At least £57 billion is laundered through the UK each and every year. It’s not just criminals turning their illicit money from crime clean. Terrorist financing is often overlooked when it comes to anti-money laundering efforts, but acts of terror in the UK and around the world are being bankrolled in the same way as money is laundered.
Law firms, as well as other professional services such as accountants, estate agents and financial services, are at high risk of being patsies for criminals and terrorists. Because their accounts are seen as “clean,” sending dirty money into a law firm’s client account and having it sent back out again is a sure fire way to launder dirty cash.
The Modern Slavery Act 2015 has now been in force for over 18 months. The Act means large organisations must pay closer attention to the practices of their suppliers. This includes carrying out audits of their suppliers, investigating the physical conditions of the workforce and being on the look out for instances of child labour. Further, the Act dictates that organisations with a turnover of over £36 million are required to produce a slavery and human trafficking statement.
Huge fines and potentially prison if you breach modern slavery laws
A number of large companies have recently been exposed for having modern slavery in their supply chain. For example, major phone companies Samsung and Apple have faced claims by human rights organisation Amnesty of modern slavery. The claims relate mainly to cobalt mining in the Democratic Republic of the Congo, which is used in devices such as mobile phones and tablets.
The Fourth Anti-Money Laundering Directive, which came into force on 26th June 2017, brings some key changes to the anti-money laundering policies in law firms and organisations. Recent high profile money laundering scandals demonstrate the importance of having the right procedures in place to prevent money laundering. This blog gives some examples of the money laundering convictions that have damaged the reputations of firms and organisations.
Deutsche Bank learns anti-money laundering lessons the hard way
In January, Deutsche Bank, Europe’s largest investment bank, was hit with an incredible £500 million from multiple regulators. The bank ran a $10bn money laundering scheme involving the Moscow, New York and London branches shifting roubles between Cyprus, Estonia and Latvia in a manner that was “highly suggestive of financial crime.” The regulators said “the bank missed numerous opportunities to detect, investigate and stop the [money laundering] scheme due to extensive compliance failures, allowing the scheme to continue for years.”
On Monday 26th June, the Fourth Money Laundering Directive was transposed into law to create the Money Laundering Regulations 2017. While the majority of the content in the final law is the same as the draft, there are a few important additions included in the final version of the draft.
What are the changes under the Money Laundering Regulations 2017?
Some of the key changes that the Fourth Money Laundering Directive present are:
- The ultimate beneficial owner of a corporate client will need to be determined and due diligence checks performed.
- There will no longer be automatic exemptions from conducting client due diligence.
- The rules for politically-exposed persons (“PEPs”) are no longer limited to those outside the UK.
- Third party equivalence – the Fourth Directive has rescinded the “white list” and country-specific risk determinations must be made for any jurisdiction outside of the EU.
Checklist of “reasonable procedures” to comply with the Act
On 27th April, the Criminal Finance Bill received royal assent to become the Criminal Finances Act. The Act creates a new corporate criminal offence for failing to prevent the facilitation of tax evasion, placing the responsibility on business to have “reasonable procedures” in place to ensure none of their employees are involved in helping someone evade their taxes.
Guidance from HMRC states that procedures which successfully detect and disclose wrongdoing would likely be found to be reasonable. Timely self-reporting is also an indicator that reasonable procedures are in place.
Reasonable procedures should be guided by the following principles:
1. Risk assessment
Oversight of risk assessment by senior management and appropriate allocation of resources to detect and monitor risk.
On 26th June 2017, the UK met the EU’s deadline and transposed the Fourth Money Laundering Directive into national legislation.
On Monday 2rd July over 200 law firms and organisations joined Director of Best Practice Gary Yantin and anti-money laundering expert Gary to discuss the implementation of The Fourth Directive and the new Anti-Money Laundering Regulations 2017.
The webinar covered some key questions surrounding the new regulations such as:
- What must firms do to comply with the Fourth Directive?
- How do the changes to pooled client accounts affect me and how likely are the changes to come into force?
- How do you carry out a risk assessment?
- Is there Law Society guidance on how to approach risk-based CDD?
- How will new legislation such as the Criminal Finances Act affect you?
Jersey, Guernsey and the Isle of Man are not members of the European Union and are not obligated to adopt the EU’s Fourth Anti-Money Laundering Directive as the UK has done with the Money Laundering Regulations 2017.
However, with close to 100 licensed banks, tens of thousands of regulated professionals and hundreds of billions of pounds in deposits and funds across the Crown Dependencies, complying with Financial Action Task Force (FATF) guidelines and implementing a international AML/CFT standards is a priority for the Bailiwick’s of Jersey, Guernsey, and the Isle of Man.
Jersey and Guernsey, in their 2017 answers to the European Parliament committee investigating the Panama Papers, have committed to reviewing the Fourth EU Money Laundering Directive “after it has been approved at all EU levels”. The Crown Dependencies are likely to implement such measures as other third countries.
Current AML legislation in each Crown Dependency
Isle of Man
- Isle of Man Proceeds of Crime Act 2008
- Anti-Money Laundering and Countering The Financing of Terrorism Code 2015
- Beneficial Ownership Act 2017