VZCZCXRO1449
RR RUEHBL RUEHED
DE RUEHLO #4310/01 3241847
ZNR UUUUU ZZH
R 201847Z NOV 07
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC 6359
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
INFO RUEHED/AMCONSUL EDINBURGH 0837
RUEHBL/AMCONSUL BELFAST 0915

UNCLAS SECTION 01 OF 05 LONDON 004310 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
JUSTICE FOR AFMLS, OIA, AND OPDAT 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: KCRM EFIN KTFN SNAR UK
SUBJECT: INCSR VOL II FOR UK 
 
REF STATE 138130 
 
¶1.  Following is post draft of Volume II of the UK 
INCSR for 2008.  POC is Econ Couns John McNamara 
(mcnamarajf@state.gov) 
 
¶2.  (SBU) Begin Text: 
 
United Kingdom 
 
The United Kingdom (UK) plays a leading role in 
European and world finance and remains attractive to 
money launderers because of the size, sophistication, 
and reputation of its financial markets. Although 
narcotics are still a major source of illegal proceeds 
for money laundering, the proceeds of other offenses, 
such as financial fraud and the smuggling of people 
and goods, have become increasingly important. The 
past few years have witnessed the movement of cash 
placement away from High Street banks and mainstream 
financial institutions. The use of bureaux de change, 
cash smugglers (into and out of the UK), and 
gatekeepers (including solicitors and accountants), 
the purchase of high-value assets as disguises for 
illegally obtained money, and credit/debit card fraud 
has been on the increase since 2002. 
 
According to analysis by the UK's Serious Organized 
Crime Agency (SOCA), serious organized crimes in the 
UK generate about GBP 15bn per annum.  Businesses that 
are particularly attractive to criminals are those 
with high cash turnovers and those involved in 
overseas trading.  Illicit cash is consolidated in the 
UK, and then moved overseas where it can more readily 
enter the legitimate financial system, either directly 
or by means such as purchasing property.  Cash can be 
smuggled in a number of ways: it can be transported by 
courier, freight or post and moved through the various 
points of exit from the UK.  Cash smuggling techniques 
are adaptable, smugglers can easily change techniques 
if they suspect law enforcement is targeting a 
particular route or method. 
 
Criminal proceeds are mostly generated in the large 
metropolitan areas in the UK.  Cities such as London, 
Liverpool and Birmingham have large drugs markets and 
also serve as supply points for markets in smaller 
cities and towns, drawing in significant flows of 
illicit cash.  They often hold funds in numerous bank 
accounts, spread across a range of financial 
institutions, in an effort to ensure that no one 
institution is aware of the full scale of their wealth 
or the patterns of their transactions. 
 
Many aspects of the laundering of drug proceeds remain 
unclear, but it is evident that traffickers are able 
to launder substantial amounts of money in the UK 
despite improved anti-money laundering measures 
introduced under the Proceeds of Crime Act (2002). 
Much of the money made in the UK benefits criminals 
who operate in the UK. 
 
Because cash is the mainstay of the drugs trade, 
traffickers make extensive use of money transmission 
agents (MTA), cash smuggling, and Informal Value 
Transfer Systems ('underground banking') to remove 
cash form the UK.  Heroin proceeds from the UK are 
often laundered through Dubai en route to traffickers 
in Pakistan and Turkey.  Cocaine proceeds are 
repatriated to South America via Jamaica and Panama. 
 
As money laundering laws become stricter, drug related 
laundering becomes more difficult.  Because dealers in 
the UK generally collect sterling, most traffickers 
are left with excess small currency (usually GBP10 
notes).  This has created cash smuggling operations to 
move large sums of sterling out of the country.  SOCA 
analysis suggests that more sterling has exited the UK 
in recent years than entered due to the relative ease 
of converting sterling in other countries. 
 
