Trustees and pension providers should use reporting protections to help fight liberation fraud, says expert

Trustees and pension providers face a dilemma when asked to transfer a pension into a scheme they think is likely to be a pensions liberation scheme. On the one hand they have a statutory duty to carry out a member's transfer request but on the other they could face sanctions if they aid pensions liberation fraud.

HM Revenue and Customs (HMRC) and the Pensions Regulator are leading a government campaign against pension liberation fraud. Trustees and pension providers may not know that they face a range of criminal liabilities under anti-money laundering legislation, nor that there is a reporting mechanism designed to protect them.

What is pension liberation fraud?

Pension liberation occurs when 'advisers' encourage scheme members to transfer workplace pension schemes so that they can release some of the cash before they reach age 55. Problems arise because members are often unaware that high fees and heavy tax penalties can erode their savings by more than 50%. Remaining funds are often invested in risky or dubious, unregulated investment structures.

The Pensions Regulator's campaign materials include an action pack with examples of pension liberation fraud, warning signs and advice on how to spot liberation scams. The Pensions Regulator has warned of the risk of reputational damage. But there is also the possibility that trustees and providers could face criminal liability under anti-money laundering legislation, which his has not been so well-publicised.

Criminal liability

Money laundering obligations will be familiar to anyone in the pensions industry who is undertaking 'regulated sector' activities as defined in the Proceeds of Crime Act (POCA). It is a criminal offence to fail to disclose knowledge or suspicion of money laundering activity by another person, or where there are reasonable grounds to know or suspect this.

However, independent of these obligations, it is important for all those working in the pensions sector to be aware of the wider money laundering offences in POCA. These impose personal criminal liability on anyone dealing with any funds or other property where they know or suspect these may be or connected to the proceeds of crime. Two important features of these offences mean great care should be taken by those responsible for handling pensions assets or facilitating transfers:

• The offences involve some dealing in "criminal property". But criminal property is broadly defined to include any funds that constitute a person's benefit from criminal conduct or represent, even indirectly, such a benefit.
• There is no requirement for actual knowledge of another's wrongdoing. Suspicion is enough; this means believing that it is possible the funds or property may be tainted by criminal conduct.

There are then three main offences under POCA to keep in mind:

• it is an offence to conceal, disguise, convert or transfer criminal property.
• it is an offence to enter into or become concerned in an arrangement if you know or suspect this facilitates, by whatever means, the acquisition, retention, use or control of criminal property by or on behalf of another person. Arguably this may present the most risk for those in the pensions industry.
• it can be an offence to acquire, use or simply possess tainted funds.

Managing risks

If trustees or pension providers suspect money laundering, they can make a suspicious activity report (SAR) to the Serious Organised Crime Agency (SOCA).

It is also possible to seek consent to continue with a transaction even if there are suspicions about it. This is known as making an authorised disclosure. SOCA has discretion about whether or not to grant consent within certain timescales. This authorised disclosure and consent process protects reporting individuals and companies from ongoing criminal money laundering liabilities they might otherwise have. So if trustees or providers suspect any pensions liberation fraud, they should take legal advice and consider making an authorised disclosure to SOCA.

Neil McInnes is a corporate crime specialist at Pinsent Masons, the law firm behind Out-Law.com