In late June 2017, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR) came into force. The MLR include a range of investigatory powers that purport to empower regulatory authorities whilst widening the scope of entities and individuals that are subject to regulatory mandates.
In terms of the strength of the framework, the MLR appear to build on the UK’s ‘gold-standard’ framework amongst European financial centres. In early March of this year, however, a freedom of information request made to the Home Office revealed that there had been no prosecutions under the MLRs between its inception in 2017 and October 2018. Press articles asked, what is the explanation for this?
The most obvious one is that more time must be given to allow the MLR to bring results: it takes time to fully investigate regulatory breaches, and the new provisions of the MLR will only apply to violations since their enactment. Regulatory investigations are often lengthy and complex, particularly where money laundering itself is involved, given the requirement to prove both a predicate offence (the underlying criminality) and the proceeds of crime violation itself.
The MLR are less than two years old and have apparently resulted in 75 ongoing investigations so it is both unsurprising that we have a nil enforcement record and nearly assured that we will, in time, have tangible results. Indeed, when we look at the progress of similar financial regulation over the same time period, we find similar stories.
Despite being introduced five years prior, Section 7 of the Bribery Act 2010 did not yield its first significant deferred prosecution agreement (DPA) until Standard Bank in November 2015. Similarly, the Office of Financial Sanctions Implementation has only in early 2019 issued its first civil monetary penalty – on Raphaels Bank – despite having had the power to do so since April 2017. Even the MLR predecessor (the MLR 2007) was in existence for five years before it achieved its first conviction.
There may be other reasons, however, for the lack of prosecutions under the MLR. FSMA-authorised firms must comply with both the MLR and the handbook of its regulating agency, the FCA. In many cases, the FCA may decide that is more straightforward to investigate and prosecute failures to comply with handbook rules (for example the need to maintain adequate systems and controls to combat money laundering) rather than bring an action under the MLR.
It is also important to consider that the MLR apply only to the regulated sector: they do not do the substantive anti-money laundering (AML) job the Proceeds of Crime Act is intended to do but rather are aimed at regulating the banks and other bodies that deal with potentially criminal assets. Perhaps then it is no surprise then that we have seen no tangible results.
More artisans needed
Some responsibility may also lie with executive bodies. Parliament, keen to bolster the regulatory environment, has run well ahead of the resource and expertise available to investigating and prosecuting authorities. The UK now has plenty of tools but is in need of more artisans. The new National Economic Crime Centre (NECC) is part of the solution.
Launched in October 2018, the NECC includes the well-established Joint Money Laundering Intelligence Taskforce (JMLIT), a joint venture between police and regulators that seeks to exchange and analyse information relating to money laundering and wider economic threats. JMLIT has enjoyed success: according to the National Crime Agency, JMLIT has contributed to over 500 investigations, 130 arrests and the seizure or restraint of over £11 million.
Whether the MLR has thus far been a success or failure is probably not the right question at this stage, and the answer to that question will become more apparent as time goes on. What seems clear, however is that greater investment in investigatory and prosecutorial resources will be required, in addition to that being made in the NECC.
Without effective prosecution, the UK’s robust ‘gold-standard’ regulatory framework will be of little avail, and the benefits of being a secure jurisdiction for inbound investment and financial services will be at risk. Post-Brexit, such a position could not be more vital to the country.
Responsibility for the onward success of the MLR also lies with the banks and other bodies it regulates. Those entities lie at the critical nexus for money laundering, and as such their continuing leadership and co-operation with law enforcement is crucial to the MLR’s success.
Again, post-Brexit, the UK financial services sector will be in ever greater need of confidence from would-be investors. Strong anti-financial crime regimes positively affect that confidence, and consequently both the rule of law and the UK economy are net beneficiaries of robust enforcement activity. The role of the MLR in that regard may yet be unknown, but the mandate for its success is clear.