Anti-Money Laundering Checks, Due Diligence, Know Your Customer searches, Combatting Financial Crime
Whatever sector your business operates it is essential to take measures to safeguard against money laundering. The penalties for failing to disclose suspicious activity to the National Crime Agency (NCA) are varied but include imprisonment of up to 5 years and a fine of up to £5000.00.
Money laundering offences in the UK are dealt with under the Proceeds of Crime Act 2002 (POCA). There are 3 main offences in relation to money laundering covered under sections 327-329 of POCA.
Section 327, concealing, disguising, converting, or transferring criminal property or removing it from the jurisdiction
Section 328, entering, or becoming concerned in, an arrangement to facilitate the acquisition, retention, use or control by or on behalf of another person of criminal property knowing or suspecting that the property is criminal property
Section 329, Acquiring, using, or having possession of criminal property.
Using these three sections prosecutors can seek conviction against individuals or businesses that are “self laundering” i.e. the principal launderer, those that are not the principal offender and those that are end users or purchasers of criminal property.
The POCA places a burden on businesses to report suspicious activity and failure to report is an offence.
Businesses can, to an extent, prevent falling foul of the law in this respect by place proper due diligence processes in place.
So, what are your AML responsibilities?
Guidance published by HMRC gives full details of what businesses must do, a summary of those responsibilities follows:
The five main areas that a business’s responsibilities fall into:
Internal controls and ongoing monitoring
Further information on complying
Under anti-money laundering regulations businesses are required to carry out ‘customer due diligence’. This means that you must verify that your customers are who they say they are.
You must also risk assess your business. Internal controls and monitoring systems must be actioned. How sophisticated these controls and systems need to be will depend on the size, complexity, and nature of your business. Factors to consider are the number and type of products or services that you sell and the number of customers.
To identify and check that your customers are who they say they are (Know your customer/KYC) you should obtain a customer and ideally a potential customer’s:
- 1 Name
- 2 Photograph on an official documentation
- 3 Residential address
- 4 Date of birth
This information can be provided on utility bills, passports, or drivers licence.
This is where a Creditserve anti-money laundering search is invaluable. Our AML search will confirm that the documents are genuine by confirming that the issue numbers are correct. You can be sure that your due diligence is being done thoroughly and removing the risks of penalties for failure to comply with anti-money laundering regulations.
If you have doubts about a customer’s identity you must halt the transaction until you are sure who you are dealing with.
The anti-money laundering regulations require that a business apply due diligence protocols in the following (but not limited to) situations:
When establishing a business relationship with a customer (or another party in the sale of an asset)
When money laundering or terrorist financing is suspected
When you have doubts about a customer’s identification information
When an existing customer’s circumstances change
If you are not a ‘high value dealer’ when you carry out an ‘occasional transaction’ worth €15,000 or more
As a high value dealer when you:
o Make a payment to a supplier worth €10,000 or more
o Carry out an occasional transaction worth €10,000 or more
HMRC give guidance as to what a business relationship is, but it is exactly what most sensible people would expect it to be, in essence a commercial transaction, whether that’s between businesses or a business and a consumer. Businesses are obliged to obtain details relating to the customer’s business or employment. The source of the funds that the customer will be using in the transaction. Copies of relevant financial statements. Details of the relationships between the principals in the customer especially regarding underlying beneficial owners. To consider the anticipated level and type of activity that the transaction will involve.
Up-to-date information on your customers must be maintained particularly so that you can:
amend your risk assessment of a particular customer if their circumstances change
carry out further due diligence measures if necessary
Changes of circumstance may include:
• a significant change in the level or type of business activity
• a change in the ownership of a business
Occasional transactions for anti-money laundering purposes
Anti-money laundering measures must be undertaken when an occasional transaction is carried out. An occasional transaction is a transaction that is not carried out within an ongoing business relationship where the value is:
€15,000 or more if you are not a high value dealer (or the equivalent in other currencies)
€10,000 or more if you are a high value dealer (or the equivalent in other currencies)
This applies whether it’s a single transaction or linked transactions. Linked transactions are individual transactions of less than €15,000 (or €10,000 for high value dealers) that have been deliberately broken down into separate, smaller transactions to avoid customer due diligence checks. Businesses must have systems in place to detect potentially linked transactions.
