Washed Up? (Money Laundering Lessons)

There's something about the clang of the cell door. I can tell you it's an impressive sound and it strikes hard even in the heart of the habitual villain. Imagine then the effect it would have open your average, decent and law abiding, businessman.

That cell door was recently closed upon such a man - shortly after he had been arrested, processed as a person in custody, and provided samples of his DNA.   He had been arrested upon suspicion of obtaining a pecuniary advantage by the use a fraudulent cheque. He waited in the cells with his lawyer pending his formal interview.

How did he come to be here? He is an accounts manager of a large, very respectable, business. His own daughter and son in law are both senior police officers!  

The story unfolded in the course of his interview: It was his turn to do the company's banking and he had attended the company's bank and paid in, amongst others, a cheque received from a customer for advance payment of goods.   Naturally, he thought no more about it - it was not unusual to receive a payment drawn on a UK business' bank account for goods to be shipped abroad.   A few days later, there was a telephone call for him from the Bank's Investigation Branch asking how he came to pay in the cheque?   Shortly after, he was arrested by the police.

Unbeknown to the accounts manager, a month or so earlier, an e-mail enquiry from Uganda had been received by the business. It asked about the availability and price of specified goods to be shipped to Kampala. This routine enquiry was handled by the Export Manager and a quote, with terms for payment, was given to this new customer. It then went quite for a few weeks. Then another e-mail arrived. This confirmed the order telling the company payment had already been despatched. Sure enough, a packet arrived containing a cheque. The cheque was routinely passed on to accounts to be cleared ahead of the goods being shipped.

Because the customer was new to the business, special clearance was requested for the cheque. After payment in, this prompted the bank to make enquiry with their account holder about the payment. Only then was it discovered that the cheque was fraudulently drawn on the account holder's account. The cheque looked genuine but even the bank thought it might possibly be a fake.

Who had his hands on the cheque last? That Accounts Manager (remember him, the man sitting in the cell?)

Even though the company was reasonably big and it's business worldwide, it didn't have in place any Money Laundering checks. Their emphasis had always been on getting funds up front before any goods are sent out.  

After a few minutes of interview it became evident that, although he could pay in money, this account manager had no authority to take money out of the company's accounts. The accounting safeguards imposed by the business removed the man from suspicion. He was not charged with any offence. However, it was an unpleasant afternoon spent in custody.

If special clearance hadn't been requested, the funds may have been cleared. Then the customer would probably have cancelled his order, or substantially reduced the amount of goods required, and asked for a remittance of the surplus funds.

The police spotlight could easily have been turned on the company and its directors for their failure to comply with Money Laundering requirements. Think about it and, while your thinking, try to imagine the sound of the clang of the cell door.

Money Laundering is the process by which criminal proceeds are cleaned up (often called 'washed') to disguise their illegal origins. Criminals will often attempt to distance themselves from their crimes by a finding safe haven for their ill gotten gains where they can avoid confiscation orders, and where that money can be made to appear legitimate. Money laundering schemes can be very simple or highly sophisticated.

The process of getting criminal money into the financial system; moving it through various transactions allowing it to become absorbed into the economy (e.g. through investment in property) is commonplace. Prosecutions for money laundering can involve any of these stages in the money laundering process.

The United Kingdom also imposes criminal penalties to emphasise the importance of proper systems of reporting and control in cases of money laundering. In many cases, these include requirements to have in place internal systems for reporting and control, and education and training programmes.

Newsome Vaughan LLP can advise and assist, through in-house training, businesses in relation to their legal obligations. Even if your business is not part of the regulated sector (such as a bank) you may fall prey to criminals wishing to wash their dirty money through your bank accounts - in exchange for a small order for goods or services and a refund on money paid in advance.

For more information, please contact Ben Judge by e-mail at benj@n-v.co.uk or on 02476 234211.