What Is A Code Of Conduct?

Our Code of Conduct Courses

A code of conduct is a set of rules around behaviour for the employees to follow within an organisation. The code acts as a standard that staff need to meet so that they can know what is expected of them to produce a generally more efficient business.

Often mixed up with a code of ethics, the code of conduct refers specifically to behaviour, whilst the ethics provides guidance on the decision-making skills that your employees need when they are working.

Why is a code of conduct important?

A code of conduct serves not only as a set of internal guidelines for the employees to follow, but also as an external statement of corporate values and commitments.

A code of conduct can:

  • Define the company culture
  • Set standards and expectations for employees to follow when it comes to their behaviour
  • Let customers and partners know your values, and from there they can work out if they want to work with you – creating a level of transparency for a healthy business relationship

A well-written code of conduct clarifies an organisation’s values and principles, linking them with standards of professional conduct when it comes to the behaviour of the employees. As a result, codes of conduct set the benchmarks for companies to live up to.

Additionally, a code can support employees in general decision making by giving them a structure to follow when it comes to company behaviour, allowing them to be prepared to handle ethical dilemmas in the workplace.

Having a code of conduct can give employees a structure to follow from the moment they join the company, reducing the chances of problems coming up, but also making the process of dealing with issues a lot easier should the worst occur. There should be no ambiguity when it comes to a code of conduct, because as soon as lines are blurred, rules can be broken.

As well as setting rules to follow, the code of conduct can let employees know what they need to do if they ever need to report a violation of company policy and lets them know the consequences of using false information.

Employees have a greater understanding of the business rules by having a code of conduct to follow, making life a bit easier for all parties involved. It improves the working situation for staff and promotes your business values too, attracting customers in the process.

What should be included in a code of conduct?

Every code of conduct has to reflect the business it represents. This is because it reflects the daily operations of the company, their core values and the general company culture. This need for it to be tailored to the business means that there isn’t one set code of conduct that every company can use. However, there are certain characteristics that all companies should include:

  • Written for the reader: It’s easy to understand and includes an explanation of any technical/legal jargon.
  • Comprehensive: It covers all areas that impact the daily lives of employees and answers any questions that they may have.
  • Supported by leadership: It has the backing of the senior management team. You can usually show this by including a foreword from the CEO or President.
  • Accessible: It is available to all employees and investors.

The code sums up what you should and shouldn’t be doing at work. This could include explaining to employees that they shouldn’t:

  • Take shortcuts to get the job done quicker, as they could cause adverse side-effects as a result
  • Discriminate against people within the business. This could be due to their race, gender, social class or religion and is known as workplace discrimination
  • Use business resources for personal use

There isn’t someone breathing down your neck telling you to have a code of conduct, but there are definite benefits of having a concrete set of rules in place. Larger businesses typically have them to create consistency and stability within their bigger groups of employees, but small companies tend to go about their business without a formal code in place.

Having a code of conduct in place creates a good practice for several reasons:

  • It helps define the company culture quickly
  • It sets standards and expectations for employees to follow when it comes to their behaviour
  • It lets customers and partners know your values, and from there they can work out if they want to work with you – creating a level of transparency for a healthy business relationship

The Need for a Code of Conduct

Employers might want to believe that their staff know what’s right and wrong, but by having a code of conduct you can spell out whether specific behaviour or action is acceptable or not, making everyone’s lives a bit easier. Having rules to follow gives employees a structure from day one, making the whole process much more black and white if trouble is caused. There should be no ambiguity about a policy because this can lead to rules being bent, contradicting the whole point of the code in the first place.

As well as setting out the rules, a code of conduct also explains what employees need to do if they ever need to report a violation of company policy, as well as showing staff what the consequences are of using false information in an attempt to conceal violation.

The code sums up what you should and shouldn’t be doing at work. This could include detailing the behaviour that must be prevented:

  • Taking shortcuts in your work to get the job done quicker, which could lead to adverse side-effects
  • Treating people disrespectfully due to their race, gender, social class or religion. This is known as workplace discrimination
  • Using business resources for personal use, because if you were to “borrow” money for personal use without authorisation, you are essentially stealing from the company
  • By having a set of rules for your business to follow, it makes everyone’s lives easier in the long term. Not only does it have a positive impact on the workforce, but your brand image is enhanced, bringing in more customers ready to bring you their business

How can a Code of Conduct Produce a Compliant Culture?

