Journal of Money Laundering Control

New Frontiers of Criminal Liability: Money Laundering and Proceeds of Crime

Michael Levi
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New Frontiers of Criminal Liability:
Money Laundering and Proceeds of Crime
Michael Levi
The salience of money laundering as a social and eco-
nomic issue merits some modest scepticism. First,
most crime is and will remain for the foreseeable
future local and ill-organised. The only connection
that most of the young people and adults who
come before most judges most of the time have
with international organised crime is the remote
supply of the ganja that they smoke, and the fact
that drugs — mostly heroin, cocaine and amphe-
tamines — increase their rate of offending and
make it harder for them to give up crime. Although
there is room for debate about the proportionate and
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creative ways of dealing with drug use among the
young, it remains the case that there is a heavy-end
crime problem with which judges, law officers
and politicians have to deal. It is difficult to write
rationally about trends in organised crime and
about rational international responses to it. The
only people who are really on top of this particular
market are the successful criminals themselves,
including the professionals — accountants and
lawyers — w h o knowingly assist in laundering the
proceeds of crime, and who are increasingly required
by the front-line criminals as our controls on cash
deposits get tighter. Nevertheless, this paper discusses
the relevance to money laundering and proceeds of
crime of corporate criminal liability and analogous
forms of imposing 'due diligence' penalties.
To commence by making a conceptual point,
terminology and clarity in the use of it are important.
People often use the terms 'crime', 'criminals' and
'organised crime' pretty interchangeably, but what-
ever the benefits of this vagueness for making
claims on resources and powers, it is risky. It is
risky because it is easy for people to counter that
there is no evidence that most villains use any sophis-
ticated laundering techniques at all, nor that they are
part of any disciplined hierarchical organisation, but
rather that they operate in loose local or at most
regional networks. We may counter that we never
said that most villains were 'organised': what we are
interested in is the higher echelons of offenders, or
what one might term the 'serious crime community',
whatever crimes —from fraud to drugs trafficking — its
Journal of Money Laundering Control — Vol. 3 No. 3
members may be engaged in. Furthermore, even if offen-
ders are not organised in an obvious hierarchical way,
this apparent lack of organisation makes it no easier
for them to be dealt with. (Indeed, they make propo-
sals such as criminalising membership of criminal
organisations fraught with methodological problems
in determining proof). But 'crime', 'criminals' and
'organised crime' all mean different things. We all
know that crime, for example, is a far from homo-
geneous category, and that even 'serious crime
for economic gain' is very open-ended. Does it
include tax evasion, committed systematically and
over a long period of time by groups of individuals
and/or corporations? And what about corruption
funds paid to heads of states or ministers, or to corpo-
rate accounts beneficially but secretly owned by
them?
FACTORS INFLUENCING
INTERNATIONAL RESPONSES
W e might usefully divide action against transnational
crime into
(1) demand factors; and
(2) supply factors.
On the demand (or 'need') for international control
side, what has changed arguably is not so much the
nature of international crime but its magnitude, diffi-
cult though magnitude is to demonstrate.
Obviously, new cross-border payment instruments
have come into being that are capable of being
exploited criminally across frontiers. However, the
advance-fee frauds that litter our mailboxes or perso-
nal approaches that are prevalent in international
hotels are not particularly modern, though the
speed of international travel may make people feel a
greater sense of control and give crooks a more
certain getaway.
Paradoxically, despite the greater physical ease of
drugs trafficking with contemporary transportation,
Journal of Money Laundering Control
recent advances in biochemistry have democratised Vol. 3, No. 3, 2000, pp 223-232
Henry Stewart Publications
the drugs market up to a point by making its ISSN 1368-5201
Page 223
 New Frontiers of Criminal Liability: Money Laundering and Proceeds of Crime
supply less an accident of geography and climate, thus
creating less need for transnational transportation
and foreign currency than previously. (Though the
preferences for laundering may have an international
logic.) So synthetics can be produced locally by
competent local chemists, without having to rely
on importation. Nevertheless, electronic funds trans-
fer and international travel mean that the process of
crime commission, and the dispersal of both the
proceeds and the offenders across borders, have
speeded up, creating a need for faster reaction and
cooperation than existed before. As a recent report
by Blum et al.1 for the U N demonstrates, the
growth in the number not just of offshore finance
centres (aka 'tax havens') but also of perniciously
investigation-frustrating asset protection regimes in
otherwise impoverished small island economies
makes international crime control difficult, running
up against conventional notions of sovereignty and
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democratic independence: freedoms that we are all
formally committed to.
