2 Cr. App. R. 36, the Prosecution does not need to prove a specific criminal offence, but can instead show that it derived from conduct of a specific kind or kinds and that conduct of that kind or those kinds was unlawful, and by evidence of the circumstances in which the property had been handled, which were such as to give rise to the irresistible inference that it could only have been derived from crime.
7 Section 334 (link opens in a new tab) of POCA.
8 Section 304 (link opens in a new tab) of POCA.
9 Introduced by the Terrorism Act 2000 and Proceeds of Crime Act 2002 (Amendment) Regulations 2007.
10 The current regulations (The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017) came into effect on 26 June 2017 and implemented the 4th EU Anti-Money Laundering Directive. Amending Regulations implementing the 5th EU Anti-Money Laundering Directive were promulgated in January 2020. The United Kingdom’s exit from the European Union has does not have a substantive impact on the Regulations.
11 Regulations 8 and 9.
What is meant by the proceeds of crime and money laundering Next section
The role of gambling operators