Paper for the Money Laundering Advisory Committee on Guidance
21st November 2003
Introduction
1. The new Money Laundering Regulations (MLRs) will complete the bringing into effect of the Second EU Directive by bringing into the “regulated sector” a wider range of businesses and professional activities thought to be vulnerable to use by money launderers. The new sectors brought under the scope of the regime will be able to issue their own Money Laundering Guidance Notes. Such guidance will help flesh out legislation and give disclosing institutions more certainty as to how they can comply with the law. A number of regulated sector trade bodies are preparing or have prepared guidance on the law and most of them have a strong expectation that such guidance will ultimately be approved by HMT.
2. This paper seeks to establish what guidance the Government may and may not wish to approve under the new Proceeds of Crime Act (POCA) and Money Laundering Regulations (MLRs) and the mechanism by which approval should be reached.
Background
3. In 2002, MLAC discussed the criteria for recognition of industry guidance notes (set out in annex A). On 3rd May 2002, MLAC advised HMT to recommend approval of the JMLSG Guidance Notes on the 2001 Regulations. The Financial Secretary approved the notes in July 2002.
4. It is worth noting that at that stage POCA had not been enacted. POCA established many changes to the legislation, including introducing an obligation to report if there is “reasonable grounds” to know or suspect an offence has been committed. In Parliament during discussion of the Proceeds of Crime Bill the relevant Home Office Minister said that guidance notes about the Act that could be put to the Treasury for approval: “are expected to include a definition of the term ‘reasonable grounds’ and examples of situations in which it would be appropriate to report”.
Current state of play
5. The table in annex B shows the regulated sector bodies that have prepared or may well prepare guidance on the law following the enactment of the new MLRs. We would be grateful if MLAC would let us know of any other bodies that may issue guidance.
Legal position
6. The legal position is that industry can draw up any guidance it wants. There is nothing in POCA or the draft MLRs that constrains industry in what it draws up.
7. Likewise HMT can approve, or not approve, whatever it likes. Both POCA and the MLRs are silent on what HMT can approve. Any approval given by Treasury Ministers would be under the Treasury's common law powers.
8. The only obligation imposed by legislation (POCA and the MLRs) concerning industry guidance is on the courts. For instance, if someone is prosecuted under section 330 of POCA, the courts must - when deciding whether the person committed an offence - take into account whether that person followed any relevant guidance issued by a supervisory body or any other appropriate body (which means, in relation to the alleged offender, any body which regulates or is representative of any trade, profession, business or employment carried on by that person). This is also referred to in regulation 3(3) of the draft 2003 MLRs.
9. However, despite the fact that legally there is no obligation on Government to approve industry guidance, both POCA and the draft 2003 MLRs refer to the concept of “HMT approved” industry guidance, Government is eager to help industry confront money laundering, including if desired by approving guidance on specific aspects of the Regulations.
10. It is possible that the Treasury’s approval will be sought for all new guidance notes. The Treasury could be vulnerable to legal actions for compensation if HMT were to approve a particular interpretation of the law with which the courts ultimately disagreed. Therefore, it will be important that the guidance notes state that the Treasury is not in a position to approve another’s interpretation of the law, as this is a matter solely for the judiciary.
11. HMT is keen to endorse industry best practice rather than industry’s assessment of what the law says. However, HMT is also keen to recognise different approaches.
12. It is also important to state clearly that a court would still be able to take account of industry guidance even if the Treasury did not approve it (although this would be entirely discretionary on the court’s part).
Proposal
13. The Treasury wishes to support industry in combating money laundering. Therefore if industry wishes HMT to approve guidance notes, we are happy in principle to do so, within the limits of legal constraints. Given the likely increase in volume of guidance notes with the newly regulated sector, we propose a new mechanism for dealing with guidance notes.
- As now, MLAC will recommend to HMT whether guidance notes should be approved
- A new Working Group will be set up consisting of representatives from the regulated sector. The proposed Working Group will have the following terms of reference:
-a forum for members of the regulated sector to discuss and share information on the drafting of guidance notes
-to assess and make recommendations to MLAC on all industry guidance for HMT approval
-to set a clear timetable for the assessment of guidance notes
Membership of the Working Group
14. We would like to seek MLAC’s views on the membership of the proposed Working Group, including who should chair the group. We propose that the Working Group be industry-led. It may be useful to include representatives from a number of the regulated sector bodies that are producing guidance notes. If membership were to narrow there could be a vocal call from those not in the group to be invited to join.
15. We further propose that the Working Group’s criteria for recognition of industry guidance notes be similar to those discussed by MLAC in 2002 (see Annex A). Does MLAC agree?
Issues that the Working Group could consider
16. A brief consultation with public sector bodies highlighted some issues that the proposed Working Group may wish to consider. We propose that the Working Group may wish to discuss the following issues:
- whether there should be a “dominant” set of guidance notes that each regulated sector could adapt
- whether there should be consistent terminology in all guidance notes
Publication, distribution and copyright issues
17. For the newly regulated sector, the availability of other guidance may be critical in developing sector-specific guidance notes. Therefore, we would encourage free, or minimal cost, access to guidance notes.