This takes us to the 'supply-side' factors in inter-
national measures to deal with crime. These take
two forms: mutual assistance in criminal justice and
crime prevention. And they include both public
and private sectors. There is no doubt at all that in
the 11 years since the U N Vienna Convention and
the Basle declaration of principles of banking regula-
tion, we have moved an almost unimaginable extent
on both prevention and mutual assistance. However
frustrated some may feel about these trends — and
these frustrations apply both to those who wish we
could go further and to those who wish they had
gone less far — there is no doubt that at a formal
level there are more international instruments in
place and a greater focus on their implementation
than ever before. To the extent that consistency of
message is important, it is noteworthy that the Coun-
cil of Europe, the European Union, the FATF (and its
regional offshoots such as the CFATF), and the
Organisation of American States have increasingly
harmonised their activities in relation to corruption
and money laundering, assisted by the pre-accession
requirements for EU candidate members. Every-
where, the system of peer review and upwards pres-
sure on performance is making a difference, the
crucial feature of this second stage of strategy being
the monitoring of implementation, not just of the
passage of legislation itself. This is not to under-
estimate the difficulties: the economic problems
and recruitment problems of finding and paying for
Page 224
good regulators is well known in the Caribbean.
Whether an unintended side-effect of the OECD's
harmful tax avoidance initiative will be to drive
away some 'good business' from the offshore finance
centres and give them greater incentive to take the
bad business remains to be seen. But there are some
important issues of principle and practice, and some
international developments to draw attention to
here, to add to the culture shock that lawyers and
judges from around the globe have to bear.
Corporate criminal liability in
England and Wales: Introduction
Within the context of imposing sanctions in the
globalised arena, one important issue is that of
corporate liability, most recently mandated in the
1997 O E C D Convention on transnational bribery
of overseas public officials. In the UK and USA,
corporate criminal liability normally arises in three
sets of circumstances:
(1) relatively minor health and safety issues such as
consumer fraud and product adulteration,
minor industrial accidents and pollution;
(2) major industrial/consumer injuries and deva-
stating pollution (a matter of degree from (1)
above); and
(3) regulation of money laundering, whatever the
predicate acts.
There are major debates about the constitutional
appropriateness of imposing corporate criminal
liability. This has been the case especially in civil
code countries where great store has been placed
upon the incapacity of inanimate actors to possess
an evil mind. However, the Netherlands and
Denmark, for example, do not appear to have this
problem, while in recent years Belgium and France
have adopted corporate criminal liability also, so it
is clearly not a constitutional concomitant of the
civil code, despite the German situation in which
corporate liability currently is not envisaged to be
anything more than an administrative offence, carry-
ing no penalty more severe than a fine (except for
future-oriented sanctions) and no registration as a
'criminal' in the national records. (However, this
may not stop the media inculpating the companies,
though it will make them careful before using the
term 'crime' in relation to them, lest they be sued
for defamation.)
In countries like England that do not have a

separate category of administrative offences, it has
long been a pragmatic way of imposing liability
other than civil liability for acts committed in an
organisational context where individualisation of
liability would be too complex. This is true especially
with large organisations where, as Braithwaite 2 has
noted, lines of command that are clear-cut operation-
ally suddenly become opaque when blame is fixed.
(When calculating their annual bonus, do executives
take the view that their contribution to profits should
be reduced because they have had such modest
influence upon their employees?) Any act by an
individual is treated vicariously as if it were an act
of the corporation. Although such 'regulatory
offences' are part of the ordinary criminal law, they
are treated differently and generally attract very
modest sentences. Research on the regulatory process
indicates that whatever the formal position in
criminal law, the norm is for behaviour in a corporate
setting to be prosecuted only if there have first been
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warnings, sometimes many warnings, and sugges-
tions for improvement. De facto, corporations are
prosecuted for persistent defiance and are already,
unofficially, recidivists (though this is seldom taken
into account in their sentencing). The exception is
where a high-publicity event generates a 'need' to
display prosecutorial activism to satisfy a normally
quiescent and ignorant media and public. So one
question for those who advocate an extension or
introduction of corporate criminal liability is what
investigative or prosecutorial guidelines can be
developed to generate consistent discretion, both
within and between countries in the European and
non-European dimension. For countries operating a
principle of legality, this could be a special problem,
if there is also strict and vicarious liability.
Another key question is what is the role of
prosecution of individual directors and managers,
and how does this intersect with criminal prosecution
of corporations? Though measures of behavioural
change may be more problematic than acknowl-
edged, as Smith has observed, corporate behaviour
is most likely to be changed if both individual and
corporate prosecutions occur.
Corporate liability and money
laundering
One aspect of the process of corporate liability
attribution is in relation to laundering. What is
the rationale for this focus on due diligence and anti-
laundering policy? The policy drivers are as follows:
Journal of Money Laundering Control — Vol. 3 No. 3 — Levi
(1) International — and not just US — focus on
supply-side narcotics control, a collateral part
of which is the desire to use the money trail to
catch offenders, confiscate their assets, and/or
prevent/deter them from engaging in criminal
business.
