Funds delivered via Chinese underground banking provides specific challenges for UK law firms because of the rules in mainland China. Funds can only be sent by individuals abroad where:
- Total value less than 50k USD
- Funds are from legitimate activities
- Tax has been paid
- Funds are to be used for legitimate purposes (some exclusions are gambling and investment)
The issue is where a client comes to a firm to buy a house in the UK where some / all of the cash is coming from China. This will be a breach of Chinese law as the funds are being used for an investment and may well be more than 50k USD. The fee earner is likely to ask how the funds were obtained and perhaps a form approving the funds transfer is shown. But what if the approved reason was for ‘study abroad for a period over a year’? Although transfer of funds abroad is not a crime in the UK, fraud most certainly is.
Are these funds subject to POCA? We had a lively debate around what firms would do and one interesting point was raised about unintended consequences. What if the funds are for of a persecuted group attempting to leave China and bring funds for their future? Would this change the decision? Is there a potential for a hard view of the fraud to result in reducing access to justice for an at risk group?
During the Law Society event the NCA said that, from a SAR perspective, that they are not as concerned by breach of foreign exchange element. We need to remember that the regulators will not be taking this relaxed view as confirmed in a comment by Graham MacKenzie.
The point was also made that firms may well be targeted for the use of these underground firms. Smaller firms may be seen as having less sophisticated risk management tools and so more likely to accept work especially if they will carry out property transactions outside their normal area. Once a firm has accepted work, they are likely to be approached by others as the grapevine gets to work.
If you have not watched a recording of the webinar, I would encourage you register and watch the session in full – get in touch with the Law Society via firstname.lastname@example.org