Money Laundering Regulations Guide 2022

Anti-money laundering rules in the UK are primarily governed by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, commonly referred to as the Money Laundering Regulations.

The following guide examines the provisions under these regulations, in particular the duties of any regulated business to register and report, and what other steps you need to take to avoid falling foul of the law.

 

What is money laundering?

 

Money laundering refers to the process in which the criminal origin of money or other assets is concealed, typically through a complex sequence of banking transfers or commercial transactions. This can take many forms depending on the nature of the business involved.

 

What are the Money Laundering Regulations?

 

In the UK, anti-money laundering rules derive from a number of sources, including the Proceeds of Crime Act 2002 (POCA), the Terrorism Act 2000 and the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 and the Money Laundering and Terrorist Financing Regulations 2019.

Following Brexit, the UK committed to maintaining the AML/CFT standards set out in EU’s 5th and 6th anti-money laundering directives (AMLD).

 

Which businesses have to comply?

 

Given the potential for criminals to target various different types of businesses in an attempt to disguise their illegally obtained funds as legitimate income, in turn, a number of different types of businesses are covered by the Regulations.

In particular, the Money Laundering Regulations apply to those acting in the course of business carried on by them in the UK in the following categories:

• credit institutions
• financial institutions
• auditors, insolvency practitioners, external accountants and tax advisers
• independent legal professionals
• trust or company service providers
• estate agents
• high value dealers
• casinos.

 

Duties under the Money Laundering Regulations

 

There are various different duties under the Money Laundering Regulations that as a business falling within a regulated sector you will be required to comply with. These are referred to under the regulations as ‘relevant requirements’. The main requirements are examined in turn below.

 

The duty to register

 

As a regulated business, save except where automatically monitored by a different supervisory authority, you will be required to register with HMRC for what’s known as money laundering supervision. HMRC is the supervisory authority for the following seven business sectors, namely:

 

• Money service businesses not supervised by the Financial Conduct Authority (FCA)
• Estate agency businesses
• High value dealers
• Trust or company service providers not supervised by the FCA or a professional body
• Accountancy service providers not supervised by a professional body
• Bill payment service providers not supervised by the FCA
• Telecommunications, digital and IT payment service providers not supervised by the FCA

 

In many cases, however, there will already be supervisory authority to oversee your anti-money laundering procedures, for example, the FCA.

 

The duty to carry out customer due diligence measures

 

Customer due diligence refers to the process of verifying a client’s identity, to ensure that your customers or clients are who they say they are. This means you, or your staff, must obtain official photograph identification, such as a passport or driving licence, confirming the individual’s name, residential address and date of birth, as well as utility bills and bank statements.

Where an individual is acting on behalf of another party in a transaction, or where you need to establish the ownership structure of an organisation, you will also need to take steps to identify what’s known as the beneficial owner.

In either case, where you or your staff have doubts about a customer or client’s identity, you must stop dealing with them until you are sure. You should also keep a record of any customer due diligence measures that you carry out.

 

The duty to train your staff in their responsibilities

 

Training your staff on their anti-money laundering responsibilities, for example, carrying out customer due diligence, is just one of the many measures that you will be required to implement to ensure that you have adequate internal controls and monitoring systems to comply with your duties under the regulations.

Other controls and measures include, but are not limited to, the following:

 

• Appointing a nominated officer and making sure that employees know to report any suspicious activity to them, or, where your business is large and complex, appointing a compliance officer
• Identifying the responsibilities of senior managers and providing them with regular information on money laundering risks
• Introducing measures to make sure that the risk of money laundering is taken into account in the day-to-day running of your business, including carrying out a practice-wide risk assessment for money laundering and terrorist financing.

 

The duty to report any suspicious activity

 

Reporting suspicious activity in relation to money laundering and terrorist financing is one of the most important duties under the Money Laundering Regulations, as this directly helps to counter organised crime and terrorism.

There are a number of reasons why you or one of your employees might become suspicious about a transaction or activity, for example, a customer has tried to make an exceptionally large cash payment, or they have made an unusual request that did not add up commercially. You must look carefully at all unusual transactions to see if there is anything suspicious about them.

Employees will be required to report any suspicious transaction or activity they become aware of to the nominated officer, whose responsibility it is to determine whether or not to submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA).

The nominated officer will also need to consider whether you need NCA consent before you proceed with a suspicious transaction. The NCA will tell you if a defence against money laundering charges has been granted.

 

Complying with AML regulations

 

To comply with the AML regulations, there are a number of practical and proactive steps businesses should take.

First, you should have an AML policy in place which details the requirements on the business and how it is to comply with its obligations. This typically includes:

 

• Who the business’s appointed Money Laundering Reporting Officer is.
• Information about reporting obligations, including the procedure for submitting suspicious activity reports (SAR).
• AML compliance programme, to include monitoring, due diligence and other relevant regulatory obligations.
• AML training plan.

 

Offences under the Money Laundering Regulations

 

Under the Money Laundering Regulations it is a criminal offence to breach one of the relevant requirements, for example, failing to carry out customer due diligence checks or reporting any suspicious activity. It is also an offence, where required under the regulations, to trade without registering with HMRC.

Further, any failure to comply with your regulatory requirements puts you at risk of committing a primary offence relating to money laundering as set out under the Proceeds of Crime Act 2002. This can include, for example, concealing, disguising, converting, transferring or removing criminal property from the UK, or the acquisition, use and/or possession of criminal property.

Under the Proceeds of Crime Act it is also an offence to fail to report suspicious activity, or tipping off any person that you’ve made or intend to make such a report. This applies to nominated officers and employees of businesses falling within a regulated sector.

 

Penalties under the Money Laundering Regulations

 

The penalties for failing to comply with your duties under the Money Laundering Regulations can be serious, not least because the social and economic consequences of money laundering can be far-reaching. Your failure to comply with the law can help to protect organised crime, and even facilitate terrorism.

As such, those who facilitate money laundering, whether deliberately or unknowingly, can face extremely serious consequences, including criminal prosecution resulting in a substantial fine and/or a lengthy custodial sentence. In most cases, at the very least, you will face a financial penalty imposed by the designated supervisory authority.