(2) Concern about international fraud and the use of
overseas jurisdictions and their legal instruments
(among which are to be numbered trusts and
international business corporations):
— to 'front' frauds;
— to hide beneficial ownership of both the
companies and their assets; and
— to frustrate asset recovery on behalf of
victims.
(3) Concern about tax evasion masquerading as tax
avoidance, sheltering the locus of control via
trust companies and international business
corporations.
(4) Most recently, concern (i) about a 'level playing
field' in business competition for contracts and,
arguably, (ii) about the loss of welfare in less
developed countries arising from high-level
corruption, leading to the extension of the US
Foreign and Corrupt Practices Act-style liabili-
ties upon the rest of the world by the mechanism
of the O E C D Convention on Combating
Bribery of Foreign Public Officials in Inter-
national Business Transactions, signed by all
O E C D countries (with varying degrees of
enthusiasm) in December 1997, which came
into force February 1999. If this is to be effective,
controls — including auditors' reports — will
have to extend to all finance centres to which
funds are paid, to check whether or not any of
their visible or beneficial ownership may be the
objects of bribery, though how this will work
out in practice is another matter. However,
acting through the corporate entity is a
common mode of laundering, and the
imposition of liability upon the firm as well as
the requirement that it designate a money-
laundering reporting officer with personal
responsibility for implementation has repre-
sented the normal response in the common law
countries of the Commonwealth and in the USA.
One of the means by which countries might seek to
implement policy is through corporate criminal
liability and individual liability for the acts of cor-
porations on the part of executives: those who are
Page 225
 New Frontiers of Criminal Liability: Money Laundering and Proceeds of Crime
colloquially known in the USA as 'vice presidents
responsible for going to jail'. Again, the fundamental
theory is a pragmatic one: that if one imposes
vicarious liability, directors will pay greater care to
their responsibilities towards consumers, workers
and indeed 'the public interest' than they would
otherwise do. Corporate criminal liability has been
going through an expansionist phase during the
1990s, reflecting the greater realism of the courts
towards modern large companies and the prac-
ticalities of decision making therein. The typical
19th century model of the owner-manager of a
closely managed company has been replaced by a
complex hierarchy of control and devolved budget-
ing and responsibility in flatter-structured corpora-
tions where performance targets are set by the
centre and it is up to the subgroups to decide how
(subject to the law, it is taken for granted) they are
to attain them: the courts have gradually realised
this and adjusted corporate criminal liability to the
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new situation.
Nevertheless, except in Australia and the USA, the
area of corporate criminal liability has been much
neglected outside of areas such as corporate man-
slaughter. The agreement to execute unlawful
conduct is an offence from the moment the agree-
ment is made and ends only when the act is
performed, abandoned, or frustrated. A director of
a company who is solely responsible for the conduct
of the company's business cannot be convicted of
conspiracy, since the director's mind and that of the
company are inseparable, even though the company
is a separate legal entity. However, excepting that
'sole director' situation, the company may be
convicted of conspiracy with the director or with
other parties, and may be convicted of conspiracy
to defraud, on the grounds that these must be per-
formed by a human agency and can become acts of
the company.
The classic statement of liability in the early
modern era was made by Lord Denning as follows
in Bolton Engineering Co. v Gram:4
'A company may in many ways be likened to a
human body . . . Some of the people in the com-
pany are mere servants and agents who are nothing
more than hands to do the work and cannot be said
to represent the mind or will. Others are directors
and managers who represent the directing mind and
will of the company and control what it does. The
state of mind of these managers is the state and of
Page 226
mind of the company and is treated by the law as
such.'
In Tesco v Nattrass,5 it was held that corporate liability
attached to the acts of those natural persons 'who by
the memorandum and articles of association or as a
result of actions taken by the directors of by the com-
pany meeting pursuant to the articles are entrusted
with the exercise of the powers of the company', as
well as persons granted discretion to act inde-
pendently of instructions from them. In that case,
the acts of a junior assistant were held to be insuffi-
cient to find liability, but by 19936 the courts shifted
to the view that corporate liability extended even to
the acts of an assistant selling an '18 and above' video
to someone aged 14:
'Were it otherwise, the statute would be wholly
ineffective in the case of a large company, unless
by the merest chance a youthful purchaser were
known to the board of directors.'
In R v British Steel plc,7 the Court of Appeal stated
that it was no longer necessary to establish whether
particular employees were part of senior manage-
ment or not: liability could be imposed even for the
acts of subcontractors. In Re Ready Mixed Concrete,8
the company had issued express instructions to all
its staff forbidding them from entering into restrictive
trade agreements with other companies, but the
House of Lords held that the company was still
liable, observing (per Lord Nolan) that 'liability can
only be escaped by completely effective preventative
measures'. These and other cases suggested that the
modern position is that in the absence of any statu-
tory 'due diligence' defences, if they wish to escape
liability, companies have to ensure a safe system of
operating, whether that safety be for consumers,
investors or workers.
