When the famous French author Honore de Balzac quipped in 1834 that “behind every great fortune there is a great crime”, he could not have appreciated the prophetic nature of his words.
For today, nearly 200 years later, there is considerable scepticism in the risk departments of banks and other professionals working in the financial sector that this might be the case.
A mundane business decision to switch banks can, if not handled correctly, lead to potentially disastrous consequences.
Leading banks advertise that switching accounts has never been easier, and in one sense this is correct.
But what the banks do not explain is that their risk departments need to be satisfied about the legitimacy of a person’s monies before they can be accepted as a customer of the bank.
Individuals seeking to establish business relationships will encounter enormous difficulties if their source of wealth is not fully explained.
The law, in the shape of regulation 28 of the Money Laundering Regulations 2017, requires the financial sector to obtain customer due diligence (CDD) information when establishing a business relationship.
This includes an obligation to conduct “ongoing monitoring” of the relationship, and this specifically references the customer’s source of funds.
There is an element of menace here, because if the bank or other professional is not satisfied about source of funds, the law requires them to withdraw from the business relationship and consider whether a suspicious activity report (SAR) needs to be made to the National Crime Agency (NCA).
Section 330 of the Proceeds of Crime Act 2002 provides that a SAR must be made where there are reasonable grounds for suspecting that a person is engaged in money laundering. Failure to make a SAR constitutes a criminal offence punishable by a maximum of five years’ imprisonment.
When a SAR is made, dire consequences may follow.
The NCA can serve an Unexplained Wealth Order which requires the recipient to explain the source of funds.
The order can be made against a person who has held public office in the UK or abroad, or against a person suspected of involvement in serious criminal activity.
This includes business offences such as tax evasion, corruption and fraud as well as drug-trafficking and people smuggling.
If the NCA is not satisfied with the explanation about source of funds, civil proceedings to confiscate the monies can be started.
Alternatively, the NCA may refer the case to an investigating authority such as HM Customs & Revenue, the Serious Fraud Office or the City of London Police for further investigation.
The enforcement authorities have an array of powers at their disposal, ranging from criminal prosecution to asset freezing and forfeiture orders, and the levying of tax if the existence of monies is not already known.
However, it is not always the submission of a SAR which triggers such action.
Both US and UK governments have been imposing economic sanctions on individuals and businesses, sometimes solely for political reasons and in other cases where there is suspicion that source of funds have been obtained in an unlawful manner.