Many of our readers will recall The Times article back in February where ‘top private schools’ were accused of ‘conveying legitimacy’ to ‘oligarchs convicted of embezzling hundreds of millions of pounds’.
This is not a new issue; in fact, by October 2020 the National Crime Agency (‘NCA’) was so concerned that it published an Amber Alert that said UK independent schools are at particular risk of receiving the proceeds of bribery and corruption and legitimising them. And it is not just independent schools that have been a target of criticism in the press, in recent years British universities have also been accused of accepting ‘dirty money’ from donors.
In light of the Russia-Ukraine conflict, and the imposition of sanctions on various Russian individuals and financial institutions by the UK government, this issue is, if anything, more pertinent now than ever. This therefore feels like an appropriate time to remind our readers of the issues around money laundering in education and the steps that can be taken to prevent it.
The good reputation and public confidence which independent schools and higher education institutions (‘HEIs’) enjoy, especially if they are registered charities, makes them an ideal target for criminals wanting to legitimise their ‘dirty money’. This may be through the payment of fees or other means, such as receiving donations or transferring ‘pocket money’ to its students from corrupt sources. The accompanying reputational risks of doing so are potentially serious and this will be an ongoing area of concern for many independent schools and HEIs across the UK.
Of course, the issues relating to ‘dirty money’ cover more than just money laundering. They also stray into the territory of bribery and sanctions compliance, for instance. For the purposes of this article, we are shining our spotlight on money laundering in particular, but sanctions compliance will be the focus of a future article in the next edition of this newsletter, for those who are interested.
What anti-money laundering (‘AML’) obligations do UK independent schools/HEIs have?
Whilst the UK’s AML regime is mostly concerned with regulated business, that does not mean schools and HEIs are not subject to any regulations. As a minimum, schools and HEIs must ensure they do not commit any offences under the Proceeds of Crime Act 2002 (‘POCA’).
The four core offences that may be committed under POCA are:
- concealing, disguising, converting, transferring, or removing criminal property from anywhere within the UK;
- entering into or becoming concerned in an arrangement which a person knows, or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person;
- acquiring, using or possessing criminal property; and
- doing something that might prejudice an investigation – for example, falsifying or destroying a document.
It should be noted that there is an equivalent money laundering offence under the Terrorism Act 2000, if a person enters into or becomes concerned in an arrangement which facilitates the retention or control by or on behalf of another person of terrorist property. It is a defence to prove that the person did not know and had no reasonable cause to suspect that the arrangement related to terrorist property.
These offences can be committed by the organisation as a whole, or by individual staff members within it. They also attract substantial fines and prison sentences.
By way of example, offences could be committed by accepting the payment of fees or a donation which derives from criminal conduct, and where the school or HEI knows or suspects the property might be from such a source. Suspicion here is a relatively low and unclear threshold – it simply needs to be more than a fanciful possibility.
Beyond POCA, schools and HEIs are not generally subject to the Money Laundering Regulations 2017. However, many schools and HEIs have charitable status and are therefore under additional obligations.
If my school or HEI is a registered charity, what additional obligations do I need to be aware of?
As well as appreciating the risks set out above, Governors, being charity trustees, have fiduciary duties that feed into their approach to managing the risk of money laundering:
- you must act in your charity’s best interests;
- you must manage your charity’s resources prudently; and
- you must act with reasonable care and skill.
If the Governors of a school or HEI have a relaxed approach to preventing money laundering, they could be in breach of these duties.
Red flags
If you are in a position of senior management and, in particular, responsible for the financial side of your school or HEI, you may find it helpful to ask yourself the following ‘red flag’ questions about a payment:
- Is the payer native to, or resident in, a high-risk country?
- Are the funds coming from a foreign bank account?
- Is the payer a Politically Exposed Person[1], subject to sanctions or designated as (or associated with) a proscribed organisation?
- Are the funds part of a complex or illogical arrangement, such that it is unclear who is making the payment, e.g. from an offshore company?
- Has the payer taken steps to conceal their identity? Has anyone in the organisation ever met the payer in person?
- Are the payer’s assets inconsistent with their known legitimate income?
- Is the payment made up of a disproportionate amount of private funding, bearer’s cheques or cash?
- Are significant amounts being offered (unnecessarily) in advance or is the school or HEI being put under pressure to complete the transaction quickly without good justification?
- Is any of the information provided by the payer suspicious (e.g. falsified) or has information been withheld?
- Is a refund being requested for an overpayment (and if so, to different accounts)?
This list is non-exhaustive. Sometimes the answers to these questions will be perfectly reasonable and innocent. However, in order to protect your institution and your staff, you should be alive to the potential risks where the source of funds is unclear or concerning in some way. This is particularly the case where a payment would tick more than one of the boxes listed above.