The company in principle may have imputed to its
'state of mind' the acts and state of mind of its
directors and managers who represent its 'directing
mind and will'. But what happens if not all directors
and managers are of the same mind? Not every senior
executive's acts can be thus imputed: 9 this inference is
a jury decision, once the judge has decided on the
application of the law. Thus, the Guinness defendants
were tried and convicted of theft on the basis that the
money paid for the 'share support operations' was
stolen from the company, which had not resolved
to pay these funds. The alternate charge — which,

to save the j u r y from too much complexity, was
withdrawn by the judge at the end of the trial
— was that the defendants had broken the C o m -
panies Act by using the company's assets to pur-
chase the shares in the company. In July 1999,
the trial judge directed the acquittal of Great
Western Railways on charges of corporate man-
slaughter (and of the case against the train driver,
who was mentally unfit to stand trial), and the
reason given was that the prosecution was unable
to show which director had a guilty mind respon-
sible for the acts:10 again, managerial structures and
responsibilities miraculously become opaque! (This
will be contrasted with the American situation
later.)
In Meridian,11 the Privy Council ruled that corpo-
rate criminal liability for failing to declare a sub-
stantial shareholding applied even where the chief
investment officer and the senior portfolio manager
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of an investment management company in N e w
Zealand bought shares in another company without
telling their own managing director or the board
(and with apparent intent to 'skim' off most of the
profit from the deal for themselves personally). It
seemed obvious to the trial judge that if the chief
investment officer and senior portfolio manager had
authority to buy the shares, their knowledge that
they had done so should be attributed to Meridian,
the company. The style of management of Meridian
may be familiar: the members of the board lived in
different parts of the world and met only once a
year, before the AGM; other matters which required
a board resolution were circulated by post; and there
was only modest supervision by the managing
director (raising, in the author's mind, questions
about how the board's salaries were merited!)
Lord Hoffman, for the Privy Council, sought to
make more modern and intelligible the doctrines of
corporate responsibility, civil and criminal. He argued
that the primary rules of attribution of responsibility
— the articles and memorandum of association —
are 'obviously not enough to enable a company to
go out into the world and do business'. It
'therefore builds upon the primary rules of attri-
bution which are equally attributable to natural
persons, namely, the principles of agency . . . To
say that a company cannot do something means
only that there is no one whose doing of that act
would, under the applicable rules of attribution,
count as an act of the company.'
Journal of Money Laundering Control — Vol. 3 No. 3 — Levi
Their Lordships clearly reasoned that if corporate
liability required knowledge by the board, companies
could easily defeat the objectives of disclosure
requirements simply by paying little attention to
the acts of their servants (though from the point of
view of preventing internal fraud and corruption,
this is a very risky tactic, if genuinely practised).
Likewise, it affirmed that where a servant had a
duty to make a tax return, the failure to do so
honestly should be attributed to the company. 12
Nonetheless, they left some scope for argument:
'It is a question of construction in each case as to
whether' the particular rule requires that the
knowledge that an act has been done, or the state
of mind with which it is done, should be attributed
to the company.'
Thus, though there is much scope for argument
about who actually had responsibility for certain
functions within the company, there is a clear exten-
sion of practical liability for the corporation beyond
the central 'nerve centre' directors identified in earlier
case law such as Tesco v Nattrass.
Developments in corporate
criminal liability
Developments in attitudes to risk taking and to the
ever-growing role of companies in socio-economic
life appear to have generated more interest in the
UK, as elsewhere in Europe. During 1998 and 1999,
DTI Secretaries of State Mandelson and Byers
have expressed the view that risk taking should be
encouraged as part of the strengthening of the enter-
prise culture. As usual, these changes are also scandal-
driven. The major precipitants, perhaps, were the
terrible deaths following the capsize of the Zecbrugge
P&O ferry Herald of Free Enterprise (in which
188 people died) and of the later pleasure boat
Marchioness, but the rail crashes in West London in
1997 and October 1999 appear to have fuelled the
fire of legal change. N o reference at all was made
in the Herald's standing orders to the closing of the
bow doors of the ship (which might have been
regarded as an obvious thing to do!), and there was
evidence that they had been left open before as well
as (disputed) evidence that this had been drawn to
the attention of senior management. Evidence had
been given by P&O employees that no one had
thought that there might be a risk of the ferry sailing
with an open door, and the judge dismissed the case
Page 227
 New Frontiers of Criminal Liability: Money Laundering and Proceeds of Crime
without calling on evidence from staff from other
firms. The prosecution of P&O failed, though
the trial judge — who dismissed the case on legal
technicalities before giving the jury the opportunity
to give its verdict — observed that 'a clear case can
be made for imputing to corporations social duties
including the duty not to offend all relevant parts
of the criminal law', 14 and in the aftermath, the
Law Commission decided to make this a major part
of its review of involuntary manslaughter.
