Money

What we consider the traditional method of payment – ie cash – could be on its way out. Joanne O’Connor reports on how technology, and good old-fashioned bartering, are changing the way we pay


Finders keepers

If you fancy yourself as a bit of an amateur archaeologist, beware – the law has moved on from the old adage of ‘finders keepers’.

Under the 1996 Treasure Act, the person who unearths the pot of gold or prehistoric base metal at the end of the rainbow will often be the last person entitled to keep it.

In the 1982 case of AG of The Duchy of Lancaster v GE Overton, Lord Denning decided that to qualify as treasure an item must be substantially composed of gold or silver, but under the Treasure Act, the definition of treasure has been widened.

Now, two or more coins of at least 300 years of age qualifies as a “treasure trove”, and the finder must notify the coroner within 14 days of the discovery. Failure to report can result in three months’ imprisonment, a 5,000 fine or both.

In most cases, the treasure is deemed the property of the Crown or a franchisee (legalese for someone who was owed a favour by the monarch in medieval times, and thus allowed priority within the boundaries of their own land) and their successors. However, some comfort can be found from the fact that museums will often pay a small sum to the finder.

What is money?

Legal tender is not a means of payment that must be acc-epted by the parties to a transaction but is “a legally defined means of payment that should not be refused by a creditor in satisfaction of a debt”.

All the current notes issued by the Bank of England are legal tender, but only in England and Wales. So if you owe someone in Scotland 50, they can refuse to accept your note; but if you raid your piggybank and pay your Scottish creditor with 1 and 2 coins, they would have to accept. Within these narrow legal definitional realms even Scottish notes issued by the three Scottish banks are not legal tender in England and Wales and, bizarrely, Scotland.

Under section 12 of the Currency and Banknotes Act 1928, defacing notes is an offence. The act states “if any person prints, or stamps, or by any like means impresses on any bank-notes any words, letters or figures, he shall, in respect of each offence, be liable on summary conviction to a penalty not exceeding one pound”. The object of the clause is to prevent notes being disfigured by advertising. There is, of course, a long history of note defacement for political reasons: in Ireland during the occupation, Republicans would stamp shamrocks over the Queen’s head, while today defacing notes is an advertising method employed by some websites. During the recent war on Iraq, some anti-war campaigners marked notes with the words ‘No War’.

The delightfully named Mutilated Notes Department of the Bank of England handles more than 30,000 cases of mutilated notes each year. According to Neil Briggs, assistant manager of the department, dogs, children and insects are the main offenders, but one recent case stands out. In 2002, two 11-year-old girls found thousands of pounds worth of shredded banknotes in a rubbish bin in Brighton. The two are now busy piecing together a puzzle that could net them thousands.

The future of money – e-money

The promise of a ‘cashless society’ has been on the horizon for decades. The term itself is somewhat misleading, since the idea of exchanging an item of intrinsic worth for another item of symbolic worth is at the core of our understanding of cash. Plastic has already proved to be fantastically versatile by incorporating new technology and utilising the law to meet the challenge of a cashless society. However, e-money goes beyond our traditional use of credit cards, store cards or even stored value cards used in canteens.

“The dotcom boom generated new kinds of money,” says Lovells partner Emily Reid. Some developed as a form of loyalty scheme with points awarded for purchases, such as the Sainsbury’s Nectar Card. Others developed as a form of payment scheme as an alternative to making payment by Visa or MasterCard. The recently-introduced Oyster Card, used for payment on the London Underground, is one example.

“These schemes involved customers depositing a form of value with whoever operated the scheme, which would be lost if that operator became insolvent or was just dishonest,” comments Reid.

The proliferation of such schemes alarmed financial regulators and as a result the E-Money Directive was rushed through and adopted on 18 September 2000, just as the dotcom juggernaut ground to a halt.

The main purposes of the directive are first to protect consumers and second to preserve the integrity of, and confidence in, the financial markets. The Financial Services Authority (FSA) went to great lengths to construct the e-money regime, and increasingly companies such as PayPal are coming on board to become electronic money issuers.

Meanwhile, lawyers in Singapore have been busy preparing the way for Singapore Electronic Legal Tender (Selt). Issued by the Central Bank, it aims to cut the cost of handling physical cash, improve the efficiency of business transactions and eventually turn Singapore into a cashless society.