The UK has implemented many of the provisions of the 
European Union's two Directives on the prevention of 
the use of the financial system for the purpose of 
money laundering, and the Financial Action Task Force 
(FATF) Forty Plus Nine Recommendations. Narcotics- 
 
LONDON 00004310  002 OF 005 
 
 
related money laundering has been a criminal offense 
in the UK since 1986. The laundering of proceeds from 
other serious crimes has been criminalized by 
subsequent legislation. Banks and nonbank financial 
institutions in the UK must report suspicious 
transactions. 
 
In 2001, money laundering regulations were extended to 
money service bureaus (e.g., bureaux de change, money 
transmission companies), and in September 2006, the 
Government published a review of the regulation and 
performance of money service businesses in preventing 
money laundering and terrorist financing. Since 2004, 
more business sectors are subject to formal suspicious 
activity reporting (SAR) requirements, including 
attorneys, solicitors, accountants, real estate 
agents, and dealers in high-value goods, such as cars 
and jewelry. Sectors of the betting and gaming 
industry that are not currently regulated are being 
encouraged to establish their own codes of practice, 
including a requirement to disclose suspicious 
transactions. 
 
Following an extensive consultation period in late 
2006, the Treasury published Money Laundering 
Regulations in July 2007.  The regulations implement 
the Third EU Money Laundering Directive, agreed under 
the UK's EU Presidency in 2005.  The provisions 
include: extended supervision so that all businesses 
in the regulated sector comply with money laundering 
requirements; strict tests of money services 
businesses; extra checks on customers identified by 
firms as posing a high risk of money laundering; a 
requirement to establish the source of wealth of 
customers who are high ranking public officials 
overseas; and a strengthened and risk-based regime in 
casinos, in line with international standards.  The 
regulations took effect December 15, 2007. 
 
The Proceeds of Crime Act 2002 (POCA), created a new 
criminal offense of failing to disclose suspicious 
transactions in respect to all crimes, not just 
"serious," narcotics- or terrorism-related crimes, as 
was the case previously. This is applicable to all 
regulated sectors. Along with the Act came an 
expansion of investigative powers relative to large 
movements of cash in the UK. Sections 327 to 340 of 
the Act address possession, acquisition, transfer, 
removal, use, conversion, concealment or disguise of 
criminal or terrorist property, inclusive of but not 
limited to money. The POCA also criminalizes tipping 
off. The "Money Laundering Regulations 2003," along 
with amending orders for the POCA and the Terrorism 
Act, impose requirements on various entities, 
including attorneys, and introduce a client 
identification requirement, requirements on record 
keeping, internal reporting procedures and training. 
 
The introduction of the Fraud Act 2006, which took 
effect on 15 January 2007, saw significant changes to 
offences in the fraud and forgery offence group. 
Changes were also made to the way in which the police 
record fraud offences. 
 
The UK's banking sector provides accounts to residents 
and nonresidents, who can open accounts through 
various intermediaries that often advertise on the 
Internet and also offer various offshore services. 
Private banking constitutes a significant portion of 
the British banking industry. Both resident and 
nonresident accounts are subject to the same reporting 
and record keeping requirements. Individuals typically 
open nonresident accounts for tax advantages or for 
investment purposes. 
 
Bank supervision falls under the Financial Services 
Authority (FSA). The FSA's primary responsibilities 
relate to the safety and soundness of the institutions 
under its jurisdiction. The FSA also plays an 
important role in the fight against money laundering 
through its continued involvement in the authorization 
of banks, and investigations of money laundering 
activities involving banks. The FSA regulates some 
29,000 firms, which include European Economic Area 
(EEA) firms passporting into the UK (firms doing 
business on a cross-border basis), ranging from global 
 
LONDON 00004310  003 OF 005 
 
 
investment banks to very small businesses, and around 
165,000 individuals. The FSA also regulates mortgage 
and general insurance agencies, totaling over 30,000 
institutions. The FSA administers a civil-fines regime 
and has prosecutorial powers. The FSA has the power to 
make regulatory rules with respect to money 
laundering, and to enforce those rules with a range of 
disciplinary measures (including fines) if the 
institutions fail to comply. In October 2006, the 
financial services sector adopted National 
Occupational Standards of Competence in the fields of 
compliance and in anti-money laundering. 
 