The majority of larger businesses already comply to having a code of conduct, but smaller companies tend to go about their day-to-day business without a formal code in place. It must be stressed that all businesses should be code of conduct compliant now though. Whatever your size or industry, a code of conduct is a must-have.

Having a code of conduct can give employees rules to follow from the moment they join the company, reducing the chances of problems occurring, and making the process of dealing with issues a lot easier when they crop up too.

As well as this, a code of conduct can let employees know what they need to do if they ever have to report a violation of company policies, again making everything a bit more straightforward for employees.

Employees have a greater understanding of the business rules by having a code of conduct to follow, and the rules you set can then impress customers too, giving them an insight into how you run your business. This all means that the working situation for staff is improved and your business values are promoted too, attracting customers in the process.

 

Our Code of Conduct Courses

Code of Confidentiality

Confidentiality refers to personal information that can’t be divulged to a third party without consent from the client. This sort of information is handled by financial institutions, hospitals, doctors, therapists, law firms, businesses, and religious authorities. This differs from privacy, which refers to the freedom from intrusion into someone’s personal information. While confidentiality is an ethical duty, privacy is rooted in common law.

When we say information is held in confidence, and therefore confidential, we expect that it will only be shared if authorization is given. Even then, we only ever think that it is shared with certain professionals.

The Need for Confidentiality

Any organisation that collects, analyses, or publishes confidential health and care information must follow the code of practice on confidential information. It clearly defines the steps that organisations must take to ensure that confidential information is handled correctly. The code helps organisations put the right structures in place so that staff follow the confidentiality rules. As a result, good practice guidance is available for those that are responsible for the handling of confidential information, such as board members.

The doctor-patient relationship establishes an implied code of confidentiality, since the doctor is in a position to help you by collecting and analysing private information. If a doctor were to ask a pharmacist to fill out a prescription for a patient, that wouldn’t be a breach of confidentiality, but if the doctor told your boss about your condition, that would constitute a breach of their ethical duty to keep your information private.

The Health and Social Care Information Centre Guide for Confidentiality 2013

Health and social care is the sector that confidentiality is at its most important due to the private nature of the service. This code of confidentiality shows workers what they should be doing and why. It covers five main rules:

  1. Information about service users or patients should be treated with respect to maintain confidentiality.
  2. Members of a care team should share confidential information when needed for the safe and effective care of an individual.
  3. Information that is shared for the benefit of the community should be anonymised.
  4. An individual’s right to object to the sharing of confidential information about them should be respected.
  5. Organisations should put policies, procedures and systems in place to ensure that confidentiality rules are followed.

The guide was produced to make the rules clearer to professionals, making everything a bit easier when it comes to the subject of confidentiality and knowing what they can and cannot do. However, decisions around sharing confidential information aren’t always clean cut, and the guide takes this into account by enabling staff to use their professional judgement confidently, working in the best interest of the individual.

The Impact on You

The confidentiality guide is relevant to everyone. In England, more than a million people come into contact with the health and social care services, so the issue needs to be understood by everyone.

Unless patients understand how their information is being used and who sees it, they are remaining ignorant when they consent to treatment and care. The other side of the story means that the best standard of care cannot be provided if the staff members don’t understand who they must share information with and when this sharing is expected.

Everyone using the health and social care services in the UK expect that the information they hand over is treated with the strictest confidence. This promise of confidentiality has been a focus for centuries in medical practice. Patients need to feel they can off-load all their information without worrying about where it might end up; without this trust, there is only a certain level of care that can be given.

Individuals need teams of professionals, both in health and social care, that are responsible for the information on patients. This can be knowing when to share the information too, in order to provide a seamless, integrated service, getting the best result for the individual in question.

Code of Conduct Policy

A code of conduct policy is something that an organisation has as a set of rules around behaviour for the members of that group to follow. The code articulates standards that the employees need to meet so that they can know what is expected of them to produce a more efficient business.

Despite the importance of a code of conduct, they work on a completely voluntary basis, seen as a sign of good company practice if you have a formal structure in place.

Larger businesses tend to already have a code in place to create consistency and stability with their employees, but small companies tend to go about their business without a formal code as they don’t feel it’s needed.