The definition of manslaughter proposed by the
Law Commission has to deal with the difficulties
caused by deaths in the context of otherwise lawful
activities. The problem that the judge faced in the
Herald of Free Enterprise case was that the killing
would amount to manslaughter only if the directors
of the company representing 'the company' had
failed to appreciate the obvious and serious risk that
the ferry might sail with its doors open. Subsequent
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to that, the House of Lords introduced the concept
of 'gross negligence manslaughter', which would
have made it easier to convict the company on the
criminal liability test that 'the extent to which the
defendant's conduct departed from the proper stan-
dard of care incumbent upon him'. But there still
has been only one conviction for corporate man-
slaughter, involving a relatively small company
after deaths in a canoeing tragedy. However, the
Law Commission proposed a separate offence of
corporate killing based on what they term 'manage-
ment failure'. Thus a corporation would be guilty of
corporate killing if:
(a) management failure by the corporation is the
cause or one of the causes of a person's death; and
(b) that failure constitutes conduct falling far
below what can reasonably be expected of the
corporation in the circumstances.
But how are we to define management failure, except
tautologically in the aftermath of a serious injury or
death? Clause 4(2) defines it (if 'define' is appropriate
here): 'there is a management failure by the company
if the way in which its activities are managed or
organised fails to ensure the health and safety of
persons employed in or affected by those activities'.
The penalty would be a fine, and a possible remedial
order, though not any imaginative penalties such as
corporate probation. Unlike the definition of killing
by gross carelessness, no proof is required that there
was an obvious risk that conduct will cause death
Page 228
or serious injury, but gross carelessness (and, for
that matter, reckless killing) could also be charged
against a corporation. Corporate killing could not
be charged against individuals and, in practice, it
seems likely that prosecutors would pick the 'easy
way out' and charge the more easily convicted
offence of corporate killing.
However, as Wells points out, 15 if the risk of
sailing with the bows open was not obvious (as the
trial judge concluded), why should we expect the
company to devise a safe system to prevent it, and
therefore why should this meet the test of corporate
killing? The test more sensibly might be that a com-
pany transporting people who might drown (or
crash) should be expected to take care that there
was no reasonable likelihood that anything within
their control might lead to such deaths, but the
appropriate role of economic cost considerations in
safety remains a site of conflict, as it does also in
money-laundering prevention.
The causal and culpability questions are inherently
likely to be mixed up, because common ways of
discussing them tend to elide the differences. One
difficulty is which employees and system are properly
attributable to 'the company'? What kinds of
evidence about company policy and practice can be
used to relate to such constructions of culpability?
This is almost more the task of organisational
sociologists than of lawyers, who traditionally are
very poor at dealing with organisational issues
which currently entail questions of delayering,
flatter management structures in which respon-
sibility is distributed downwards in the cause of
'empowerment'.
At first sight, this may appear to have little to do
with money laundering. However, it has to be seen
as part of what one might term the 'responsibijisa-
tion' of commerce and finance to take account of
the consequences and potential consequences of their
activities. The risks posed not just to themselves —
the normal concept of risk management — but also
to others (what economists term 'externalities')
have to be taken into account, and taken into account
on a transnational basis. O f course, there is no reason
why this should be just one way: from the less devel-
oped to the developed world. In principle, it is just as
plausible that the externalities of transnational cor-
porations upon the less developed world should also
be subject to disciplined liabilities. One may see
this, for example, in the willingness of the English
courts to hear appeals from South African miners

against their employers for what are really (allegedly)
violations of health and safety protections. When one
considers the American experience and the coming
tide of corruption legislation, with corruption being
a predicate offence for money laundering, we can
see that there may be a gradual stepping up of the
role of corporate criminal liability in the modern
era, as systems — such as the UK Criminal Justice
Act 1993 — imposing liability on firms and their
money-laundering reporting officers who fail to have
adequate systems in place. To date, there have been
no serious attempts to prosecute 'inadequate' banks
or other regulated persons: even the threat of de-
authorisation has been treated very gently in the
UK, perhaps because the authorities have been too
busy with 'active' money launderers (who, them-
selves, have been prosecuted only to a modest
extent). However, there should be some concept of
disciplinary regulation which deters firms because
they know they can be prosecuted. In principle,
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then, it is arguable that (whether criminal or
administrative) some high-profile sanctions should
be applied to those businesses that fail to fulfil their
legal and social responsibilities: what is relatively
new is the idea that those responsibilities arise in
relation to victims and potential victims (and many
who, like drug users, do not consider themselves to
be victims at all) in different jurisdictions, which
would not normally be the concern of domestic
law unless some locally recognised offence was
being committed.