The Serious Organized Crime and Police Act of 2005 
(SOCAP) made changes to the money laundering 
provisions in the POCA. One of these changes was the 
creation of the SOCA, which became the UK's financial 
intelligence unit (FIU). In 2006, SOCA took over all 
FIU functions from the National Criminal Intelligence 
Service (NCIS). In light of that change SARs are now 
filed with SOCA. In the context of the SARs regime, 
SOCAP gives SOCA all the FIU powers and functions that 
were inherited from NCIS. SOCA has three functions: 
the prevention and detection of serious organized 
crime; the mitigation of the consequences of such 
crime; and the function of receiving, storing, 
analyzing and disseminating information. Under the 
law, SOCA's functions are not restricted to serious or 
organized crime but potentially bear on all crimes, 
and those functions are to include assistance to 
others in the discharge of their enforcement 
responsibilities. In 2005, the NCIS received just 
under 200,000 SARs and had seen a steady increase each 
year since 2001. The new law also relaxed slightly 
reporting requirements to allow banks to proceed with 
low value transactions (not exceeding 250 pounds) 
involving suspected criminal property without 
requiring specific consent to operate the account. 
However, the reporting of every such transaction is 
still required, and other obligated entities were not 
granted these relaxed standards. Also under SOCAP, 
foreign acts would no longer be considered money 
laundering if not contrary to the law of the foreign 
jurisdiction. 
 
The Proceeds of Crime Act 2002 has enhanced the 
efficiency of the forfeiture process and increased the 
recovered amount of illegally obtained assets. The Act 
consolidates existing laws on forfeiture and money 
laundering into a single piece of legislation, and, 
perhaps most importantly, creates a civil asset 
forfeiture system for the proceeds of unlawful 
conduct. It also creates the Assets Recovery Agency 
(ARA), to enhance financial investigators' power to 
request information from any bank about whether it 
holds an account for a particular person. The Act 
provides for confiscation orders and for restraint 
orders to prohibit dealing with property. It also 
allows for the recovery of property that is, or 
represents, property obtained through unlawful 
conduct, or that is intended to be used in unlawful 
conduct. Furthermore, the Act shifts the burden of 
proof to the holder of the assets to prove that the 
assets were acquired through lawful means. In the 
absence of such proof, assets may be forfeited, even 
without a criminal conviction. The Act gives standing 
to overseas requests and orders concerning property 
believed to be the proceeds of criminal conduct. The 
Act also provides the ARA with a national standard for 
training investigators, and gives greater powers of 
seizure at a lower standard of proof. In light of 
this, Her Majesty's Revenue and Customs (HMRC) has 
increased its national priorities to include 
investigating the movement of cash through money 
exchange houses and identifying unlicensed money 
remitters. The total value of assets recovered by all 
agencies under the Act (and earlier legislation) in 
England, Wales, and Northern Ireland was approximately 
$96.6 million in 2004 and approximately $149.6 million 
in 2005. The Assets Recovery Unit had announced 
additional seizures worth approximately $30 million in 
2006 with an additional $200 million under restraint 
pending the outcome of court cases. 
 
In one illustrative case, on 25 September 2007 the 
last of eight men was sentenced at Croydon Crown Court 
 
LONDON 00004310  004 OF 005 
 
 
as a result of Operation Labici. The main defendant 
received ten years imprisonment and the total for all 
eight defendants was 39 years for money laundering. 
Operation Labici was an investigation into an 
organized group of money launderers operating in the 
UK but controlled from Dubai and Pakistan. They used a 
hawala banking network to move drugs money between the 
UK and Pakistan/Dubai as well as other countries. 
Hawala banking is a paperless method of moving money 
from one place to another and relies on a system of 
trust between the bankers, known as hawaladars. The 
money is not moved either physically or 
electronically.  Legitimate use of such a system can 
be an inexpensive way of moving money. 
 
