The Various Types of Orders related to Anti-Money Laundering
It has almost become a common occurrence for service providers in the financial services industry to be notified with some form of order issued on account of a money laundering investigation or an arraignment of a person charged with money laundering.
The scope of this article is to try to explain the various types of orders that may be issued and how a practitioner is to react when notified with one. From a legislative point of view the task is not an easy one, if only because the relative provisions are not found in one comprehensive piece of legislation. In fact they are spread around with a plurality of cross references in various enactments, namely the Criminal Code (Chapter 9), the Dangerous Drugs Ordinance (Chapter 10), The Medical and Kindred Profession Ordinance (Chapter 31) and, last but not least, the Money Laundering Act itself (Chapter 373 ‘MLA’).
These orders essentially consist of the following:
The Investigation Order
Such an order is issued when the Attorney General, upon information received, has reasonable cause to suspect that a person is guilty of money laundering. In such a case he may request the Criminal Court to issue an investigation order. In terms of this request any person named in the order, who seemingly possesses material which is of relevance to the ongoing investigation, is bound to give access to such information to the person (usually a Police Inspector) mentioned in the investigation order itself.
Hence, basically, if anyone is served with an investigation order he is obliged to hand over to the Police inspector the information (files/documents) of that particular client who is reasonably suspected of being guilty of money laundering. The only information that is excluded from forming the subject matter of an investigation order are the communications between an advocate or legal procurator and his client and between a priest and a person making a confession to him. Hence all other persons, including auditors and accountants, are not so covered by this privilege. In fact, the law expressly stipulates that the investigation order shall have effect notwithstanding any legal obligations related to professional secrecy or any other restrictions upon disclosure of information (e.g. data protection).
Section 4(2) of the MLA makes it a criminal offence, punishable with a term of imprisonment not exceeding twelve months and/or a fine not exceeding €11,646.87, if any person discloses either that such an investigation is being undertaken or makes any other disclosure likely to prejudice the investigation. It shall be a defence for the person so charged to prove that he did not know or suspect that the disclosure was likely to prejudice the investigation.
Of course such a scenario places all service providers in an uncomfortable situation since they necessarily might tend to feel that they are giving away information/documents that were handed over to them on account of the trust that a particular client had placed in them in the first place. However, in such circumstances one must also keep in mind that an investigation does require a certain amount of secrecy for otherwise it could very well be compromised.
To a certain extent this element of discomfort is generally eased since in most cases an investigation order is almost invariably accompanied by the second type of order which forms the subject matter of this article, namely the attachment order. Such an order, which shall be discussed later on, essentially blocks all the suspect’s property. Hence, and in practice this is what usually happens, many times it is the client himself who would be contacting the service provider enquiring with him as to why his bank accounts have been blocked. He will also inform the service provider that he has posed the question to the Bank itself and they informed him that they could not disclose such information. In such circumstances the best advice one could give to clients is that you are unaware as to why this is so and that he ought to seek legal counsel.
Indeed many a time the effects of the attachment order are felt before the investigation order has been served on the service provider. Consequently such a scenario should immediately indicate that such a state of affairs has been brought about precisely on account of some money laundering investigation.
How is one to react when a Police Inspector turns up to his offices quipped with an investigation order in his hands? Primarily, it is pertinent to point out that at this point in time you are not the person suspected of money laundering and neither are you under arrest.
Secondly, ask to have a look at the investigation order and read it carefully in order to ensure what is required of you and, more importantly, who the suspected person is.
The investigation order we have seen would be indicating the name of the person (almost invariably a Police Inspector) to whom you are obliged to give the information. Hence, the third step is to ask the person to identify himself in order to confirm that he is in actual fact the person to whom the investigation order is requesting you to give the information.
Fourthly proceed to carefully identify the files which pertain to the suspected person mentioned in the investigation order and it is recommendable that a copy is made and handed over. Do not just let go of files/documents since you will probably never see them again and thus confirm whether the Police Inspector is content with a copy or the original. Whatever the case retain a set of whatever is handed over.
What happens if the information is on computer? Does it mean that the Police Inspector can simply walk off with a computer? The answer is no and in such cases the law provides that a print out would suffice.
The Attachment Order
As has already been stated an application by the Attorney General for the investigation order is usually accompanied by an application for the issue of an attachment order.
Essentially, an attachment order has a threefold effect:
It attaches (i.e. cannot be utilised, disposed of, and transferred; essentially blocks) in the hands of such persons (referred to as garnishees) mentioned in the attachment order all the moneys and other movable property due or belonging to the suspect.
It requires the garnishees to declare in writing to the Attorney General within twenty-four hours from the time that the garnishee is so notified with the attachment order, the nature and source of all money and other movable property so attached.
It prohibits the suspect from transferring or otherwise disposing of any movable or immovable property.