Some organisations still seem to approach their codes as something to make them look good, rather than having a deep-rooted impact on the business. What is clear is that many organisations are still failing to use the codes as a tool to inspire an ethical corporate culture.

Having a code of conduct policy in place is beneficial for several reasons within a business, whatever the size

  • It sets standards and expectations for employees to follow when it comes to their behaviour
  • It helps define the company culture quickly

It lets your customers and partners know your values, and from there they can work out if they want to work with you.

Why a Code of Conduct is Important

A well-written code of conduct clarifies an organisation’s values and principles, and links them with standards of professional conduct at the same time. As a result, codes of conduct become the standards that companies need to live up to.

Additionally, it helps employees in general decision-making, allowing them to be prepared to handle ethical dilemmas in the workplace when they come up. It can also serve as a valuable reference for potential customers and clients by letting them know your business values, creating a level of transparency for a healthy business relationship to flourish.

So as you can see, a code of conduct policy can benefit not only the employees within the business, but also improves your image as a brand, with both of these cases highlighting the positive impact it has on the company.

Every code of conduct has to reflect the business it represents, whether that means the daily operations of the company, their core values or the general company culture.

Setting the Right Example

  1. 1. Ford

Ford’s code of conduct is clear, detailed and comprehensive. Each section is broken into two key components. The first is an overview of the relevant policy and the second is a summary of the requirements for employees under that policy. The code also mentions additional resources and documents that contain greater detail.

The organisation of Ford’s code of conduct policy makes it easy to read and understand. It covers a variety of topics that may impact employees, including the use of company assets, product quality and safety, intellectual property and international business practices.

  1. 2. Microsoft

Microsoft’s standards of business conduct have been drafted around one central theme – trust. The company emphasizes the importance of this value to them, including in their work with customers, governments, fellow employees, investors and representatives. Their policy also offers a process to help employees make difficult decisions that reflect the values and standards of Microsoft’s.

Microsoft provides its employees with a visually appealing and easy-to-read document that is reflective of the organisation’s values. The company highlights that the responsibilities covered in the code of conduct apply to all employees of the company, whether that’s a senior executive or a summer intern.

  1. 3. Facebook

Facebook’s code of conduct policy is published on the company’s investor relations website and available for download as a PDF, making it accessible to view. Plus, the code is simple, straightforward and easy to understand. It covers important topics including conflicts of interest, harassment, confidentiality and protection of user data.

Facebook also highlights that employees can report violations anonymously to their managers, HR or legal department so that they feel comfortable speaking out.

Code of Conduct Legislation

Despite what the title of this article implies, there actually isn’t any legislation surrounding the topic of codes of conduct within the business environment. Rather than there being rules that companies have to follow when it comes to having a code of conduct, it is a voluntary thing, but it is seen as a sign of good company practice if you have a formal structure in place.

Codes set out the expected standards of behaviour and practices for organisations across the public and private sectors, typically underpinning the organisations’ underlying values. Codes continue to have relevance and meaning for many businesses, but this isn’t always the case. This is highlighted by the fact that whilst the majority of larger businesses have a structure in place, smaller companies tend to avoid having a formal code of conduct. Some organisations still seem to approach their codes as a matter of compliance, using them to look good on the surface, rather than having a deep-rooted impact on the business. What is clear is that many organisations are still failing to use the codes as a tool to inspire an ethical corporate culture.

What You Need to Know

Purpose: A code of conduct regularly communicates the organisation’s particular culture and shared sense of purpose. A growing number of organisations use the code to reassess their rules-based policies with a more values-based approach to push for more ethical decision-making. Good practice includes a mixture of learning and decision-making tools to support good judgement in alignment with values.

Structure: The structure and content of the codes continue to evolve as they move towards identifying their corporate purpose and values.

Relevance: As codes change, so do their contents. An example of this is having a more proactive approach to human rights, data privacy, due diligence, and social media. There is a constant challenge that codes are facing when it comes to keeping up with the speed of change in today’s society.

Content: Despite the importance of stakeholder engagement and empowerment to add authority, codes still rely heavily on the language of command and control. Some industries can be seen to be slower than others to adopt good practice elements of code design. Organisations in these sectors should look further afield when benchmarking their codes of conduct for good practice.

The Importance of a Code of Conduct

A well-written code of conduct clarifies an organisation’s values and principles, linking them with standards of professional conduct when it comes to employee behaviour. As a result, codes of conduct become the standards that companies need to live up to.

