Are you an accountant providing accountancy services to clients? If so, you are in a good position to
spot potential instances of money laundering, where money obtained criminally is ‘cleaned’ (or
‘laundered’) to make it appear as though it was obtained lawfully.

After all, you may often be involved in financial transactions and have, at a close hand, a wealth of
revelatory data about your clients’ financial activities. By studying this data carefully, you can pick up
on warning signs, enabling you to report suspicious activities to the relevant authority.

It is crucial to heed here that watching out for such signs is not simply a ‘good idea’; for accountants
based in the UK, it is actually a legal requirement. Fortunately, undertaking anti-money laundering
(AML) checks can be surprisingly straightforward.

What AML legislation is in place in the UK?

The UK’s AML requirements are collectively covered by several pieces of legislation, including:

● The Proceeds of Crime Act 2002 (POCA)
● The Money Laundering, Terrorist Financing and Transfer of the Funds (Information on the
Payer) Regulations 2017 (MLR 2017)
● The Terrorism Act 2000 (TA 2000)
● The Terrorism Act 2006 (TA 2006)

Much of this legislation has been amended since originally implemented. For example, POCA was
amended by the Serious Organised Crime and Police Act 2005 (SOCPA), while TA 2000 was amended
by the Anti-Terrorism, Crime and Security Act 2001 (ATSCA 2001).

Similarly, it was on 10 January 2020 that the Money Laundering and Terrorist Financing
(Amendment) Regulations 2019 (MLR 2019) came into force, implementing the EU Fifth Money
Laundering Directive in the UK and amending the MLR 2017.

The modifications to MLR 2017 include extending the regulated sector’s scope as well as changing
the customer due diligence (CDD) and enhanced due diligence (EDD) requirements imposed on
businesses covered by the legislation.

At the CDD stage, you could find that information you collect about a person with significant control
(PSC) materially contradicts details on the PSC register — in which case, you will now need to report
the discrepancy to Companies House.

Benefits, challenges, and best practices concerning AML checks

AML checks offer numerous benefits that can be reaped, including:

● Identifies potential money laundering and other financial crimes - by being able to easily
identify money laundering practices, this can help prevent and deter said crime
● Verifies identity of clients - improved security measures to better spot suspicious activity
and transactions
● Helps financial institutions remain compliant with AML regulations

However, there are also challenges and drawbacks to AML checks, such as:

● Complex procedures - many processes and tech are often required for adequate AML
compliance, which can become complicated when attempting to integrate these within an
organisation
● Lack of resources - for small and medium sized organisations, it can be difficult to obtain the
necessary data and tech resources for detecting and preventing money laundering activities
● Evolving methods - criminals are continuously finding new and creative ways to launder
money, which are often difficult to keep track of
AML compliance is not simple, so it is crucial to follow AML best practices like:
● Implementing internal policies - AML policies should be integrated into your organisation,
providing yourself and other accountants with the necessary guidelines and tools to refer to
when it comes to AML practices
● AML education and training - by undergoing AML education, you will be able to better
understand and be aware of money laundering and its telltale signs; this means that should
the time come, you will be able to recognise money laundering in any situation
● AML monitoring - while a client might have to go through AML checks before they can work
with an accountant, continuous monitoring is key to ensure that money laundering practices
are prevented under your supervision

What is money laundering?

In essence, money laundering refers to the process of hiding illegally obtained money, often
concealing its origin, by making it appear that the money was sourced legitimately. This allows
criminals to avoid conviction and prosecution. Several methods that criminals may use to launder
money include:

● Creating shell organisations
● Investments into assets, i.e, real estate
● Cash smuggling
● Gambling

Accountants work closely with clients and have a responsibility to report a client’s suspicious
activities and transactions both internally and externally, which is why accountants play a pivotal
role in the identification of potential money laundering practices.
In many ways, accountants’ duty is to monitor and evaluate client accounts, as well as disclose and
submit accurate financial information, places them as the first line of defence against money
laundering in the financial system.

Do you need to register for money laundering supervision?

The UK’s Money Laundering Regulations require accountancy service providers to be monitored by a
supervisory authority. Your company might already be supervised by a professional body, e.g. the
Association of Accounting Technicians or the Association of Chartered Certified Accountants.

However, if this is not the case, your accountancy business will need to register with HM Revenue &
Customs (HMRC), which will act as the supervisory body and monitor your business to ensure that it
meets its day-to-day AML obligations under the Money Laundering Regulations.

What are CDD and EDD?

When a business first gets in touch with you seeking accountancy services from your own company,
you will need to carry out CDD (customer due diligence) measures on this potential client. CDD
involves independently verifying the client’s identity by obtaining their:

● Name
● Date of birth
● Residential address
● Photograph on an official document confirming their identity

With CDD checks, you can garner details about what shape the business relationship will take —
including where the client will source the funds for spending on accountancy services you provide.
Ultimately, your objective here is to lower your risk of inadvertently onboarding a client who
proceeds to use your business for money laundering purposes. However, the CDD process could
unearth some situations that would actually increase this risk.

Such situations include when the client is:

● Not physically present as you complete the initial AML checks
● A ‘politically exposed person’ (PEP), e.g. a member of parliament, government minister or
head of state
● From a third country identified as ‘high-risk’ by the EU
These are all examples of circumstances where you would be required by law to carry out EDD
(enhanced due diligence) procedures — including:
● Gathering additional information for establishing the customer’s identity
● Checking that the customer makes their first payment from an account a credit institution
has opened in the customer’s name
● Collecting further details about the transaction’s purpose and the origin of the funds
Even once a client passes initial AML checks, you must also monitor the client’s transactions with
your company on an ongoing basis. That way, you can more quickly detect red flags. Here are just a
few indicators that money laundering might be taking place:
● Unusually large transactions
● A high number of small transactions in quick succession
● Unexpected early payments
● Reluctance to disclose information

If you suspect that the client is indeed laundering money, you must submit a Suspicious Transaction
Report (SAR) to the National Crime Agency so that law enforcement can investigate the matter.

You can make AML checks instantly with Creditserve’s electronic AML verification system. For expert
guidance on making the most of this technology, please contact our knowledgeable team by phone
on 01992 414222 or email via sales@creditserve.co.uk.