Acting in a manner which is prejudicial to the effectiveness of the attachment order or disclosing that it has been made is also tantamount to a criminal offence punishable in the same way as disclosures related to investigation orders are.
The law provides that an attachment order shall cease to be operative, unless it is revoked earlier by a notice in writing served on the suspect and on the garnishee, on the expiration of 30 days from the date on which it was made. Moreover, the law stipulates that the Criminal Court shall not make another attachment order in respect of the suspect unless it is satisfied that substantially new information with regards to the offence of money laundering is available.
In practice, these attachment orders pose a huge problem. This is because the law provides that the period of 30 days shall be put on hold for such time as the suspect is away from the Islands.
Now, experience teaches us that an attachment order is usually issued in respect of more than one suspect. Moreover they are issued both against private individuals as well as against a body corporate. I have yet to encounter an attachment order which does not have among the list of suspects persons (whether corporate or otherwise) who are resident in Malta as well as others who are not so resident.
The problem that arises is that in such cases the 30 day period is considered to be held in abeyance both in respect of those suspects who are not resident in Malta as well as in respect of those suspects who are resident in Malta. Thus a suspect is consequently in a position of financial blockage indefinitely, irrespective of whether he is resident in Malta or not. Although the validity of this interpretation has not yet been tested, it is my opinion that its constitutional standing is dubious to say the least.
The Monitoring Order
The order is also issued upon information received by the Attorney General causing him to reasonably suspect that a person is guilty of money laundering. Here again he would apply to the Criminal Court for the issue of such an order.
A monitoring order basically is an order requiring a bank to monitor, for a specified period, the transactions being carried out by the suspect. The Bank is then obliged to communicate to the person or authority indicated by the Attorney General the information resulting from the monitoring.
It is obviously here, in my opinion, that disclosure would be the most prejudicial to an ongoing investigation. This is because the Bank is asked to spy on banking operations of clients and report back.
Interestingly, Section 30B of the MLA confers a similar power to the Financial Intelligence and Analysis Unit (‘FIAU’). In fact, when the FIAU receives a Suspicion Transactions Report (‘STR’) from or, when from information in its possession the FIAU suspects, that a subject person may have been used for any suspicious transactions or that property is being held by a subject person that is of a dubious nature, then the FIAU may request the subject person to monitor for a specified period the transactions or banking operations being carried out by the suspected person.
The Freezing Order
Here the scenario is completely different to the previous orders above-mentioned. In fact here one no longer has a reasonable suspicion of money laundering but rather has a situation where the suspect has been charged in Court. Consequently, the request for a freezing order is made in open Court and in the presence of the accused who would therefore be legally represented as opposed to the situation where the Attorney General requests the Criminal Court to issue an investigation, attachment or monitoring order.
In practice, I consider freezing orders to have the same effect as B52’s. Basically they freeze whatever property the accused has and prohibits him from receiving any income (except for 13, 976.24) or from carrying out any financial transactions. The result of such an order is, just like carpet bombing, devastating. Accounts are blocked, credit cards are withdrawn, loan 13, 976.24 are withheld.
The law tries to address this issue by providing that a freezing order may be varied and consequently the Court may authorise the payment of debts due to bona fide creditors and which were contracted before such order was made and can also authorize the accused to transfer property. The procedure, in practice, is however cumbersome and offers a meagre consolation to the impact these orders have.
The Confiscation Order
Ultimately, the existence of all the previous orders mentioned have as their raison d’etre the identification of proceeds of money laundering. Once the crime of money laundering vis-a-vis an accused has been proven then these orders culminate in the confiscation order. Indeed, this confiscation is in addition to any punishment to which the person convicted may be liable according to law. In fact upon a declaration of guilt the Court shall order the forfeiture in favour of the Government of Malta of the proceeds of the offence or of such property the value of which corresponds to the value of the proceeds of the offence.
It is only the issue of a freezing order and confiscation order that is published in the Government Gazette. The other three orders as we have seen form part of the investigative rather than the judicial process and therefore are not so published. A cursory glance at the Government Gazette would give an indication of the frequency with which such orders are issued.
I believe that a flaw in the system emanates from the fact that there is not enough information available for service providers to keep track of which entities/persons have been so hit by any such orders or whether they are still in force. This could be potentially problematic and could lead to situations where services are provided to persons who are or have been suspected of money laundering. The issue becomes more complex in view of the recent amendments introduced by Legal Notice 464/2014 which has further widened the definition of suspicion. The matter will become even more intricate since the general view among policy makers is to keep up and further strengthen the fight against money laundering especially since it is perceived as funding terrorism.
It is my opinion that, although it is indispensable that we do indeed take all the necessary measures to curb the funding of terrorism, one should always bear in mind that the vast majority of investors/businessmen are not terrorists and denounce terrorism. Trying to strike the right balance is therefore paramount.