Common Questions for Anti-Money Laundering…

The term money laundering is used to describe the act of converting the proceeds of crime into useable, ready funds by disguising its origins.

The process is generally conducted in three stages:

• Placement – which refers to entering the money, earned through criminal or terrorist activity, into the financial system
• Layering – that is, hiding the origin of that money
• Integration – where the money becomes available for the user to spend

This illegal activity costs the UK economy over £100 billion a year and contributes to both criminal and terrorist organisations.

Financial organisations and accountancy firms are at greater risk of being targeted by money launderers. Money service businesses are vulnerable to attack, as they allow large sums of money to be transferred or deposited, or for currency to be exchanged. They act as a conduit for illicit cash to make its way into the financial system, albeit inadvertently.

Businesses are required by law to understand the risks posed to their own companies and to have policies and procedures in place to address them. Criminal gangs and terrorist organisations will exploit any vulnerable institutions by taking advantage of inadequate controls, or even by attempting to corrupt employees.

As gatekeepers to the financial system in the UK, finance firms (including Banks, accountancy practices, money lenders and more) hold a significant responsibility. That of upholding the legislation in place to prevent and report any suspected illegal money laundering pursuits. The same responsibility falls upon other regulated businesses, such as estate and lettings agencies, trust and company service providers, independent legal professionals and more.

The Money Laundering and Terrorist Funding Regulations of 2017 and 2022 requires companies across the regulated sectors to ensure that they have proper processes in place to minimise the risks of being inadvertently involved in money laundering activity.

The main task of any money services or other business is to ensure you have completed and documented a robust risk assessment. This will help with putting the necessary procedures in place to counteract any risks posed to the company.

Your business will be responsible for producing a policy statement on your approach to AML. Records of your policy statement, any updates made to it, as well as risk assessments and other relevant documentation should be filed and preserved for inspection, should the need arise.

How to protect your business:

• As regulations are updated, it’s the responsibility of the business to make sure the risk assessment is updated to reflect any changes.
• A business leader should be appointed as a resident specialist in AML. They must be trained on the risks posed to the firm and be ultimately responsible for taking steps internally to mitigate these risks.
• In larger businesses, an MLRO should also be appointed to supervise AML within the company. It’s this person’s responsibility to report any suspect activity to the NCA and to police the systems put in place by the business to protect itself.
• Your company has an obligation to perform and record due diligence with all clients/customers, in any situation where money or goods might change hands.

A Policy Statement is a document that your company will compile; containing the guidelines and procedures you have agreed upon internally, to protect your business from the threat of money laundering. It is better to detail as much information as possible in this document, including:

• the names and roles of people within the company who carry a level of specific responsibility for AML
• details of the methods you will use to make sure your customers have been correctly identified, and any other due diligence you need to have in place
• timelines and a communications plan for employee training and development
• clear guidelines for staff on when and how to report any suspicious activity

AML – Anti-money Laundering

NCA – National Crime Agency

SAR – Suspicious Activity Report

MLRO – Money Laundering Reporting Officer

DAML – Defence Against Money Laundering

UKFIU – UK Financial Intelligence Unit

If you suspect any foul play, report your concerns immediately to your company’s MLRO. It will ultimately be their decision whether to escalate your concern by lodging a Suspicious Activity Report (SAR) with the NCA.

If you’re part of a smaller organisation, or a sole trader, you can submit your Suspicious Activity Report (SAR) online directly to the National Crime Agency (NCA).  Before submitting your report, it’s a good idea to consider whether your company may need to provide a defence against any money laundering charges, so make sure you have all your documentation in place.

If your company is not registered for money laundering supervision, you can contact the HMRC Fraud Hotline.

Customer due diligence, in its basic sense, should be part of the everyday hygiene tasks carried out by all money services businesses. On occasion, it may be necessary to enhance your due diligence. Here are some situations to watch out for, where closer investigation might be warranted:

• When customers present themselves linked to higher-risk countries or business sectors
• When the customer in question is abroad or does not present themselves
• When a customer’s situation appears highly complex or has an obscure ownership structure
• Where transactions appear that are unusual. They might lack an obvious economic or lawful purpose (for example a house purchase) or are unusually large and/or complex
• Particular attention should be paid to any clients in the public eye, known as Politically exposed persons (or PEPs) as they may be vulnerable to corruption through bribery, or other means

Enhanced Due Diligence will depend on the specific situation you’re dealing with. It may include:

• Additional checks on identity, where the customer is not present or visible.
• Employing extra measures to ascertain the source of an individual’s funds
• Ongoing, close monitoring of the business relationship

A risk-based approach refers to the recommended method companies should use to manage their practices around AML. In effect, it means that firms have the freedom to put procedures in place, based on the risks most relevant to their business.

Although the law dictates that certain elements must be involved, for example a risk assessment, it is not specific as to the detail. This allows businesses to action an approach to AML which exactly meets the requirements of their specific situation.