Business Law & Compliance

How to steer clear of Formula 1 style money laundering allegations

7 min read

04 June 2018

Business crime solicitor Aziz Rahman examines Formula 1’s money laundering investigation and suggests ways that such a problem can be prevented in the corporate sector.

Formula 1 (F1) is facing testing times. Italian prosecutors are allegedly investigating reports of financial wrongdoing conducted in relation to the race at Monza. It has been said that sponsorships involving “dozens’’ of companies from various countries may be part of an €80 million money laundering scheme involving falsified invoices.

Investigators have confirmed that 82 people are under investigation and that the trail may go beyond Monza. According to some sources, the investigation began six years ago. This could mean over 100 races are subject to investigation.

While we don’t know the true extent of the laundering – or if there was any – it highlights two issues. The first is that any business can be a target. The second is that such allegations can damage a company – even a whole sector – from a financial and reputational point of view.

Failing to take proper preventative measures can make your enterprise vulnerable. But only by understanding money laundering will you be able to recognise it. It is the disguising of the origins of money that is the proceeds of crime. A person can launder their own criminal proceeds or have it done for them by another person.

In the UK, money laundering carries a maximum sentence of 14 years under the Proceeds of Crime Act 2002 (POCA): Section 327 makes it an offence to conceal, disguise, convert, transfer or remove criminal property from the jurisdiction. Section 328 makes it illegal to enter into or become concerned with an arrangement to acquire, retain or use the proceeds of crime.

Meanwhile, Section 329 makes it an offence to possess criminal property and sections 330 to 332 of POCA make it an offence to fail to disclose knowledge or suspicion of money laundering. POCA may be a UK piece of legislation, but other countries take a similar approach.

Foreign authorities routinely make enquiries in the UK. Similarly, UK law enforcement agencies will take investigations abroad. According to the National Crime Agency (NCA), at least £90 billion is laundered annually through the UK and EU. Its announcement indicates the seriousness with which countries view money laundering and the degree of cooperation to tackle the problem.

In Europe, the Fourth EU Money Laundering Directive (4MLD) is a reflection of this. It came into force in 2017 and places more responsibilities on banks and financial institutions. 4MLD demands banks carry out due diligence checks on customers, requires greater transparency regarding the ownership of assets and introduced tougher approaches when it comes to checks on people or organisations from high-risk countries and on politically exposed persons (PEP’s).

Preventing money laundering

It could be argued that 4MLD has no bearing on F1. But it is part of a coordinated multinational campaign to reduce the scope for money laundering and identify and punish those committing it. In many ways, it has a direct bearing on what may have happened at F1; especially when laundered money is eventually deposited in a financial institution covered by 4MLD.

Everyone in business, therefore, needs to know how to prevent and/ or identify money laundering. Preventing it, however, is not something that can be cured with a “silver bullet’’. It involves identifying the risk of it finding its way into your business, whether that be high-octane motor racing or a less exhilarating commercial enterprise.

Procedures need to be devised to tackle that risk and should be introduced and executed properly, not to mention reviewed and amended if necessary. This cannot be seen as a one-off exercise.

Intelligent and appropriate prevention measures will make it less likely that a business will be targeted. If properly implemented, measures will also be a strong defence argument for any business, if it becomes the subject of a money laundering investigation.

What procedures to put in place

There will be many in F1 and beyond who are either unaware of the preventative measures or are uncomfortable with having to devise and introduce them. 

Procedures will be worthless unless they are aimed at the risks in a business. If they are not targeted or they are inappropriate, they will be of little value. The risks will vary between differing business sectors. Within each business sector, the risks may also differ (to a degree) from company to company.

The important thing is to tailor those procedures. However, they should all contain the following elements.

Scrutiny: Any current or potential customer, investor or trading partner should be subject to checks regarding identity, background and trading history. If someone expresses an interest in moving money into, around or out of the company, their reasons for doing so should be analysed carefully.

Research: Know who is involved in any deal. Find out who the real beneficiaries or investors are, determine the precise relationships between all funds and parties and the exact reason why the transaction has been proposed.

Transparency: Procedures need to ensure business is conducted in an open way, with no aspects of a deal being conducted without a number of people in the company knowing all the details.

Investigation: There has to be a recognised way for anyone to report concerns – and for those concerns to be investigated properly.

Limits: Rules can be introduced that can limit the scope for laundering. No-cash policies on certain transactions, restrictions on use of company bank accounts, deadlines for financial records being updated and filed are all examples of rules that can deter and prevent laundering.

Education: Staff need to be made aware of the potential problem and trained, where necessary, so they know their legal obligations to report any suspicions.

Aziz Rahman is senior partner at Rahman Ravelli