Additionally, it helps employees in general decision-making by giving them a structure to follow when it comes to company behaviour, allowing them to be prepared to handle ethical dilemmas they may face in the workplace. It can also serve as a valuable reference for potential customers and clients by letting them know your business values, and this can lead to healthier business relationships.

As you can see, a code of conduct can not only benefit the employees within the business, but also improve your image as a brand, with both of these cases highlighting the positive impact it has on the company.

Every code of conduct has to reflect the business it represents, whether that means the daily operations of the company, the company’s core values, or the general company culture. This need for it to be tailored to the business means that there isn’t one set code of conduct that every company can use, but there are still ways you can make sure your code of conduct is very the best it can be. Make sure your code of conduct:

  • Is easy to understand and explains any technical/legal jargon
  • Covers all areas that impact the daily lives of employees and answers any questions that they may have
  • Has the backing of the senior management team through a foreword from the CEO/President
  • Is available to all employees and investors to view

Code of Conduct Examples

Code of conduct means having a set of rules within a business dealing with the topic of staff behaviour. A code sets standards that employees need to meet so that they can know what is expected of them to produce an efficient business.

Every code of conduct is unique to the business it represents. This is because it reflects the daily operations of the company, their core values and the overall company culture. The need for it to work hand-in-hand with the business means that there isn’t one concrete code of conduct that every company can implement. However, there are certain things companies should be doing when writing a code of conduct:

  • Write it for the reader by making sure it’s easy to understand; this could be achieved by explaining any technical jargon.
  • Make sure it covers all areas that impact the daily lives of employees and answers any questions that they may have.
  • Gain support from the senior management team by securing a foreword from the CEO or President.
  • Make sure it is accessible to all employees and investors.

  1. 1. Ford

Ford’s code of conduct is clear, detailed and comprehensive. Each section is broken down into two key components. The first is an overview of the relevant policies and the second is a summary of the requirements for employees under that policy. The code also mentions additional resources and documents that contain greater detail.

The organisation of Ford’s code of conduct makes it easy to read and understand. It covers a variety of topics that may impact employees, including the use of company assets, product quality and safety, intellectual property and international business practices.

  1. 2. General Motors

The General Motors code of conduct is comprehensive yet easy to understand with simple language and explanation of jargon. The code specifies who it applies to, how it will be implemented, and the expectations set for employees. They use the term “we” throughout the code of conduct to ensure that all employees, including senior managers and directors, are held to the same standard.

The code of conduct also includes a decision-making model that employees can follow when facing ethical dilemmas. The company has also includes several short question and answer sections to explain how employees should act when they are in certain situations, making sure everyone knows what they’re doing

  1. 3. Microsoft

Microsoft’s standards of business conduct have been drafted around one central theme: trust. The company emphasizes that trust is an important aspect of its operations, including with customers, governments, fellow employees, investors and representatives. The code of conduct also offers a process to help employees make difficult decisions that reflect Microsoft’s values and standards.

Microsoft provides its employees with a visually appealing and easy-to-read document that is reflective of the organisation’s values. The company highlights that the responsibilities covered in the code of conduct apply to all employees of the company, including directors, executives and members of the director’s board.

  1. 4. Facebook

Facebook’s code of conduct is published on the company’s investor relations website and available for download as a PDF. The code is simple, straightforward and easy to understand. It covers important topics including conflicts of interest, harassment, confidentiality and protection of user data.

Facebook also highlights that employees can report violations anonymously to their managers, HR or legal department so that they feel comfortable in speaking out. The code of conduct also includes links to the company’s compliance policy.

  1. 5. IKEA

IKEA’s supplier code of conduct is designed to maintain a set of standards for the company’s current and potential suppliers. Reflecting their trademark minimalist style, the code of conduct is concise, yet comprehensive. The document covers topics such as health and safety, wages and benefits, child labour and harassment. The code of conduct also explains jargon that could be misunderstood by employees.

They also provide references to link users to additional documents, such as UN conventions and other IKEA policies. By doing this, employees can gain a better understanding of the IKEA approach.

What are the signs of Money Laundering?

Money laundering is the term used to describe the act of taking illegal money from source A and making it look like it came from source B, a legitimate, legal source. Criminals make the proceeds of crime appear to be legitimate in order to get away with their crime without raising suspicion. Until they do this they are unable to use the money without authorities tracing it back to their crime.

