The UK’s latest attempts at tackling dirty money, the Economic Crime and Corporate Transparency Act (ECCTA), passed by the Conservative government in late 2023, did not come without criticism from Labour. Shadow Minister for Investment and Small Business Rushanara Ali attacked the legislation as it went through the House of Commons as not going far enough to tackle Labour’s view that the UK has become a money laundering haven.

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In a stunning rebuttal to the global financial crime watchdog the FATF, the European Parliament voted on Tuesday 23 April to keep the United Arab Emirates on the EU’s list of High Risk Third Countries. This will complicate due diligence efforts for regulated entities who may no longer be able to rely solely on the FATF grey list as the single source of truth for jurisdictions at high risk of financial crime. 

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The move comes as Australia seeks to implement stricter AML laws nationwide

In an effort to prevent money laundering, Queensland implemented legislation that limits cash gambling at the state’s casinos. The new law also involves identity verification and a code of conduct at casinos. The legislation comes as Tranche 2 anti-money laundering (AML) reforms are likely to soon come into force in Australia. 

Queensland attorney general Yvette D’Ath noted that casinos will be restricted to accepting a certain amount of cash from a person for gambling-related transactions in a 24-hour period. The cash limit will be set through regulation but is likely to be about $1,000. 

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Australia’s banking sector is at medium to high ML/TF risks

A national risk assessment on major banks and other domestic banks operating in Australia indicated that they are at medium and high risks for money laundering and terrorist financing (ML/TF) activities. Tranche 2 anti-money laundering (AML) reforms are likely to soon come into force in Australia and it could help the country with its reputation as a trusted financial centre, especially after several high-profile money laundering court cases.

Australia’s banking sector sits at the centre of its financial services industry. It is hoped that the reforms will help fight the evolving threat of organised financial crime, which is estimated to cost Australia up to $60 billion a year. According to the Australian government, “Significant regulatory gaps and vulnerabilities have made Australia an increasingly attractive destination for laundering illicit funds.”

AML Tranche 2 has already been introduced by countries like the UK, Canada, and New Zealand and firms in Australia are preparing for these changes. Australia is one of only three jurisdictions that are not aligned with the Financial Action Task Force (FATF)  recommendations on international AML standards. Once the Tranche 2 reforms are implemented, they will be and this will mean changes for a range of businesses as they must comply with the regulations to avoid penalties.

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What is proliferation financing and what do regulated entities have to do?

Proliferation Financing (PF) is an international crime which facilitates the movement and development of illegal goods in order to provide weapons of mass destruction for rogue states like Russia, Iran and North Korea. It has become an increasing cause of global concern over the last decade, and its potential consequences can be severe – from global instability to a catastrophic loss of life. 

Regulated entities in many countries are required to undertake proliferation financing risk assessments. In the UK, the Legal Sector Affinity Group (LSAG) has published updated guidance on the anti-money laundering (AML) regulations to incorporate PF. Guidance is to carry out proliferation financing risk assessments, either as part of the firm’s existing practice-wide risk assessment or as a standalone document.

VinciWorks has created a number of tools to assist with proliferation financing compliance. This includes dedicated training modules on proliferation financing and template emails to update and inform staff. VinciWorks have also produced guidance on high risk jurisdictions on PF, incorporating the latest 2024 US National Proliferation Financing Risk Assessment prepared by the US Treasury. VinciWorks hosted a webinar on how to comply with proliferation financing which can be accessed here.

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A  policy template to help the regulated sector manage PF compliance

Proliferation Financing (PF) is an international crime which facilitates the movement and development of illegal goods in order to provide weapons of mass destruction for rogue states like Iran, North Korea and Russia. It has become an increasing cause of global concern over the last decade, and its potential consequences can be severe – from global instability to a catastrophic loss of life. 

Regulations and tools designed to disrupt PF means that the regulated sector needs to be aware of the dangers of PF and adopt appropriate policies and procedures to identify and manage the risks.

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What is proliferation financing?

Proliferation financing is of significant concern to every business in the regulated sector. A series of amendments to the UK Money Laundering Regulations 2017 came into force 1 September 2022. The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 include an obligation for regulated entities to identify, assess and mitigate the risk of proliferation financing (PF). We have further detailed guidance on these amendments here.

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All firms in the regulated sector must undertake a proliferation financing risk assessment, either a stand alone risk assessment, or as part of their existing money laundering and terrorist financing risk assessments.

However proliferation financing compliance must go beyond a risk assessment. The risk assessment process will result in a series of mitigation measures. This should include dedicated training modules on proliferation financing and guidance on high risk jurisdictions on PF.

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Straight talk on aligning regulatory priorities from panellists at the Law Society’s Risk and Compliance Annual Conference 

Many law firms’ regulatory priorities are determined by outside forces, such as regulators or guidance. But, as Richard Farquhar, financial crime and risk manager for Ashurst, noted, firms can’t just focus on that. They need to look at wider obligations and determine what the risks are.

Farquhar moderated a panel at the Law Society’s Risk and Compliance Annual Conference 2024 that focused on how law firms can manage their compliance in the current regulatory environment.

Andy Donovan, managing director and founder of VinciWorks’ Compliance Office, said that firms need a more bespoke approach. Customised compliance is more effective, he noted. Get specific, he counselled, and make sure you have audits in place. if you’re not checking it, it’s not happening, he added.

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At its Risk and Compliance Annual Conference, Law Society president expresses concerns 

The Law Society’s Risk and Compliance Annual Conference 2024, started off with a bang. Nick Emmerson, president of The Law Society, noted that, along with increasing compliance obligations on law firms were increasing fining powers by the Solicitors Regulation Authority (SRA). Emmerson was clear on where he stood on that. He called on the UK government to put a stop to those increasing powers.  

As Emmerson noted, current SRA fining powers are now unlimited for economic fine offences. Other offences are capped at £25,000. While the SRA wants to extend this to all offences, the Law Society does not believe they have a credible case for this. 

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