A recent study published by the Criminal Law Review journal found that one in five universities may be putting themselves at risk of money laundering by accepting cash payments for tuition fees and accommodation, despite an investigation by The Times which highlighted the risks. While the study concerned universities specifically, many of the lessons to be drawn from it equally apply to independent schools and other institutions that charge fees for education.
The study considers research carried out by Cardiff University and the University of the West of England which found that a significant number of higher education institutions failed to provide staff and students with guidance on potential money laundering risks.
Although it is not illegal, the acceptance of cash payments is inherently higher risk in money laundering terms. In addition, a large proportion of UK university students come from overseas which can present its own risks, both in terms of money laundering and the increased risk of potential sanctions breaches. Again, these issues also apply in the independent schools sector.
The study showed that most universities did not submit suspicious activity reports (SARs) to the relevant authorities despite guidelines requiring organisations to do so when they suspect criminal activity and to ensure that they are not held criminally liable for any misconduct.
Students getting caught up
The study reports that students are increasingly being caught up in money laundering, for example being used as “money mules” and allowing a third party to use their bank account in order to earn quick money or entering into a financial arrangement with a third party to settle tuition fees at a reduced rate, with the third party using stolen or cloned credit cards to do so. As a result, there has been an increase in the number of students being charged with money laundering offences.
What are the potential consequences for institutions?
Financial institutions and non-financial businesses are required to implement preventive measures against money laundering and terrorism financing vulnerabilities pursuant to The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The study reports that higher education institutions are not explicitly incorporated within the scope of these regulations, leaving a gap in how the law is being implemented.
Universities and schools should be mindful of the risks even if they are not subject to the MLRs. Individuals, companies and institutions in the UK are subject to the Proceeds of Crime Act 2002 (POCA) and can be prosecuted for substantive money laundering offences under ss327-329 POCA.
Furthermore, breaching UK sanctions rules is a strict liability offence, meaning offenders can face punishment whether or not they intended to breach the rules. The Office of Financial Sanctions Implementation (OFSI) is responsible for monitoring compliance with financial sanctions and for assessing suspected breaches. OFSI has the power to impose monetary penalties for breaches of financial sanctions and to refer cases to law enforcement agencies for investigation and potential prosecution.
What should you do?
While it may appear that universities and schools are not required to implement anti-money laundering (AML) measures, it would be prudent to do so. Organised crime groups and other bad actors are constantly evolving, identifying new, inventive and often sophisticated ways to commit financial crime and launder the proceeds. Preventative action is vital, educational institutions should regularly review their own AML arrangements and be vigilant of the trends developing in the sector to inform risk assessments, policies, procedures and staff training.
Submitting a SAR at the appropriate time can provide a defence to committing substantive offences under POCA. Effective AML arrangements are essential in order to detect and respond to money laundering risks, including identifying when a SAR may be required. If you require assistance in these areas, please contact Natalie Sherborn.
For further information, please contact:
Natalie Sherborn, Partner, Withersworldwide
natalie.sherborn@withersworldwide.com
