POCA Peculiarities: Who’s Paying Your Bills?

That is not a theoretical risk buried in a worst-case scenario. It is a live consequence of how our Proceeds of Crime Act 2008 operates, and it catches professionals who have done nothing more sinister than send an invoice and get paid.

Most people in regulated businesses understand, at least in broad terms, that they should not handle criminal property. What is less well understood is that your own fee income counts. If the money used to settle your invoice is the proceeds of crime, receiving it can expose you to a money laundering offence, regardless of how legitimate your services were and regardless of whether you charged a fair market rate.

In many jurisdictions, that last point would be your defence. Not here.

The Missing Defence

In the UK, Jersey and Guernsey, professionals providing services at market value can rely on what is known as the adequate consideration defence. The logic is straightforward: if you are a regulated person, providing genuine services at a fair price, and you did not know or suspect that the funds used to pay you were criminal, the law gives you a degree of protection. You are not expected to treat every invoice as a potential money laundering red flag.

The Isle of Man originally mirrored this position. When POCA was introduced, the framework was closely modelled on the UK legislation. The divergence came with the Organised and International Crime Act 2010, which removed the adequate consideration defence for the offences of acquiring, using or possessing criminal property.

The effect is simple and significant. You cannot rely on having charged a fair fee. You cannot point to the legitimacy of your services as a shield. If the funds that paid you were criminal, the fact that you earned the payment does not protect you.

The removal was not, it should be said, a considered piece of legislative design. The Island, as is often the case, legislated at a sprint and has been regretting at leisure ever since. The change followed an IMF recommendation made in 2009 and was passed with minimal consultation. It may also have rested on a misunderstanding: Guernsey retained a version of the defence and the IMF accepted it there without objection. The Island’s current position may be stricter than it ever needed to be.

Where This Bites Hardest

Two scenarios illustrate the problem more clearly than most.

The first is criminal defence work. An advocate representing a client facing charges has, almost by definition, a situation where the fees may come from or be mixed with the very property under scrutiny. The client’s assets may be the subject of the proceedings. Understanding where the money to pay legal fees is coming from is not a peripheral concern in that context; it is the central one.

The second is tax regularisation. Accountants and tax advisers helping clients bring historic undeclared income into order face a version of the same problem. The funds being used to settle professional fees may themselves be tied to the irregularities being addressed. A client who has spent years not declaring income does not necessarily have a clean pot of money to pay with.

These are recognisable professional situations, and they require care precisely because the money laundering risk and the professional engagement are tangled together in a way that the adequate consideration defence would otherwise help to manage.

Source of Funds Is the Answer

Without that defence, the practical burden falls on source of funds work, and it has to be taken seriously. The 2019 update to the AML/CFT Code made this more precise by clarifying that source of funds means two things: the activity that generated the money, and the means by which it is being transferred to you.

Knowing that a client runs a profitable business is not enough. You need to understand how the specific funds being used to pay you were generated, whether through salary, dividends, a sale, a loan, or something else, and through which channels they are moving. An account in whose name, from where, via whom.

That is a more granular exercise than many businesses currently build into their onboarding or billing processes. It should be documented, it should be proportionate to the risk, and it should be revisited when circumstances change.

Remember also that this is a POCA related risk, regulated firms need to bear this in mind where their revenue stream splits between “regulated” and “non regulated” business. Where a relationship or service is not caught within the ambit of the AML Code, source of funds investigations will not have been applied as a matter of course.

The Practical Implication

None of this means that every invoice is a compliance crisis. What it means is that the Isle of Man has made a deliberate legislative choice to place source of funds at the centre of professional risk, rather than allowing a fair-rate defence to sit underneath it.

For businesses operating here, the question to keep in mind is not just who the client is, but who is paying, what they are paying with, and how those funds arose. Asking that question consistently, and recording the answer, is what separates a defensible position from an exposed one.