Money laundering and your accountancy firm

As a major international trader, the UK has a problem with ‘dirty money’ - the proceeds of crime or corrupt activities - whether in this country or abroad.

Criminals may set up legitimate-looking businesses to ‘launder’ this money – and your practice has a role to play in preventing it. Professional services firms of all types need to take immediate action to meet requirements of amended anti-money laundering (AML) regulations, that came into force on the 10 January.

At the end of last year, the Government introduced the Fifth EU Money Laundering Directive (5MLD), which will come into force this month.

The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 update the UK’s Anti-money laundering administration and will bring the UK in line with the latest international standards set by the Financial Action Task Force (FATF). The regulations are designed to help tackle rising levels of fraud and eliminate money laundering, things that are likely to be a key priority for everyone in the industry this year.

The new directive aims to close any remaining loopholes, and areas open for creative interpretation, that could be found in 4MLD – the previous iteration of AML legislation. It will require instant action from businesses operating in the financial services sector.

What it means in practice is that everyone in the industry, from partners in accountancy firms down to bank counter staff, will be required to be on the lookout for money laundering activity. Professional service firms will be required to enhance their due-diligence checks and provide full AML training for their staff, as well as make use of electronic verification as required.

Failure to do so will result in prosecution and heavy fines for practices and for individuals.

Electronic verification

The new legislation states that businesses must use electronic verification for anti-money laundering checks wherever possible. Looking at paper documents such as passports and driving licenses is no longer sufficient – most of us have seen examples of fraudulent documents which we have been able to identify. The current thinking is that there may be many cases where the fraudsters have produced documents that simply cannot be told from the real thing.

The wording requires information to be obtained from a reliable source which is independent of the person whose identity is being verified, and ideally by an electronic identification process, including by using electronic identification means or by using a trusted service.

The need for electronic verification is likely to take most people by surprise. Any legal or other professional services companies who do not already have a trusted means of doing this will need to implement this immediately to ensure they are compliant and save themselves from the potential of a heavy fine.

An Anti-Money Laundering (AML) check is an identity assessment to ensure all investors are who they claim to be, and are not investing on behalf of somebody else. In some cases, these checks can be completed in the background using electoral data. Where customers are based overseas, a higher degree of vigilance will be required.

Customer due diligence

The new regulation stipulates that firms will need to consider a number of high-risk factors, including:

• Evidence of transactions between parties based in high-risk third countries
• The customer is the beneficiary of a life insurance policy
• The customer is seeking residence rights or citizenship in exchange for transfers of capital, purchase of a property, governments bonds or investment in corporate entities
• Transactions related to oil, arms, precious metals, tobacco products, cultural artefacts, ivory or other items related to protected species, or archaeological, historical, cultural and religious significance
• Remote  business relationships or transactions without certain safeguards set out in regulation 28 (19) concerning electronic identification processes

Firms will also be required to update their records relating to the beneficial ownership of corporate clients, understand the ownership and control structure of their corporate customers and record any difficulties encountered in identifying beneficial ownership.

What can you do if you are suspicious?

If your business is regulated by the Money Laundering Regulations you must try to identify any activity linked to money laundering. If you know about or suspect money laundering or terrorist financing you must consider telling the National Crime Agency (NCA) by sending a Suspicious Activity Report (SAR).

Any discrepancies between information a firm holds on their customers compared with the information held on Companies House should also be reported to the OPBAS (Office for Professional Body Anti-Money Laundering Supervision), which is part of the Financial Conduct Authority (FCA).

You also must consider whether you need NCA consent before you proceed with a suspicious transaction. The NCA will tell you if you are granted a defence against money laundering charges. You must consider whether you need a defence against money laundering charges from the NCA before you can proceed with a suspicious transaction or activity. You’ll find out if the NCA have granted a defence when they reply to your SAR. If you do not get a reply from the NCA within 7 working days and think you’ve correctly reported the activity, you can choose to assume a defence is granted.

Turning a challenge into an advantage

You may find that the new regulations increase your administrative burden - but with the right it systems and software in place, you may be able to not only deal efficiently with the demands of AML, but with all the other challenges of an increasingly digital profession. 

You may need to invest in IT, and training - and to find a source to fund that investment 

We have a dedicated accountants partnership team for you to call – and once you have, you can have our nationwide resources working to help answer the challenges of AML - and of growing your practice.

To find out more about //landing/partner-with-rangewell, call us now. Our service is free.