18. It is important to know how freely available the guidance notes will be; accessibility and transparency are part of the criteria for getting approval from HMT. The current position is that the JMLSG have charged for their guidance notes but it is envisaged that the 2004 revision of the guidance will appear on the JMLSG website and thus be available without payment (the costs will be met by subscriptions from JMLSG members). There will still be a charge for hard copies of the guidance notes. At present, the JMLSG operates a free Help Desk. It is envisaged that the Help Desk that will be available for the 2004 version of the guidance notes will be self-financing through a charge to the enquirer. Does MLAC agree to encourage other bodies to adopt a similar approach?
19. It may also be worth considering some restrictions on accessibility in order to make it more difficult for money launderers to gain access to the procedures that are being used against them. The JMLSG is therefore considering whether all parts of the guidance will be put on the web. We would be grateful for MLAC’s views on this.
Recommendations
20. Guidance should state that the Treasury is not in a position to approve another’s interpretation of the law, as this is a matter solely for the judiciary.
21. It should be made explicit to the regulated sector that a court would still be able to take account of industry guidance even if the Treasury did not approve it (although this would be entirely discretionary on the court’s part).
22. HMT should always seek to endorse industry best practice.
23. MLAC is invited to recommend to HMT whether guidance notes should be approved.
24. A Working Group could be established to assess and make recommendations to MLAC on all industry guidance for HMT approval.
25. The Working Group’s criteria for recognition of industry guidance notes should be similar to those discussed by MLAC in 2002 (see Annex A).
26. We would encourage free or minimal cost access to guidance notes although some restrictions to access may be worth considering.
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Annex A
Suggested criteria for MLAC to recognise guidance notes
Recognition of responsible body
- Written terms of reference
- Representative of relevant industry or sector
- In a regulated industry or sector, the responsible regulator agrees to the body’s recognition
Consultation
- Public consultation on draft guidance, accessible to all interested parties, including government, law enforcement, regulators, industry and consumer interests.
- Copies of responses to consultation publicly available unless confidentiality requested.
- Consultation to invite comments on cost / benefit.
- Analysis of consultation responses and feedback available to respondents and MLAC.
Approval procedures
- Document approval procedures (including how dissenting views are handled).
- To have regard to cost / benefit.
- To have regard to existing UK guidance, standards and practice.
- To have regard where appropriate to EU legislation, international practice and impact on UK competitiveness.
Guidance
-
Readily available to all minimal cost (e.g. on internet)
MLAC approval
-
Responsible body to demonstrate to MLAC how criteria are met
Annex B
Regulated sector bodies that have prepared or may prepare guidance on the law following the enactment of the new Money Laundering Regulations
| Sector | Regulator | Representative Body | Guidance | HMT Approval |
| Financial and Credit Institutions | FSA | BBA, JMLSG, EMA, BCCA, APCIMS, IMA, FLA, ABI, etc… | JMLSG | Yes (Dec 2001 edition approved July 2000) |
| MSBs | HMCE | BCCA, EMA, | HMCE |
|
| MSBs | FSA | JMLSG | JMLSG | Yes (Dec 2001) |
| Solicitors | Law Society | Law Society | Law Society | |
| Barristers | Bar Council | Bar Council | Bar Council | |
| Notaries | Notaries Scriveners Society Notaries Society Law Society of Scotland Law Society (E&W), (NI) |
Notaries Scriveners Society Notaries Society Law Society of Scotland Law Society (E&W), (NI) |
||
| External Accountants | CCAB (ICAEW, ACCA, ICAS, ICAI) | CCAB (ICAEW, ACCA, ICAS, ICAI) | ICAEW, |
|
| Auditors | APB | Company Formation | APB Guidance Note | |
| Insolvency Practitioners | Insolvency Service | R3 | R3 Practice Note |
|
| Tax advisors | CIOT, ICBK, | CIOT, ICBK, | CIOT, ICBK, | |
| Company Formation | ||||
| Trust Formation | STEP | STEP |
||
| Estate Agents |
RICS, NAEA | RICS, NAEA | ||
| High Value Dealers | HMCE | HMCE, Auctioneers, jewellers associations, motor industry, FLA | HMCE, | |
| Casinos | Gaming Board | BCA | Gaming Board Code of Practice, BCA |
List of Acronyms
| ABI | Association of British Insurers |
| ACCA | Association of Chartered Certified Accountants |
| APB | Auditing Practices Board |
| APCIMS | Association of Private Client Investment Managers and Stockbrokers |
| BBA | British Bankers Association |
| BCA | British Casinos Association |
| BCCA | British Cheque Cashers Association |
| CCAB | Consultative Committee of Accountancy Bodies |
| CIOT | Chartered Institute of Taxation |
| EMA | Electronic Money Association |
| E&W | England and Wales |
| FLA | Finance and Leasing Association |
| FSA | Financial Services Authority |
| JMLSG | Joint Money Laundering Steering Group |
| HMCE | HM-Customs and Excise |
| ICAEW | Institute of Chartered Accountants of England and Wales |
| ICAI | Institute of Chartered Accountants in Ireland |
| ICAS | Institute of Chartered Accountants in Scotland |
| ICBK | Institute of Chartered Book Keepers |
| IMA | Investment Management Association |
| MSB | Money Service Businesses |
| NAEA | National Association of Estate Agents |
| NI | Northern Ireland |
| R3 | Association of Business Recovery Professionals (Rescue Recovery Renewal) |
| RICS | Royal Institute of Chartered Surveyors |
| STEP | Society of Trust and Estate Practitioners |