Victims of fraud, money laundering could press firms for compensation

Financial institutions could be liable to pay compensation to victims of fraud and money laundering, a legal expert has warned. Mr Paul Carroll, partner at A & L Goodbody, also stressed that, under current legislation, knowing, believing or even thinking that funds could be the proceeds of crime was an offence.

Speaking at a conference on money laundering yesterday, Mr Carroll said that while the main focus of money laundering had been on criminal liability, "deep pocket" financial institutions and professional advisers can also be potentially liable. "Money laundering legislation covers the proceeds of all criminal activity, including drug trafficking, theft, fraud, robbery and tax evasion offences, among others. Money launderers need to clean their `hot money' and reputable financial institutions and professional advisers need to protect themselves from money launderers who increasingly seek to draw on their services to assist with their laundering operations," Mr Carroll stated.

The legislation provides that an individual may be found guilty of money laundering if he or she knows or believes that the property of funds represents the proceeds of crime. The term "believing" includes thinking that the property or funds probably represent such criminal proceeds, which has very serious implications for financial institutions and intermediaries, he warned.

"A money laundering offence is also committed where a person handles the proceeds of criminal activity. A handler is deemed to have the necessary belief if he or she merely thinks that the property is probably tainted."

The legislation sets out a compliance programme, which applies to banks, building societies, stockbrokers and insurance companies. Such institutions are obliged to know their customer and to take reasonable measures to establish the identity of its customers. It must also maintain records, which must be kept for at least five years after the transaction has been completed or after the relationship has ended.

These designated institutions must report suspicious transactions, with employees required to report to the Garda any suspicions of money laundering activity. The legislation states it is unacceptable to turn a blind eye to dubious activities while client confidentiality rules do not apply in such circumstances. It further provides that anyone who alerts a customers to the fact that a report has been made to the authorities will face prosecution under the tipping-off offence.

Institutions are also obliged by law to provide education and training for staff to ensure their compliance and understanding of the money laundering legislation. "Failure to comply with these obligations is a criminal offence which carries a prison sentence and/or fines," Mr Carroll told delegates. These institutions are also at risk under civil law, he added, which gives rise to obligations to provide financial compensation for victims of crime.

Highlighting such cases in Britain, Mr Carroll said in one case a firm of accountants was held personally liable for assisting with a money laundering scheme. "In another case, a London law firm became aware that a liquidator of a US insurance company had claims for fraud against one of its clients. The law firm sought directions from the High Court in relation to its position. The court held that, with the knowledge it had, if the firm had transferred their client's funds out of their control, they might be potentially liable under the civil law for assisting with the movement of the proceeds of fraud."