Organisations need to implement effective anti-money laundering policies in order to remain compliant with legislation and maintain credibility. If they fail to do so, the results could be detrimental to their future. Money laundering can damage reputations, customer/business relationships, and your organisation’s financial stability – not to mention funding criminal activity and even terrorism. Organisations that are part of the regulated sector (regulated by the Financial Services Authority) are required to meet the day-to-day standards set to prevent money laundering, and must remain compliant with the below standards.

The Steps Towards Anti-Money Laundering Compliance:

Customer Due Diligence

• Due diligence means checking that your customers are who they say they are to increase security. This is so you know exactly who you are doing businesses with, reducing the chances of problems occurring in the future due to dodgy connections.
• Failing to train staff to carry out proper KYC (know your customer) checks means you could become a target for criminals looking to commit money laundering offences. This means you become involved in a crime – even if you never realise it.
• The checks have a win-win result because they’ll either give you peace of mind before creating a new business link, or it keeps you out of the way of the wrong people that are wanting to exploit your business. When it comes to anti-money laundering, vigilance is key.

Internal Controls and Monitoring

• A business must have efficient internal controls and monitoring systems to avoid becoming the next victim of money laundering. This should alert anyone within the business if criminals are attempting to use the company for laundering, they can take the right steps to prevent the threat from progressing to an incident.

Your controls should include:

1. A nominated officer creates a figure within the business that employees can report issues to when needed.
2. For businesses of higher complexity, having a compliance officer can maintain a shared understanding throughout the whole workforce.
3. Make sure that the senior managers know their responsibilities and importance in the process of AML, providing them with regular information on the risks in money laundering.
4. Providing relevant training to employees means that your first line of defence is well prepared to deal with threats that come their way.
5. Recording and regularly updating you AML policies, controls and procedures by completing a policy statement (and sticking to it!)

Legislation Awareness

There are three main pieces of legislation that businesses need to be aware of to be compliant:

Proceeds of Crime Act 2002 (POCA)

• This Act is concerned with recovering assets that have been gained through crime, also known as the proceeds of crime. The Act meant that the confiscation and recovery of assets could suddenly occur before a conviction had taken place, speedy up the whole process.
• The primary aim is to reduce the number of loop-holes in the financial system in order to reduce the chances of criminals having success, it does this by taking away their motivations – money and assets.
• POCA is clearly doing something right, as £746 million of criminal assets were seized between 2010 and 2014, as well as more than £2.5 billion worth of assets being frozen, preventing criminals from being able to use them.

Terrorism Act 2000

• This is the UK’s permanent anti-terrorism legislation, looking to combat the global problems in terrorism, and the financing that comes with it, something that comes from reverse money laundering.
• Terrorist operations are often fuelled from legitimate sources of money through the process of reverse money laundering. By using this clean money for deadly causes, they are tainting it rather than trying to make it blend in with normality, which is why it’s called reverse laundering.

The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017

• This Act moves the European Union’s Fourth Anti-Money Laundering Directive (4 MLD) into UK national law. It replaces the Money Laundering Regulations as well as the Transfer of Funds Regulations, both regulations from 2007.
• These developments have a risk-based approach to money laundering. Through controls and procedures such as customer due diligence, regular record keeping and imposing a number of obligations on senior management and employers. Organisations must keep up with the changes to ensure that the more efficient policies and procedures are in place to deal with the risks they could face.

Offshore accounts are accounts that exist outside of your home country, allowing you to save money and make transactions in different currencies. Offshore accounts operate in another jurisdiction, meaning that they are outside the legal power/judgement of your residential country. Usually, having an offshore account means that individuals enjoy tax benefits since the money avoids taxation in their home country, and there may not be similar taxes to pay in the country the account is set up in. Whilst there a lots of reasons a person or organisation may benefit from an offshore account, some countries also have a less regulated and less stringent financial sector than, say, here in the UK. This means they may attract criminal customers who want to bank their money off the radar. It is for this reason that some countries are known as ‘high risk’ to do business with or accept transactions from.

Using the offshore accounts can open up a channel of professional services abroad, and also encourages global business expansion, trading, investments and growth – all qualities that lead to a strong economy. As above, though, some offshore accounts exist simply to avoid taxation, which can detriment the UK economy. Some popular places to hold offshore accounts for UK residents include the Crown Dependencies of Guernsey, Jersey, and the Isle of Man, Monaco, Switzerland, and Lichtenstein.

Whilst an onshore account is generally considered to be a business/current/savings account within the individual’s country of residence, offshore accounts are used for different types of savings accounts and sometimes have links to foreign stock markets.

Depending on the offshore bank, the minimum account opening balance differs. This can start at £10,000 and go all the way up to £100,000 depending on the type of customer they are dealing with, and what the accounts are for.

The links between offshore accounts and ‘tax-havens’ is because the interest on the accounts is paid without the prior deduction of tax. It is up to the individual to declare income from offshore bank accounts to their relevant tax authorities, and because this is their responsibility, people find ways to avoid it and therefore pay less tax by failing to declare extra income. You may have seen offshore accounts linked with ‘tax dodging’ in the media.

