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How Can Universities Manage Their Money Laundering Risk?

on Monday, 17 May 2021.

Many universities face the risk that they are facilitating money laundering when receiving cash payments for student fees.

As highlighted by an article in The Times in February 2021, many universities face the risk that they are facilitating money laundering when receiving cash payments for student fees.

It is common practice for universities to include provisions in student terms and conditions on non-acceptance of cash payment of fees. However, even where a university refuses to accept cash payments, there is a practical risk that some banks are unable to (and/or do not in practice) stop students (or third parties) from depositing cash direct into the university’s bank account. A solution to this risk would appear to require a change to the way in which the banking system works and is likely to require action by the banks, their regulators and government.

Pending a change of that kind, what steps should a university take in respect of fee payments made in cash into its bank account?

When a university receives a cash payment for fees, it will need to decide whether it suspects or has grounds to suspect that the cash paid constitutes the proceeds of crime. A system should be in place to ensure that the university’s money-laundering reporting officer is alerted as soon as possible. Following carefully handled communication with the student, and in the absence of a satisfactory explanation from them as regards the source and circumstances of the payment, it may be that the university forms the view that there are grounds for suspicion that the cash payment constitutes the proceeds of crime, probably on the basis that it is connected with money laundering.

There are a number of criminal offences that relate to dealing with the proceeds of crime that universities and their staff could commit (even inadvertently), whether by simply receiving cash payments (to the extent that the university becomes concerned in an arrangement to facilitate the retention of the proceeds of crime), by returning the sum to the student in cash or otherwise (as it is potentially transferring or converting the proceeds of crime) or by retaining the funds.

An additional set of potential offences may be relevant if the university suspects that the cash may be linked to terrorism - this situation would require urgent attention and advice based on the specific case.

It is a defence to certain of these offences to have made an ‘authorised disclosure’ – a ‘suspicious activity report’ - to the National Crime Agency (NCA) in relation to action the university proposes to take and to have obtained the appropriate consent from the NCA to proceed. And, in fact, disclosure to the NCA is mandatory for all universities that are in the ‘regulated sector’ for the purposes of anti-money-laundering legislation.

If a university has information about specific criminal activity associated with its disclosure to the NCA, such information should in most instances also be reported to the local police force or, in the case of fraud, Action Fraud.

It will be important that universities remain very aware of the need to avoid committing the offence of ‘tipping-off’ in their communications with students, which could inadvertently occur if the university discloses either that a disclosure has been made (whether internally or externally to the NCA, HMRC or the police) or that an investigation into money laundering is being contemplated or carried out.

Of course, all of this will often take place in the context of numerous (and potentially competing) aims:

  • to comply with the university’s legal obligations and avoid committing criminal offences
  • to protect the university’s reputation
  • to accept payment where it is reasonable, responsible and lawful to do so
  • to treat students fairly at all times and to meet the university’s obligations to them

Given the danger of being used by criminals to launder money and the risk that they or their staff may inadvertently commit criminal offences, compounded by the complexity of the law in this area, universities should take the problem of receiving cash payment of fees extremely seriously; they need to put in place robust and practically orientated systems, controls and procedures to deal with risks relating to money laundering and specifically to create an action-plan for responding to the receipt of fees in cash. In many cases, advice on the university’s obligations and its options may also be necessary.

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For more information on money laundering, please contact Con Alexander (07730 731 089) or Gabriel Cohen (07387 267 227in our Higher Education team, or complete the form below.

This article was originally published on University Business

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