The proceeds of crime refer to an asset that is linked to crime. An example of this could be a car bought with stolen money, this makes the car criminal property, and therefore becomes a proceed of crime.

The term “laundering” comes from the fact that criminals disperse the money gained from the crime, by spreading it out, investing in businesses, dividing it up into many bank accounts and so on. These actions make it more difficult for the authorities to trace the money back to the crime.

Knowing what to look out for to spot the signs of money laundering is vital for all employees working within the regulated sector.

5 Signs of Money Laundering to Look out for:

Spotting the warning signs when it comes to money laundering could be make or break for a company depending on how fast you detect and respond to threats.

  1. 1. Reluctance to Provide Information
  • According to the Financial Action Task Force, the body set up to fight against money laundering, if the customer is secretive and evasive, then you should take it as a red flag.
  • It sounds obvious, but if they’re reluctant to disclose any of information, data or documents that you need, you should avoid any business with them.
  1. 2. Incomplete or Inconsistent Information
  • Lowers Risk Group suggest accountants should be on the lookout for customers that use multiple tax IDs, documents that cannot be verified, and are difficult when it comes to the identification of partners and owners within the company.
  1. 3. Irregular Money Transfers and Transactions
  • Money changing hands in unusual ways should always raise concerns. Accountants in charge of onboarding new clients should be aware of funds transferred to and from “locations of concern”, seeing it as a warning sign straight away.
  • The movement of money/assets when there doesn’t seem to be a business relationship between the parties, or transactions between groups that differ in their commercial arrangements should be looked into further.
  • Unusually high turnover from cash-based businesses that are above average compared to similar-sized organisations in the same sector may also require further explanation because of their irregular figures.
  1. 4. Complex Group Structures
  • Criminal schemes are often pretty sophisticated. So if you notice a complex structure with no explanation behind it, look into it further.
  • Their complexity could be deliberately set up to confuse and obscure others, so they can get away with the layering and integration stages of money laundering.
  1. 5. Negative Reviews
  • This may seem too simple, but if there are bad reviews of the customer that you can find by simply searching the internet, chances are you should stay well clear. An everyday internet search could reveal information that could hint at unusual business activities.
  • By carrying out appropriate due diligence, following up any issues until resolved or reporting to the National Crime Agency when needed will protect your organisation’s reputation as well as the UK economy.

How you can protect yourself –

Customer Due Diligence

This means making the effort to check out the people you’re planning on doing business with to increase your security when it comes to business relations and reducing the chances of problems occurring in the future as a result.

If you fail to carry out due diligence checks, you could be used to facilitate money laundering, something that means you become tainted if the ‘dirty’ money moves through your business, whether you realise it or not.

Due diligence can’t be ignored because it checks out the assets, liabilities, cash flow, and general financial management of the customer in question. It’s win-win really because you either gain peace of mind before getting involved with them, or it saves you any problems caused by them in the future.

Internal controls and monitoring

The importance of efficient internal controls and monitoring systems cannot be stressed enough. They mean that the right people are alerted straight away so that they can take the right steps to prevent the threat from becoming anything more serious.

Some good controls are:

  1. Nominated officers are figures within a business that employees can report to, creating a clarity in the whole process of reporting and responding
  2. If you have a larger business, having a compliance officer can help maintain a consistent level of understanding across the whole workforce around the rules they should be following
  3. Providing senior managers with regular information on the risks in money laundering means that they’re aware of their responsibilities and importance in the issue of AML
  4. Make sure your employees are clear on the problems they could face too, this can be dealt with through effective training
  5. Regularly updating AML policies, controls and procedures, as well as completing a policy statement that you stick to

What are the Proceeds of Crime?

Proceeds of crime refer to money/assets that have been acquired directly or indirectly through crime. Usually, money gained from committing crimes is used to buy assets, making said assets proceeds of crime. An example of this could be a car bought with stolen money, this causes the car to become criminal property, and therefore a proceed of crime.

The aims of laundering are simple: criminals make illegal money from source A, and then try and make the money look like it came from source B, a legitimate income. Criminals make the proceeds of crime appear to be legal so that they ‘blend in’ with normal life, avoid suspicion, and may continue to make money illegally.

