Traditionally the sectors perceived to be most at risk from money laundering have been financial institutions, accountants, law firms and estate agents. But criminals have become increasingly adept and creative in seeking out new opportunities to legitimise the proceeds of their crimes and universities are now also the recipient of their unwelcome attentions.
The dangers they face are multifaceted; from criminals who wish to use their illicit funds to further their children’s education, to international students caught up in credit card scams, to high-value cash deposits and payments from students with links to politically exposed people.
An investigation by The Times earlier this year found at least 49 universities had allowed students from countries considered to be at high risk of money laundering to pay £52 million of fees in cash over a five year period.
Its conclusion? That some universities may be turning a blind eye to the significant risks their institutions face.
The UK’s anti-money laundering (AML) regime is undoubtedly complicated and constantly evolving.
Nonetheless, universities and their staff need to understand how the law applies to them and what steps they must take to prevent money laundering, to discharge any regulatory obligations and importantly avoid any law enforcement action being taken against them.
The primary money laundering offences
Money laundering can be defined as the process by which the proceeds of a crime are dealt with in a way that disguises their origins, and the primary offences are contained in sections 327 to 329 of the Proceeds of Crime Act 2002 (POCA).
No matter how trifling the crime, where in the world it was committed or how long ago it took place, an employee or even a university itself may be guilty of money laundering if they know or suspect the money they have dealt with is the proceeds of crime. For example, even the act of moving money between a university’s own bank accounts or directing or making refunds could constitute a criminal offence if the employee directing the money knows or suspects it is the proceeds of a crime.
There are statutory defences to money laundering. A university may seek to argue that it has not committed the offence of acquiring criminal property under s329 POCA in circumstances where the money it has obtained is adequate consideration (fair value) for the tuition or services it offers the student.
This is, however, unchartered and unlitigated territory and a university that seeks to rely on this defence takes the risk that a court may subsequently find the consideration was inadequate. It is also only a defence to one of the three principle money laundering offences.
In addition, a principle money laundering offence may not be committed if the individual reports their knowledge or suspicion of money laundering to the university’s nominated officer (if they have one), or to the authorities, or have a reasonable excuse for not doing so.
These reports are often made to the National Crime Agency (NCA) and are called SARs (suspicious activity reports) or DAML (defence against money laundering).
The National Crime Agency can apply to freeze bank accounts which it considers may contain the proceeds of criminal conduct
A university’s charitable status also imposes AML obligations upon them. Irrespective of whether the university is a registered charity or exempt, the governors are obliged to put certain AML policies, controls and procedures in place in order to protect the university from financial crime.
They must also notify the police and the Charities Commission (or the Office for Students) immediately if they discover potential money laundering offences are taking place in connection with the university.
Universities will be subject to additional AML obligations if they fall within the ‘regulated sector’ as defined by POCA. The regulated sector consists of entities which are considered to be at a higher risk of money laundering and therefore subject to much greater scrutiny. They are subject to further offences, such as failure to report knowledge or suspicion, or if there are reasonable grounds to know or suspect money laundering and the ‘tipping off’ offences where the disclosure is likely to prejudice an investigation. Universities must consider whether any part of their business is subject to these additional obligations, for example universities which are regulated by the Financial Conduct Authority (FCA) in respect of their credit broking and debt advice services may also be in the regulated sector for AML purposes.
A university which is subject to the Money Laundering Regulations 2017 must, amongst other requirements, take steps to identify and assess the risks of money laundering it faces, establish and maintain AML policies, controls and procedures, appoint a nominated officer (also known as a money laundering reporting officer or MLRO) and conduct due diligence (know your client checks or KYC) on their customers and students. It is a criminal offence to breach the requirements of the Money Laundering Regulations but an employee will not be guilty of the offence where they can demonstrate they took all reasonable steps and exercised due diligence.
AML failings can cause practical and financial difficulties. For example, the NCA can apply to freeze bank accounts which it considers may contain the proceeds of criminal conduct and it can ultimately forfeit this money. There is also the risk of serious reputational damage and at its worst, potential criminal proceedings which carry maximum sentences of 14 years imprisonment and unlimited fines.
Universities must therefore have in place reasoned, robust and proportionate AML policies and procedures which address the full spectrum of the money laundering risks they face, from the payment of tuition fees to the receipt of donations. Many institutions will already have these measures in place but care must be taken to ensure they are practical, adhered to and tested.
The content of the policies and procedures will be specific and individual to each university, but examples of what they might contain include the following:
● No cash payments
● Clear due diligence processes to identify the student and identify a third party payer including, seeking details of the third party’s relationship to the student
● A periodic review of ID
● A mechanism for seeking information about the source of the funds on each occasion
● A clear list of general risk factors or red flags, eg a large number of small payments from different sources by persons not related to the student, and providing a tiered approach for when more information is required and what that might be
● Internal reporting procedures
● Record keeping procedures
● Staff training
● Clear direction on making a SAR and by whom
● Appointment of an MLRO (even where the university is not in the regulated sector or caught by the Money Laundering Regulations).
The AML regime may be daunting, but it needs to be an integral part of a university’s everyday culture because there are serious consequences to turning a blind eye. Money launderers are sophisticated and a university might not always get it right, but an effective risk-based approach and documented risk-based judgments in individual cases will enable you to justify your position later should you ever need to.
For further information on the issues raised in this blog post, please contact a member of our criminal litigation team.
About the author
Nicola Finnerty is a Partner in the Criminal Litigation team and is a leading criminal defence expert in both business and general crime. She has experience of fraud, corruption (including the Bribery Act) and cartel matters, financial compliance, money laundering, asset seizure and confiscation cases, through to sexual offence cases, drugs, murder and offensive weapon crimes. Nicola has acted for many high profile individuals who have needed advice on criminal matters. She has also represented corporate clients, financial institutions and professional firms in investigations and proceedings brought by the SFO, CPS, FCA, HMRC and other prosecuting bodies. She is routinely instructed in judicial review and appeal cases.