The UK end of the organization provided laundering 
services to UK drug dealers.  Records seized showed 
that almost GBP15 million in cash had been passed. A 
significant part of the evidence was from mass 
spectrometry which allows detectors to sample chemical 
residues on paper.  One million pounds in seized cash 
had a high level of heroin contamination. 
 
The Terrorism (United Nations Measures) Order 2001 
makes it an offense for any individual to make any 
funds for financial or related services available, 
directly or indirectly, to or for the benefit of a 
person who commits, attempts to commit, facilitates, 
or participates in the commission of acts of 
terrorism. The Order also makes it an offense for a 
bank or building society to fail to disclose to the 
Treasury a suspicion that a customer or entity with 
whom the institution has had dealings since October 
10, 2001, is attempting to participate in acts of 
terrorism. The Anti-Terrorism, Crime, and Security Act 
2001 provides for the freezing of assets. In March 
2006, the Terrorism Act received Royal Assent. This 
Act aims to impede the encouragement of others to 
commit terrorist acts, and amends existing 
legislation. Changes include: the introduction of 
warrants to enable police to search any property owned 
or controlled by a terrorist suspect, the extension of 
terrorism stop and search powers to cover bays and 
estuaries, with improved search powers at ports, the 
extension of police powers to detain suspects after 
arrest for 28 days (although intervals exceeding two 
days must be approved by a judicial authority), and 
the increased flexibility of the proscription regime, 
including the power to proscribe groups that glorify 
terrorism. 
 
As a direct result of the events of September 11, 
2001, the FID established a separate National 
Terrorist Financing Investigative Unit (NTFIU), to 
maximize the effect of reports from the regulated 
sector. The NTFIU chairs a law enforcement group to 
provide outreach to the financial industry concerning 
requirements and typologies. The NTFIU is now under 
the remit of SOCA. The operational unit that responds 
to the work and intelligence development of the NTFIU 
has seen a threefold increase in staffing levels 
directly due to the increase in the workload. The 
Metropolitan Police responded to the growing emphasis 
on terrorist financing by expanding the focus and 
strength of its specialist financial unit dedicated to 
this area of investigations. 
 
Charitable organizations and foundations are subject 
to supervision by the UK Charities Commission. Such 
entities must be licensed and are subject to reporting 
and record keeping requirements. The Commission has 
investigative and administrative sanctioning 
authority, up to and including the authority to remove 
management, appoint trustees and place organizations 
into receivership. The Government intends to revise 
its reporting requirements in 2007 to develop a risk- 
based approach to monitoring with a new serious 
incident reporting function for charities. 
 
The UK cooperates with foreign law enforcement 
agencies investigating narcotics-related financial 
crimes. The UK is a party to the 1988 UN Drug 
Convention and the UN International Convention for the 
Suppression of the Financing of Terrorism. In February 
2006, the UK ratified both the UN Convention against 
Transnational Organized Crime and the UN Convention 
 
LONDON 00004310  005 OF 005 
 
 
against Corruption. The UK is a member of the FATF. 
SOCA is an active member of the Egmont Group and has 
information sharing arrangements in place with the 
FIUs of the United States, Belgium, France, and 
Australia. The Mutual Legal Assistance Treaty (MLAT) 
between the UK and the United States has been in force 
since 1996 (the United States and UK signed a 
reciprocal asset sharing agreement in March 2003). The 
UK also has an MLAT with the Bahamas. Additionally, 
there is a memorandum of understanding in force 
between the U.S. Immigration and Customs Enforcement 
and HM Revenue and Customs. 
 
The United Kingdom should develop legislation and 
implementing regulations to ensure that the gaming and 
betting industries are completely covered in the same 
manner as the financial and designated non-financial 
businesses and professions. This should include a 
legal requirement to disclose suspicious transactions 
rather than relying on the industries' own codes of 
practice. In addition, authorities should track and 
examine the effects of the SOCAP change regarding acts 
and assets in or from foreign jurisdictions, and 
revisit this legislation to determine whether it has 
been effective, or whether it has enabled 
exploitation. 
 
TUTTLE