The term “laundering” stems from the fact that criminals disperse the money gained from the crime and spread it out throughout numerous accounts and financial institutions in order to hide its origin. By doing so, it quickly becomes much more difficult for the authorities to trace money back to the crime itself, and so ‘dirty’ money (illegal money) becomes ‘clean’ and available to spend – it has been laundered.

Spotting Proceeds of Crime

Proceeds of crime may come in a number of forms, as either a sum of money, stolen goods, or assets bought with illegally obtained money. If it is money, it will usually be laundered in some way so that it can be banked and used to make investments and purchases. This tactic entails criminals essentially creating different trails for authorities to follow when trying to track down the source or destination of the money. The aim will be to disguise the money’s origins or its final destination and make it hard to prove that the money was ever part of criminal activity.

This variability of what a proceed of crime looks like means that they are very hard to spot. Over time, money laundering has developed to include offshore banking and tax evasion, all with the intention of keeping money out of the hands of the authorities and to avoid rules and regulations.

The rise of global financial markets makes money laundering easier than ever because of the ease at which you can move money between countries across the world (different countries vary in their approach and legislation around secrecy and reporting laws). This means criminals can anonymously deposit money made from a crime in one country and then have it transferred to another country to use without declaring how it came to be.

A red Ferrari and a Bentley Continental car, jewellery, watches and properties in London and the surrounding areas are among the proceeds of crime that the Metropolitan Police have recovered from criminals in the last five years. Anything that is bought with the money gained from crime becomes “tainted” straight away as a result. These are all proceeds of crime and they can all be repossessed by the police and other relevant authorities.

There are very few ways to know when somebody is benefiting from proceeds of crime, naturally, since the whole point of money laundering is to disguise this fact. One sign that something could be a proceed of crime might be that it was quickly paid for in cash, or that the person making the purchase is unlikely to be able to afford the asset taking into account their job or income.

What are the Anti-Money Laundering Laws and Regulations?

Anti-money laundering (AML) is the process of identifying and preventing criminals from concealing proceeds of crime and profiting from them. Money laundering is a criminal activity that both damages the economy and facilitates and funds criminal acts. There are a number of regulations and laws surrounding anti-money laundering efforts, including the Proceeds of Crime Act (2002), the Terrorism Act (2000), and the Anti-Money Laundering Act (2018).

The impact and authority of anti-money laundering laws and regulations are far reaching and call for organisations in the regulated sector to perform due diligence checks, abide by their reporting obligations, and cooperate with officers of the law when requested by the court.

The UK’s AML regime has stepped up recently; 2018 saw the launch of a new watchdog to strengthen defences against money laundering and terrorist financing. The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) is a group that works with AML supervisors and law enforcements to improve cooperation and improve general standards for AML efforts.

Proceeds of Crime Act 2002 (POCA)

This Act deals with the process of recovering assets that have been gained through crime. Prior to the Act, confiscation and recovery couldn’t occur until after a conviction had taken place, but in 2002 this changed, meaning that assets could be recovered upon suspicion of crime and held until conviction (or release).

Put simply, the primary aim of POCA is to reduce the number of loop-holes in the financial system and to reduce the number of cases where criminals can profit from crime. The aim is to cut the criminals off from their motivations – money and assets, and prevent them from hiding any ill-gotten gains prior to conviction.

The Act was introduced to improve the legislation around money laundering, and the treatment of proceeds of crime, laying out much more concrete and transparent rules for authorities.

The changes that the POCA brought about highlight how effective it has been too. Between 2010 and 2014 more than £746 million of criminal assets were seized, as well as assets worth more than £2.5 billion being frozen.

Terrorism Act 2000

The Terrorism Act (2000) is a piece of permanent anti-terrorism legislation in the UK. It aims to combat the global problems of terrorism, along with its financing – something that is often facilitated through reverse money laundering.

In many cases, terrorist operations are fuelled from legitimate sources of money. By using this once ‘clean’ money for deadly causes, they are tainting it, which is why it’s called reverse money laundering.

Despite its name The Terrorism Act works heavily to prevent the financing of terrorism and, as such, is an important piece of legislation in the anti-money laundering fight. It aims to leave people more vigilant about where money goes to once it is transferred, increasing vigilance and awareness in the regulated sector and empowering staff to raise suspicion if they see cause.