But for many, the most exciting development is the prospect of paying for goods with a mobile phone. No more will we stand at the Tube station with an urge for a Kit Kat Chunky and no spare change. Soon, says Graeme Maguire, an IT and communications partner at Linklaters, consumers may be able to charge products on their mobile phones and pay the balance as part of the phone bill. It sounds ideal, but there are limitations. “Over a certain threshold, mobile phone operators would need to be regulated by banking regulators,” says Maguire. This aside, it seems that the only barrier to a cashless society is in the minds of consumers. For Conor Ward, an e-commerce partner at Lovells, “the key challenge is getting consumers to accept these new methods of payment”.

The euro

The economic merits of the euro and the surrounding political debate are enough to keep any central banker awake at night (and are probably enough to put the rest of us to sleep). But we can all rest assured. Tite & Lewis partner Charles Procter argues that this time round the law provides very little scope for thwarting the introduction of the euro, which promises to be “a relatively straightforward process”. Our financial institutions are unlikely to buckle under the pressure, since those operating in London have already coped with the introduction of the euro in relation to their international business, he argues.

Two issues do persist: can the UK qualify for EuroZone membership and could a Eurosceptic individual or group attempt to prevent the UK from joining the zone?

Much is made of Gordon Brown’s ‘five economic tests’ – the preconditions to a Government decision to join the euro. How-ever, these tests are essentially a matter of domestic politics; the euro ‘club’ has its own rules for the admission of new members.

The entrance re-quirements for the EuroZone (the so-called ‘Maastricht criteria’) demand that the UK has achieved a high degree of price stability and a sustainable government position. However, they also require a period of membership of the Exchange Rate Mechanism (ERM) immediately prior to euro entry. Given the UK’s ignominious exit from this system on 16 September 1992 (‘Black Wednesday’), the decision to rejoin it would be a difficult one. Despite this problem, it seems that – at least in theory – the UK could be admitted to the ‘club’, even if it has not rejoined the ERM. The overriding treaty requirement is that the UK must have achieved “a high degree of sustainable convergence”, and ERM membership is merely one of the criteria required to be taken into account in making that assessment.

It seems unlikely that court challenges by a Eurosceptic group would have any success. Given that the UK has no formal constitution, it would be difficult to argue the unconstitutionality of accession to the euro.

In 1971, Raymond Blackburn sought to prevent the Government from ratifying the European Economic Community (EEC) Treaty, on the basis that Parliament could not forever surrender any part of its own sovereignty. In 1993, Lord Rees-Mogg (former editor of The Times) sought to prevent the ratification of the Treaty on European Union, arguing that the royal prerogative in the field of foreign affairs could not be transferred to the European Union under Title V of that treaty. Both of these attempts were courteously yet firmly rejected by the courts. Nor would the Human Rights Act offer any comfort for Eurosceptics. The European Conven-tion on Human Rights entitles everyone to the peaceful enjoyment of their property. But given that sterling would join the euro by reference to prevailing exchange rates, membership of the EuroZone will involve the substitution of property, not a deprivation of it.

Paying for your money

Bank charging has always been a tricky issue. In September 1999 it reached its contentious peak and almost resulted in litigation when the Nationwide Building Society threatened to sue Barclays over its proposed introduction of charges for all non-Barclays customers who used its cash machines. This represented a radical departure from earlier practice, which involved banks levying ‘disloyalty fees’ on customers who used cash machines owned by their rivals.

Barclays has always been a pioneer in banking circles. In 1967 its Enfield branch introduced the first operational cash machine in the UK. However, its 1999 proposals were a step too far and were promptly withdrawn when Nationwide threatened legal action. However, the law behind Nationwide’s white knight antics was essentially contractual. Barclays proposed unilateral action was a breach of the ‘Link Network Agreement’, which prevented its members from surcharging. Following Barclays’ climbdown in 2000, Link conveniently changed its rules, allowing its members to surcharge for the provision and subsequent use of machines in remote areas.

The latest controversy surrounding cash machine charges concerns so-called ‘convenience cash machines’. Nationwide highlighted the fact that in 2000 there were around 872 machines; in 2003 the number is somewhere in the region of 11,000. Convenience machines have encroached into the high street, and this time there are no legal loopholes to stem the onslaught. Critics argue that these machines are convenient only to the extent that they line the pockets of the machines’ owners, rather than their customers. However, banks are legally entitled to levy a charge for their services. In this case, the provision of cash machines, the commercial prudence of doing so may be debatable. The fact that 97 per cent of all cash machine withdrawals are free is, however, fast being threatened by the proliferation of new convenience machines.