Two Sides to the Coin

Offshore accounts aren’t always used with the aim of avoiding tax, there are legitimate reasons to use them too depending on different circumstances. Plus, the media has a big part to play in the presentation of offshore accounts, in reality the account holders still need to pay tax because you are still liable for tax on the interest you earn in the same way you would be in the UK. So despite the misconceptions, there is nothing illegal about offshore accounts, it’s how the owner conducts business that counts.

• If you are a retired British Expatriate and have savings which you would like to invest, then an offshore account is best for you. This is because if you’re a resident overseas, most UK banks and buildings won’t allow you to open a new savings account whilst the offshore accounts will accept it.
• If you aren’t a British Citizen and you’ve acquired wealth (possibly through inheritance, investment or working in a sterling economy), but you’re now a resident outside of the UK, then an offshore bank may support your sterling savings.
• If you are an expatriate worker and move between countries periodically, having an offshore account for your savings in an independent location can be more convenient than constantly having to open and close savings accounts with each change of residence.
• Of course you may be resident in an offshore jurisdiction full time, so a local offshore bank may be conveniently located.

The Positives to Offshore Accounts:

• Ability to bank in foreign countries
• Quite often tends to be a higher interest rate
• You can delay tax payments with them
• Reduces the risks in currently fluctuations

And the Negatives:

• They can be difficult to open
• They can have higher everyday fees (i.e. withdrawal fees)
• Limited levels of protection
• Tax does still needs to be paid, despite what people think

Our Anti Money Laundering Courses

The Proceeds of Crime Act (POCA) published in 2002 changed the way we understand money laundering offences. Money laundering or conspiracy/attempt to money launder is an offence under sections 327-329 of the POCA.
To put it simply, the POCA discusses and defines offences in money laundering as the following:
A person commits an offence if he/she…

• Conceals criminal property
• Disguises criminal property
• Converts criminal property
• Transfers criminal property
• Removes criminal property from the UK
• Enters into an arrangement which he/she suspects facilitates the control of criminal property by or on behalf of another person
• Acquires criminal property
• Uses criminal property
• Has possession of criminal property

So as you can see, organisations don’t need to know that they have been involved in a crime to become legally involved, and become tainted by it as a result. The whole focus is on the “criminal property” otherwise known as money/assets gained from crime. The point of laundering is to make the criminal property blend in with normal financial practices, essentially getting lost in the system before anyone can track it down or track it back to the crime.
This worry makes it all the more important that companies do what they can to avoid getting involved in money laundering, as it could result in unlimited fines and reputational damage. By understanding the threats out there, and having an efficient policy prepared, organisations can prevent themselves becoming the next victim of laundering, increasing success and stability as a result.

5 Money Laundering Offences:
1. Tax evasion

• This is when people use offshore accounts to avoid declaring their full income level, and as a result they can avoid paying their full amount in tax.
• Possibly one of the most well-known tax avoiders in recent years is the famous comedian, Jimmy Carr. Using a Jersey-based account, he was able to avoid paying higher taxes back in 2012 by sheltering £3.3 million per year of his assets.

2. Theft

• Probably the most straightforward crime, theft becomes money laundering once it has actually happened. The criminals then try to take the proceeds of the crime and move them into the economy without people noticing, and as a result it becomes much more unlikely that it will ever be tracked down.
• An example of this came with an accountant from South Wales in February 2018. Jeffrey Bevan was working for the Bermudan government when he stole and laundered £1.3 million. His position as head of expenditure meant he had access to a lot of money, something he took advantage of. Bevan laundered the money through his UK bank accounts, claiming it all as legitimate overtime. As a result he was sentenced to seven years and four months in prison.

3. Fraud

• Crime related to fraud generates money that needs to be laundered for the criminals to use it without raising suspicion, so where there is fraud there is money laundering. Many organisations actually have a department that is dedicated to preventing money laundering and fraud.

4. Bribery

• Bribery can occur in money laundering when it comes to politically exposed persons, also known as PEPs. PEPs are a big threat when it comes to money laundering because of their status in society. This status makes them a higher risk customer for companies to work with because they have more chances to gain assets through illegal methods compared to regular public citizens. As soon as corrupt PEPs accept bribes, money laundering can take place.
• Bribery is a serious global issue because it has significant effects on economic development, political stability and international crime.

5. Terrorist Financing

• More often the not, terrorist activities are being financed through a technique called reverse money laundering. It is reverse because it works by using legal assets to carry out illegal activities, in this case terrorism. The ‘clean’ money can come from the least suspicious sources such as charitable organisations, as well as legitimate businesses.
• The 9/11 terrorist attack was facilitated by reverse money laundering. Money from the United Arab Emirates passed through a New York bank account before reaching the accounts of the hijackers in Florida. It was also revealed that the terrorists actually carried bundles of cash straight into the country.

Our Anti Money Laundering Courses