MONEY LAUNDERING

A London shipbroker negotiated the sale of a small ship of the type commonly used for coastal trading. The buyers were based in the U.S.A. The sellers, although a Liberian company, were domiciled in Europe. At the closing meeting in Copenhagen, to the surprise of everyone present, the buyers announced that they were completing the transaction by paying in cash. Once the bank staff had finished counting the money the transaction was finalised. In the meantime, however, the bank had complied with its legal responsibilities and reported the transaction to the local authorities. The local authorities informed their colleagues from other countries and within a few days the ship was seized by the U.S. Navy. It was found to be carrying a considerable quantity of narcotics.

It should be made clear that the shipbroker was not involved in any wrongdoing whatsoever. The case, however, highlights the workings of laws throughout the world aimed at preventing money laundering. It is important that, whether acting as shipbrokers, ship agents or ship managers, any company dealing with the movement of funds is aware of their obligations under their local statutes. The exact definition of money laundering will vary according to the country concerned. The Hong Kong Securities and Futures Commission describes the nature of money laundering as covering ‘... a wide range of activities and processes intended to alter the identity of the source of illegally obtained money in a manner which creates the appearance that it originated from a legitimate source’. In the United States the relevant legislation for money laundering is 18 USC Section 1956 et seq. The applicable statute in England is the Criminal Justice Act 1993.

In addition to applying to the criminal, the legislation in most countries also makes it a criminal offence to give assistance to a money launderer. Under the Criminal Justice Act 1993 the English courts can impose a penalty of up to 14 years imprisonment, or an unlimited fine, or both. This is the same penalty as can be applied against the money launderers themselves. In the U.S. the penalties can be up to 20 years in prison. Assistance to a money launderer could, for example, be construed as an agent using cash provided by his principal to settle debts.

The most important requirement is for legitimate businesses to ascertain whether local legislation provides them with an obligation to report suspect transactions. This would include, for example, reporting a large cash transaction to the National Criminal Intelligence Service in the U.K. The reporting requirements are not, however, simply limited to cash transactions. There is an obligation to report transactions which are suspect, perhaps, because they are incompatible with the customers size, normal procedures, or simply make no commercial sense. An example could be a principal who transferred money to a ship manager only to transfer it again to another company controlled by the principal.

The vast majority of transactions are of course innocent and made for usual commercial reasons. Members are, however, recommended that they ensure that they are familiar with the obligations in their country and put into place procedures to ensure that they comply with any local reporting requirements. The most important requirement is for legitimate businesses to ascertain whether local legislation provides them with an obligation to report suspect transactions. This would include, for example, reporting a large cash transaction to the National Criminal Intelligence Service in the U.K.

We would like to thank Paul Fortune of Sinclair Roche & Temperley, Hong Kong, and Bob Brown of Brown Gavalas & Fromm LLP, New York, for their kind assistance in the preparation of this article.