Corporate criminal liability in the USA
The USA has a more rigorous tradition of respondeat
superior in which companies are criminally liable for
the acts of their agents at far lower levels than is the
case in England. In United States v Cincotta16 the
corporate defendant was held responsible for its
employees'- conduct in filing false claims for payment
within the USA and the Supreme Court held that to
be 'acting within the scope of his employment', the
employee 'must be motivated — at least in part —
by an intent to benefit the corporation' (p. 242),
irrespective of whether in fact the corporation did
benefit. (So actual benefit is sufficient to demonstrate
the intent, but it is not necessary to that proof.) Even
where corporate policies explicitly prohibit the con-
duct, the company can still be held liable. In United
States v Hilton Hotels Corp.,17 the corporation was
held liable for anti-trust violations when an agent
threatened a supplier with the loss of a hotel's business
Journal of Money Laundering Control — Vol. 3 No. 3 — Levi
unless the supplier paid a trade association's assess-
ment. However, in a case under the Bank Secrecy
Act, United States v Beusch,18 the court explained
(p. 878):
'A corporation may be liable for acts of its
employees done contrary to express instructions
and policies, but ... the existence of such instruc-
tions and policies may be considered in deter-
mining whether the employee in fact acted to
benefit the corporation. Merely stating or publish-
ing such instructions and policies without dili-
gently enforcing them is not enough to place the
acts of an employee who violates them outside
the scope of his employment. It is a question of
fact whether measures taken to enforce corporate
policy in this area will adequately insulate the
corporation against such acts.'
This seems to be the prevailing view, allowing
basically a due diligence defence, though there may
be inconsistencies in the extent to which the courts
(and jurors) actually construe regulatory functions
as sufficient to establish excusable behaviour.
In the USA, under the Racketeer-Influenced
Corrupt Organization (RICO) statutes, the liability
falls also to corporations when its own employees,
agents and officers conspire on its behalf. In United
States v Hartley,19 the court decided that a corporation
could simultaneously be a defendant and a 'criminal
enterprise' under the R I C O statute. What is
important is not the (in)applicability of R I C O
outside the USA, but the broader construction of
corporate criminal liability and of the necessity —
if corporations are to avoid conviction — for the
management to put into practice truly serious due
diligence.
In May 1998, after three years, Operation
Casablanca ended, resulting in the arrest of 167
individuals and the seizure of over $103m in US
currency, over four tons of marijuana and two tons
of cocaine. The indictments charged 26 Mexican
bank officials and three Mexican banks, Confia
SA, Banca Serfin SA, and Bancomer SA, with
laundering drug money, and allegedly implicated
officials from 12 of Mexico's largest 19 banks. In
addition, bankers from two Venezuelan banks,
Banco Industrial De Venezuela and Banco Del
Caribe, were charged in the money laundering
scheme. On 30th March, 1999, representatives of
Bancomer and Banca Serfin entered guilty pleas to
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 New Frontiers of Criminal Liability: Money Laundering and Proceeds of Crime
one count of money laundering pursuant to plea
agreements and agreed to pay a criminal fine of
$500,000. In addition, Bancomer agreed to forfeit
$9.4m and Banca Serfin agreed to the forfeiture of
$4.2m in separate civil actions. Criminal charges
against the third bank, Confia, were dismissed and
Confia agreed in a civil action to the forfeiture of
$12.2m. However, Banco Mercantil del Norte
(Banorte) succeeded in its battle with the U S govern-
ment which claimed $7m in forfeitures, on the basis
that it had developed and distributed
— to mid and high-level personnel a comprehensive
money-laundering prevention manual, leading in
the 15 months to the end of 1997 to 64 suspicious
transactions being reported by the international
division to internal audit;
— operational alerts triggered by parameters set
internally;
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— training by video conference to 342 employees
all over Mexico, plus further training for
international staff;
— computerised monitoring of 'red-flagged' items
electronically, to be investigated by internal
auditors.
The implementation of these procedures convinced
the Federal judge in Los Angeles that the bank had
taken sufficient steps to negate forfeiture and
corporate criminal liability. It seems fair to add that
the demonstration of substantive compliance may
also assist in the negotiation out of prosecution and
forfeiture, and in mitigating sanctions if convicted.
Whatever one thinks of the extra-territorial
activities in the Casablanca sting operation, the effects
on Mexican banking operations and the seriousness
with which they now view their role may be seen.
This is partly a consequence of this extended doctrine
of corporate criminal liability.
