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Are you really managing all your anti-money laundering risks?

Managing your anti-money laundering risks is a legal requirement for accountancy service providers. If you haven’t given much weight to AML until now, it’s definitely time for a rethink. Because the anti-money laundering regulations are here. And they’re not backing down.

The alleged money-laundering transgressions of NatWest and money transfer firms MT Global (fined £23.8m) and Touma Foreign Exchange (fined £7.8m) will naturally make the headlines. But as the Treasury aims to cut the tax gap and replenish its coffers after the huge cost of the pandemic, there’s little doubt that all firms across all ‘high risk’ sectors will come under increased scrutiny.

Are you sure your AML solution provider is giving you all you need? A quick glance at the internet will offer you multiple ‘award winning solutions’ to your anti-money laundering requirements. Beware of marketing in the industry.

Some will be claiming they can offer you a ‘complete solution’ when what they are actually offering is far from it. Closer inspection and scrutiny is always necessary. Many are only offering partial solutions and may leave you thinking you have done all you need to do but your Supervisor will not agree. Yes, making certain that your client’s identity exists and that they are the person claiming that identity is one of your AML requirements under the regulations. But it’s only one small part of what is actually required.

  1. Knowing your client isn’t enough.
  2. Penalties for AML non compliance

Knowing your client isn’t enough.

Last autumn the Treasury announced a series of measures around stricter identity verification and giving Companies House more powers to investigate information on its register. At the time, the Minister for Corporate Responsibility, Lord Callanan, said: “Mandatory identity verification will mean criminals have no place to hide – allowing us to clamp down on fraud and money laundering and ensure people cannot manipulate the UK market for their own financial gain.”

So what counts as client identity verification?

Online companies that offer this as an AML solution give access to vast amounts of data on people on various databases, such as lists of known terrorists/terrorist organisations or politically exposed persons (PEPs). The better solutions out there even provide services like keeping tabs on your clients so if anything changes in their circumstances, you can take appropriate action.

But this is just one part of  risk management. In fact, it’s just one part of onboarding a new client. You need to do more – much more – to satisfy your AML Supervisor.

What should you be doing?

  • Appoint an MLRO (Money Laundering Reporting Officer). And put in place clear reporting procedures to the MLRO. It’s important all employees know who the MLRO and any deputy is. If you’re the MLRO in your firm, make sure your door is always open.
  • Publish clear anti-money laundering compliance policies and procedures. It’s not enough just to produce these documents. Employees must be educated to understand what it means and the responsibility it imposes on them.
  • Perform risk assessments on your firm and every client and update them periodically. Businesses change, especially as they grow and diversify and new employees are recruited to key positions.
  • Undertake due diligence and ongoing monitoring for all clients. You also need to identify who the company’s ‘beneficial owner(s)’ is.
  • Carry out training for relevant staff and senior managers. Training should be ongoing, to make sure employees are familiar with updates to the AML legislation, or other legislation relating to financial crime and terrorism (e.g. the Proceeds of Crime Act 2002 (POCA)).
  • Show your employees what a Suspicious Activity Report (SAR) is, how to make one and most importantly what they should report. Being able to recognise, and report, suspected criminal activity is one of the basic tenets of AML. The easiest way to submit an SAR is through the National Crime Agency’s (NCA) free and secure SAR Online system.
  • Employees should also understand what is meant by tipping off. And how they can avoid doing it.

Penalties for AML non compliance

An individual or entity commits a Money Laundering offence if they:

  • conceal, disguise, convert or transfer criminal property (POCA 327),
  • acquire, use or possess criminal property (POCA 329);
  • are involved in an arrangement that allows another to acquire, retain, use or control criminal property (POCA 328);
  • remove criminal property from a UK jurisdiction (POCA 327). Note that the UK comprises three Jurisdictions: England and Wales, Scotland and Northern Ireland. It is an offence to move criminal property from one of these to another.

The penalties for non-compliance can be disastrous. They start at censure and fines and could end in imprisonment. To say nothing of the reputational damage you and your company could suffer. But there are other potential ramifications. If you do get caught up in an investigation into money laundering then the courts have the power to freeze your business bank account. With no access to your bank account, carrying on your business is likely to be impossible.

Time to face reality

As you weigh up your AML risk management, it’s worth taking a little time to remember exactly why you’re doing it.

As the NCA puts it: “Virtually all high-end money laundering schemes, and several cash-based ones, are facilitated by the abuse of legitimate processes and services. Accounting and legal professionals, and estate agents, can be criminally exploited – this is sometimes complicit, sometimes negligent, and sometimes unwitting – and this small minority of people can pose a very significant threat.

Every business in the UK uses the services of an accountant or bookkeeper, yet the NCA’s UK Financial Intelligence Unit’s ‘Suspicious Activity Reports annual report 2020’, covering the period April 2019 to March 2020, showed that accountants and tax advisers made just 5,347 Suspicious Activity Reports – less than 1% of the total made. By comparison, money services businesses, or MSBs, made 17,701 in the same period.

There’s no question that the accountancy and tax sectors could be doing more. If they don’t, the Treasury has the power to make them. With potentially devastating consequences for the firms that aren’t prepared.

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