Begging

The controversial new Criminal Justice Bill proposes to effectively criminalise begging. Under plans set out in the 11 March white paper ‘Respect and Responsibility’, courts would have the power, after three convictions for begging, to impose community sentences, including treatment for drug use. The 1824 Vagrancy Act already makes it illegal to beg in a public place, but it is rarely enforced.

Under the current regime, beggars are subject to local bylaws, which vary across the country. Prosecutions are rare and in practice unlikely to lead to a criminal record.

A get-tough scheme in Cambridge, though, is using powers already in the Vagrancy Act to clean the streets of beggars. After the release of the proposals, David Blunkett said that “no one in this country should beg”. But Adam Sampson, director of homeless charity Shelter, hit out at the reforms, saying “it is morally wrong to criminalise poverty”.

Financial scandals

Ronnie Biggs and the Great Train Robbery – which netted 2.6m and was at the time the largest robbery the UK had ever seen – pale into insignificance next to some of the corporate scandals that have rocked the financial world. Investment bankers, directors and former dictators have all been implicated in major fraud and money laundering.

Nigeria’s former military dictator General Sani Abacha allegedly stole more than $4bn (2.4bn) of the state’s money before distributing it among his family and friends. The money was laundered through several European jurisdictions, including 23 UK banks. In 2001 the FSA conducted a three-month investigation into the handling by UK banks of accounts linked to Abacha. The authority strongly criticised the 15 UK banks it found had significant weaknesses in money laundering control, weaknesses that the managing director of the FSA, Philip Thorpe, described as “frankly disappointing”.

Money laundering

One area in which penalties can be alarmingly stiff is that of money laundering. The Proceeds of Crime Act, which received royal assent in July 2003, significantly widens the scope of money laundering regulations.

Lawyers in particular are under the spotlight as never before. The act imposes a duty to report knowledge or suspicion of money laundering, and failure to report the suspicion could result in criminal liability. The maximum penalty is 14 years.

The new act also introduces the offence of ‘tipping off’. Notifying the money launderer that the regulators are on to them could mean up to five years’ imprisonment. Allen & Overy partner Calum Burnett says: “The real difficulty for banks is in a situation where they can’t deal with funds because they suspect laundering, but can’t tell the customer why because that might be seen as tipping off.”

Burnett is a partner in A&O’s regulatory and investigations department and conducts internal investigations for corporate clients if they suspect employees of any wrongdoing. External lawyers are essential, says Burnett, “because companies are keen to protect the results of the investigation with legal professional privilege. Using external lawyers kills the ability of the report to get out.”

In July this year, Jonathan Duff, a Liverpool solicitor, was jailed for six months for not reporting a suspicion of money laundering. He had allowed a client to deposit money in a client account without a proper underlying transaction or reason. Burnett was surprised by the sentence, given that Duff acted on legal advice to the effect that he did not need to disclose his suspicion. “It seems rather harsh, given that he appears to have acted in good faith,” says Burnett.

Getting paid

Traditionally, lawyers have been cautious about accepting anything other than cash for their work. Then came the dotcom boom, which witnessed the emergence of the equity-for-fees practice. This saw solicitors accepting shares in their start-up clients as remuneration for their legal services.

When the dotcom bubble burst, traditional fee arrangements regained their popularity, with all but a few outlawing anything other than traditional forms of payment. One exception is Field Fisher Waterhouse, which has just gone one stage further and is now offering its services on a bartering basis on two new business-to-business internet exchanges.

Field Fisher, undaunted by the dotcom crash, is advising Professional Spirit and Bartercard on the launch of websites that allow businesses to offer their services or products in a cash-free economy. In return for its legal services, Field Fisher will be entitled to a commensurate level of service from a range of providers, from electricians to accountants.

“We’ve always taken a creative approach to billing. You’re always looking for that mutuality with clients,” said Field Fisher partner Michael Chissick.

It seems, then, that the more things change, the more they stay the same. A firm advising on the flotation of a pig farming operation could today find itself being paid in swine, just as it might have done 500 years ago.