OTHER PATHS TO CORPORATE
AND INDIVIDUAL LIABILITY:
CONSTRUCTIVE TRUST
One can impose liability without imposing it in
criminal form: this is recognised, for example, in the
functional equivalence principle of the O E C D
Convention on bribery, now in force. In relation to
the professional intermediaries who wittingly or
unwittingly assist in fraud, one may note the
development of the common law of constructive
Page 230
trust. An early example that struck terror into
accountants, lawyers and bankers was Agip Africa,21
in which accountants in the Isle of Man were
held liable to account for funds stolen from Agip
by ex-employees who employed them to set up
companies through which they funnelled the fraudu-
lent money transfers. The judge (now Lord Millett)
in that case may have been influenced by the low
prestige not just of the companies but of the
accountancy firm, but the fact remains that the 'attri-
bution rules' (discussed earlier in Meridian) can also
fix liability on intermediaries in civil actions.
Essentially, there is little doubt that those who (a)
deal with assets in breach of trust or (b) implement
a fraudulent scheme in which they steal assets for
their own benefit can be held liable to the bene-
ficiaries of the trust or the fraud victims. But in
many cases22 civil remedies against 'offenders' will
be useless because they appear to have no money or
are 'unavailable', leaving 'deep-pockets' inter-
mediaries (or their insurance companies) to pay. (An
example is the pension funds aspects Maxwell case,
where in the latter half of the 1990s bankers and
accountants contributed almost all the funds to repay
victims.) In this respect, the Privy Council decision
in Royal Brunei Airlines Sdu Blid v Tan23 is crucial.
Prior to Tan, a party — whether individual or
corporate — who was not himself subject to a trust
relationship could be required to account for losses
as a contructive trustee if he either
— received trust property in circumstances which
required him to account to the beneficiary of
the trust (ie he was in 'knowing receipt'); or
— assisted consciously in a dishonest or fraudulent
design of the trustees (ie he gave 'knowing assis-
tance'). The test of this is whether a reasonable
person in his position would or could have
found out what was happening, thus not granting
a premium to the 'wilfully blind'.
The key problem with this was that whereas a civil or
criminal prosecution against the principal perpetrator
would have to prove fraud or a dishonest breach of
trust, those intermediaries who neglected to make
enquiries with sufficient effort would be liable for
the full loss caused by the fraudulent plan. The
courts gradually imposed further necessary condi-
tions before accessories were made liable, including
'want of probity' 24 — which means not acting as
an honest person would in the circumstances —

though any accountant or solicitor who failed to
comply with his professional 'best standards' might
be liable under the 'want of probity' principle.
In the Privy Council judgment, Lord Nicholls
observed (at p. 102):
'what matters is the state of mind of the third party
sought to be made liable, not the state of mind of
the trustee . . . dishonesty on the part of the third
party would seem to be a sufficient basis for his
liability, irrespective of the state of mind of the
trustee who is in breach of trust.'
He went on to argue that (p. 106):
'The standard of what constitutes honest conduct is
not subjective. Honesty is not an optional scale,
with higher or lower values according to the
moral standards of each individual . . . In most
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situations there is little difficulty in identifying
how an honest person would behave. Honest
people do not intentionally deceive others to
their detriment . . . Unless there is a good and com-
pelling reason, an honest person does not participate in
a transaction if he knows it involves a misapplication
of trust assets to the detriment of the beneficiaries. Nor
does an honest person in such a case deliberately close
his eyes and ears, or deliberately not ask questions,
lest he learn something he would rather not know, and
then proceed regardless.'
However, there are situations, he acknowledged,
where honesty is not self-evident, and one such relates
to the taking of risks. In addition to the circumstances
known to the third party at the time, the 'court will
also have regard to the personal attributes of the third
party such as his experience and intelligence, and the
reason why he acted as he did' (p. 107). It looks as if
this grants an unfair advantage in reduced liability to
the junior lawyer of modest intellect who states that
he was 'simply following orders': experienced, intel-
ligent solicitors beware! But (p. 108) in relation to
negligence, 'as a general proposition, however, bene-
ficiaries cannot reasonably expect that all the world dealing
with their trustees should owe them a duty to take care lest
the trustees are behaving dishonestly'. Nevertheless, there
may still be a successful claim in negligence, even if
constructive trust offers no remedy. So when acting
for a company, as for an individual, professionals
will be expected to take those steps which an honest
person can be expected to do (as adjudged by the
Journal of Money Laundering Control — Vol. 3 No. 3 — Levi
courts, not by their golfing or sailing companions)
unless they are to fall foul of constructive trust
liabilities in fraud and corruption cases. In drugs
laundering cases, however, except in the barely
conceivable case where one party steals from another
and they choose to go to court while expecting
mutually to conceal the source of the funds (since
the court as a matter of public policy will be unlikely
to enforce such trusts for the proceeds of crime),
considerations of constructive trust do not apply.