What should I do if I suspect money laundering?
If you suspect that your school or HEI may be being used to facilitate money laundering, you should: 1) seek professional advice immediately; and 2) consider submitting a Suspicious Activity Report (‘SAR’) to the NCA using their online system.
If your school or HEI is a charity, the Charity Commission Guidance requires you to protect the charity from financial crime. In addition to the recommendations above, the Charity Commission advises you to inform the police as soon as possible and obtain a crime reference number. The Charity Commission will also expect you to submit a serious incident report so that it can assess how the school or HEI is managing the incident and whether it requires any regulatory intervention or guidance. It should be noted that the Charity Commission considers a payment of more than £25,000 from an unknown or unverifiable source to be sufficient grounds for a serious incident report (and governors should use their judgement in deciding whether to report payments below this figure). If your school or HEI is based in Scotland, Office of the Scottish Charity Regulator offers an equivalent regime for ‘notifiable events’.
Reputational risk
Making a disclosure to the NCA will provide you with a potential defence to money laundering offences so long as you make the disclosure either before carrying out the act or as soon as practicable after the knowledge or suspicion arises. However, it does not protect the school or HEI from the reputational harm of becoming entangled with allegations of accepting ‘dirty’ money. This reputational damage is hard to undo once the offence has been committed, even if unwittingly so. Therefore, it is prudent to ensure that your school or HEI has adequate and robust risk management policies in place to avoid money laundering risks in the first place.
Preventative action
As such, it is best practice to proactively carry out due diligence checks on fee-payers and donors. Additionally, we would recommend documenting any due diligence undertaken (and any decisions made in respect of accepting the funds) in order to be able to evidence your actions if the need arises.
A first step is to ensure that your school or HEI possesses a robust anti-money laundering policy that will help staff understand what money laundering is, the ways in which your organisation may be vulnerable and the actions the school or HEI must take to prevent money laundering. As ever with policies, they are only useful if they are known and acted upon so do use this article as a prompt to consider whether your policy needs to be reviewed or disseminated more widely in your organisation.
It is also important to have a system of ‘in-house’ checks in order to screen fee-payers and donors. For example, Bursary staff could perform a simple Google search on the payer’s name; they could also look at Companies House for information about companies and directorships. As a matter of course, any payer’s name should be checked against the Government’s sanctions and proscribed organisations list. Superficial searches such as these may be enough to allay concerns in some circumstances.
However, in some situations it may be necessary to request original or certified copies of official documents which verify a person’s identity (e.g. passports or birth certificates), while being alert to any signs of forgery or theft. It may also be helpful to use an external provider/system in order to carry out more sophisticated due diligence checks, especially where the initial search raises concerns or where red flags are present. This can be particularly helpful in respect of overseas jurisdictions where reliable public information sources may be thin on the ground. However, as a note of caution, we have acted for a number of clients who have found their profiles to contain inaccurate, false or misleading information (and have engaged us to have these profiles corrected/removed) so it is worth making further enquiries at this point rather than relying entirely on external due diligence providers.
The Independent Schools’ Bursars Association has produced guidance on the topic, which includes recommended third-party services which could be used to help avoid money laundering. The services on offer range from the use of an enhanced search engine which can perform deeper searches on potential fee-payers or donors, to tuition fee payment processors, authorised by the Financial Conduct Authority, who perform their own due diligence checks. These providers say their searches are performed discreetly and securely and can help you understand and verify the legitimacy and source of wealth and funds.
Some schools and HEIs have decided to appoint a designated Money Laundering Reporting Officer (‘MLRO’ – who is often the Bursar or Finance Director) to help ensure compliance with money laundering regulations. An MLRO can deal with internal reports or concerns and make formal SARs where necessary from a more informed position. While this is not compulsory, it does evidence a strong commitment to fighting money laundering in your school or HEI.
Conclusion
Although any business in the UK can be a target for money launderers, independent schools and HEIs are at particular risk due to the strength of their good reputations.
The offences under POCA are applicable to all and the reputational harm from money laundering allegations is a sector-wide risk.
As such, a close eye should always be kept on managing this risk effectively, and you should ensure that you have robust systems and practices in place to protect your school or HEI, its staff and its reputation from harm.
If you have any questions arising from reading this article, please speak to Emma Flower, Andrew Fremlin-Key, Jessica Boyce or your usual Withers contact.
Further reading
Proceeds of Crime Act 2002
Terrorism Act 2000
Independent Schools’ Bursars Association Guidance, Fee Payments by Cash and Money Laundering published January 2020
National Crime Agency Guidance, Introduction to Suspicious Activity Reports published March 2021
