In this post we are getting right down to what a French friend of mine once called “the nitties and the gritties”, so thinking caps on, please. An MLRO has written to me with a vexing conundrum around consent concerning the suspected proceeds of tax evasion, so you might need a coffee and some biscuits as well, and maybe even a damp flannel for your forehead. Here we go – here is his query in full, in his own sad and baffled words:
“Where I as an MLRO form a suspicion that a client is engaged in tax evasion I will almost always form a suspicion that they are necessarily involved in money laundering as well, via my bank or elsewhere. This of course engages not only my ability but my duty to make a disclosure to the authorities. I then reluctantly turn my mind to the painful process of consent if I wish to pay the funds away to exit the client, or if we receive a payment instruction from the client, [which raises the question] of whether I suspect the funds in the account to be criminal property.
“In tax evasion cases I find this quite difficult. The funds are legitimate (let’s assume) but the client may not have declared them for tax. That doesn’t make them criminal property in toto but does it make part of the funds (representing the amount that would otherwise have been paid over to the tax authority) criminal property, as it represents a person’s benefit from crime. But why the funds in that account as opposed to funds in the client’s name with another bank? He can settle his tax liability from any account, so why would my [bank’s] funds be criminal property rather than someone else’s? Just because they are undeclared doesn’t make them criminal property…
“I am still pondering the issue in light of R v William. The legal position seems to be that in tax evasion cases the gross turnover is criminal property, not just the sum avoided. In personal tax evasion cases that suggests all income during the period of evasion is tainted. That would make it both easier and harder for an MLRO: easier as it’s all tainted but harder in that one ought perhaps to identify (at least so one forms a suspicion) when the evasion started and whether the funds are from that period. (Most of mine are, as clients helpfully state they’ve not declared them for tax!)
“The underlying legal argument is the wording of s340(3)(a) of POCA, that property is criminal property if (inter alia) it represents a person’s benefit from crime in whole or in part. The court’s interpretation seems to be that if any part of a sum is derived from criminality it is all criminal property.”
This last point is what I call the Ribena principle – one drop of dodgy money and the whole glass is contaminated – which is what I have always applied, but perhaps rather simplistically. So over to you, learned readers: I know we have plenty of MLROs, some police officers, a few regulators, a handful of lawyers and some FIU staff. Between you, you must have some opinions – please share them.