CONCLUDING REMARKS
It is clear from this disparate account that although
there may be harmonisation in some key areas of
activity, there is also a great deal of variation. There
is a trend towards tougher action, especially in the
confiscation area, though this is inhibited by (a)
modest use of corporate criminal liability statutes in
Europe compared with the USA, to discipline due
diligence by the threat of criminal fines, forfeitures
and even de-authorisation to financial intermediaries,
and (b) the restriction in forfeiture to post-conviction
remedies in many jurisdictions. Obviously, tougher
confiscation laws would generate more money for
governments and reduce the capacity of organised
crime networks to corrupt public officials and even
governments: whether it would actually reduce effec-
tive demand for drugs and other illegal behaviour is
as yet unproven. As for corporate criminal liability
in the arena of money laundering, the US system
has generated a formal system of internal compliance
that nevertheless runs against the grain of 'doing the
business', whose significance may be noted in the
apparent willingness of some major international
American banks to launder in overseas countries
vast sums on behalf of political elites w h o are also
in the business of drugs trafficking and corruption.
Nevertheless, the Bank of N e w York and similar
scandals suggest to the general public questions
about the deterrent impact of corporate criminal
liability, even though to show that some people are
not deterred is far from showing that noone is
deterred. For marginally profitable or for growth-
focused institutions, the impact of deterrence
anyway is mitigated by countervailing pressures
often experienced and rationalised internally as 'the
need to survive'. Questions may legitimately be
raised about prosecutorial selectivity, and (though
this might encourage corporations to 'play the
system to its limits') some critics regard it as desirable
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 New Frontiers of Criminal Liability: Money Laundering and Proceeds of Crime
to make more explicit the criteria for invoking the
criminal law in practice. Also on the horizon is
(11)
OECD, EU and OAS activity in the arena of con-
trolling private and public-to-public corruption, (12)
with implications for anti-laundering and due (13)
diligence of even apparently respectable corpora-
tions. In this context, the banks may come under
severe pressure politically, but the difficulties of (14)
policing corporate accounts without turning every
customer into a criminal suspect remain severe.
(15)
REFERENCES
(1) Blum, J., Levi, M., Naylor, R . and Williams, P. (1998) (16)
'Financial Havens, Banking Secrecy and Money-Laundering'. (17)
(2) Braithwaite, J. (1984) 'Corporate Crime in the Pharmaceuti- (18)
cal Industry', Routledge, London. (19)
(3) Smith (1995) 'An Iron Fist in the Velvet Glove: Redefining
the Role of Criminal Prosecution in Creating an Effective (20)
Environmental Enforcement System' Criminal Law Journal, (21)
Vol. 16, p. 12.
(4) (1957) 1 Q B 159. (22)
Downloaded by Iowa State University At 22:17 19 July 2016 (PT)
(5) [1972] A C 153.
(6) Tesco v Brent London Borough Council 2 All E R 718. (23)
(7) (1995) 1 W L R 1356. (24)
(8) (1995) 1 All E R 135.
(9) R v Andrews Weatherfoil Ltd 56 Cr. A p p . R 3 1 , CA.
(10) However, the rail company was fined £1.5m for health and
safety violations and was subjected to public obloquy at the
time and in the inquiry that followed the end of criminal Michael Levi, Professor of
charges: an important aspect of informal corporate sanctions
triggered by a combination of anguished victims and their Cardiff University.
relatives, and media fascination triggered by this and partly
legitimised by formal action. See further, Levi, A. and © Michael Levi
Page 232
Pithouse, M . (in press) 'White-Collar Crime and its
Victims'.
Meridian Global Funds Management Asia Ltd v Securities
Commission [1995] 2 A C 500, P C .
Moore v 7. Bresler Ltd [1944] 2 All E R 515.
Would it and should it have been a legitimate excuse if
other firms said that they too had no standing orders which
mentioned that bows which, if left open, might contribute
substantially to the capsizing of a ship, should be closed?
P&O European Ferries (Dover) Ltd (1991) Cr. App. R 72, at
p. 83. See, more generally, Wells, C. (1993) 'Corporations
and Criminal Responsibility', Oxford University Press,
Oxford.
Wells, C. (1996) 'The Corporate Manslaughter Proposals:
Pragmatism, Paradox, and Peninsularity', Criminal Law
Review, pp. 545-553.
689 F.2d 238 (1st Cir. 1982), cert. denied, 459 U S 991 (1982).
409 US 1125(1973).
596 F.2d 871 (9th Cir. 1979).
678 F.2d 961 (11th Cir. 1982) cert denied, 103 S Ct 834
(1983).
See further, 'Money-Laundering Alert', October 1999.
Agip (Africa) Ltd v Jackson [1992] 4 All E R 385, [1989] 3 W L R
1367, affirmed [1992] 4 All E R 451.
Levi, M. and Pithouse, A. (forthcoming) 'White-Collar
Crime and its Victims', Clarendon Press, Oxford.
[1995] 3 All E R 97.
Eagle Trust plc v SBC Securities Ltd [1993] 1 W L R 484;
Polly Peck International plc v Nadir (No. 2) [1992] 4 All
E R 769.
Criminology,