If a potentially linked transaction is identified, a business needs to decide if it has been deliberately split. The following circumstances are ones in which to be cautious that a linked transaction is being attempted/carried out:
Multiple payments from the same customer in a short period of time
Consider the possibility that several customers have carried out transactions on behalf of the same person/business
several customers have sent money transfers to the same person/business
Due diligence/anti-money laundering measures must be carried out for occasional transactions that are worth less than €15,000 in certain circumstances, for instance, when the nature of a transaction means that there’s a higher risk of money laundering.
Anti-Money Laundering Enhanced due diligence
‘Enhanced due diligence’ must be carried out when:
the customer is not physically present when you carry out identification checks
you enter into a business relationship with a ‘politically exposed person’ - typically, a non UK or domestic member of parliament, head of state or government, or government minister and their family members and known close associates
you enter into a transaction with a person from a high risk third country identified by the EU
any other situation where there’s a higher risk of money laundering
The enhanced due diligence/anti-money laundering measures for customers who are not physically present and other higher risk situations include:
obtaining further information to establish the customer’s identity
applying extra measures to check documents supplied by a credit or financial institution
making sure that the first payment is made from an account that was opened with a credit institution in the customer’s name
finding out where funds have come from and what the purpose of the transaction is
The enhanced due diligence measures when you deal with a politically exposed person are:
ensure that only senior management gives approval for a new business relationship
adequate measures are taken to establish where the person’s wealth and the money involved in the business relationship come from
carrying out stricter ongoing monitoring of the business relationship
Enhanced due diligence should be seriously considered when a transaction is between two Money Service Business because, according to HMRC, this situation presents a higher risk of money laundering or terrorist financing because the money being received will be a ‘bulk transfer’ representing a collection of underlying transactions placed with one of the businesses. Again, the extent of enhanced due diligence measures businesses take should be based on the risk and circumstances of each case.
Internal controls and ongoing monitoring of your business
Adequate internal controls and monitoring systems must be in place. The controls must be able to alert all relevant people within the business to the threat of criminals try to use a transaction(s) for money laundering. By being alert to the possibility of a threat steps can be taken to prevent and report it.
HMRC state that controls should include:
appointing a ‘nominated officer’ that employees know to report any suspicious activity to
appointing a compliance officer if the business is large or complex
identifying the responsibilities of senior managers and providing them with regular information on money laundering risks
training relevant employees on their anti-money laundering responsibilities
documenting and updating your anti-money laundering policies, controls and procedures
introducing measures to make sure that the risk of money laundering is taken into account in the day-to-day running of the business
Complete a policy statement for your business
An anti-money laundering policy statement will differ between businesses but the main points to include are:details of your approach to preventing money laundering, including named individuals and their responsibilities
details of the procedures for identifying and verifying customers, and customer due diligence measures along with monitoring checks
a commitment to training employees so they’re aware of their responsibilities
a summary of the monitoring controls that are in place to make sure policies and procedures are being carried out
recognition of the importance of staff promptly reporting any suspicious activity to the nominated officer
Record keeping requirements
You need to keep a record of all customer due diligence measures that you carry out, including:
customer identification documents that have been obtained
the businesses policies, controls and procedures
Comprehensive record keeping is vital to the protection of businesses should there be an investigation into someone you have dealt with. You can evidence that your business has complied with the Money Laundering Regulations.
Documents to be kept are those that form part of a thorough accounting procedure such as:
daily records of transactions
For anti-money laundering purposes, records should be kept beginning from:
the date a business relationship ends
the date a transaction is completed
For further information visit www.gov.uk/guidance/money-laundering-regulations-your-responsibilities