Criminal Finance Act 2017

The Criminal Finance Act (2017) gives law enforcement agencies more powers so that they can recover the proceeds of crime, as well as tackle money laundering, tax evasion, corruption, and the financing of terrorism.

The Act makes companies and partnerships criminally liable if they fail to report suspicion of crime (whether this is due to a member of staff or an external agent). The Act is far reaching and can be upheld even where the business was not involved in the Act or aware of it at all. A prosecution could lead to both a conviction and hard-hitting penalties for any organisation that fails to report suspicion.

Anti-Money Laundering Act 2018

Before this Act was passed, the UK’s domestic sanction regimes were confined to terrorism. The introduction of the Anti-Money Laundering Act in 2018 meant that England and Wales would have the power to impose sanctions independently if necessary, i.e. post-Brexit.

The Anti-Money Laundering Act (2018) complies with the UK’s obligation to conform to standards set by the United Nations regarding anti-money laundering. It pushes towards the investigation and prevention of money laundering and terrorist financing and works to reduce and overcome threats to the integrity of the international financial system.

Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017

This Act introduces the provisions of the European Union’s Fourth Anti-Money Laundering Directive (4 MLD) into national law. These regulations override the Money Laundering Regulations (2007) and the Transfer of Funds (Information on the Payer) Regulations (2007).

These developments increase the emphasis on a risk-based approach to money laundering. A whole series of internal controls and procedures were brought in with the Act, including customer due diligence, record keeping, and imposing a number of obligations on senior management and employers. Organisations must keep up with the changes, ensuring that policies and procedures are in place to deal with the potential risks they could face.

What are Financial Sanctions?

Financial sanctions prevent a firm from carrying out transactions and/or financial services with a person or organisation (known as ‘the target’). They exist for a variety of political, military, social, and economic reasons and work by preventing, pressuring, or restricting targets in an effort to curtail their activities (for example, terrorist financing or the purchasing of WMDs).

Financial sanctions vary depending on the severity of the situation in question. This means they can stop the movement of funds to a certain country and even freeze the assets of individuals. If you or your organisation choose to ignore the sanctions put in place, you are committing a criminal offence unless you have an appropriate licence or authorisation from the Office of Financial Sanctions Implementation (OFSI). Complying with financial sanctions means that organisations need to consider who they enter into business with, and whether any funds received are from a legitimate source. This is known as due diligence.

Sanctions can strengthen national security, as well as create a robust foreign policy. However, they only have this result if they are properly executed. OFSI works by detecting and addressing financial sanction breaches, essentially finding people that are trying to avoid the rules. This role can be improved by individuals getting involved and reporting incidents immediately for the best results.

UK financial sanction legislation enforces the EU regulations, and they set out a specific criteria that needs to be met if you’re going to report to the OFSI. These are as follows:

  • If you know or suspect that a person or entity is a target, freeze the asset
  • If you know or suspect that someone has committed a breach of financial sanctions offence
  • If you have frozen the assets of a designated person or entity

For all of firms within the regulated sector, there are legal requirements to report to the OFSI, with penalties if they fail to do so.

The Office of Financial Sanctions Implementation (OFSI)

The OFSI makes sure that sanctions are understood by all parties involved. By doing this, the whole process is much easier as there is a clarity with all individuals about what is going on and why. Additionally, they make sure that the sanctions are carried out and enforced. Again, this is to create a process that runs smoothly from start to finish. Their actions mean that a professional service is created for the public.

Their work means that the sanctions make the fullest contribution towards the UK’s foreign policy and national security. As well as this, it tries to fill people with confidence regarding the UK’s Regulated Sector, creating more trust between customers and the firms. The Regulated Sector refers to the firms that are part of the financial services community and that are regulated by the Financial Services Authority (FSA). Examples of organisations in this sector includes banks, insurance companies, lawyers, and accountants.

What each financial sanction entails depends upon the regulator. These can include:

  • United Nation’s Security Council – Since the UK is a member of the UN, we automatically impose all sanctions that the UN creates at a national level through domestic legislation.
  • European Union – Our forthcoming departure will create uncertainty with respect to the sanctions we implement from the EU. After Brexit, we will no longer be required to automatically implement EU sanctions and our departure will also cause possible changes in EU sanction regimes. What is clear is that the UK will have gained the legal ability to impose new sanctions for themselves.
  • UK Government – We can also develop our own sanction programmes, but they can be limited in regard to international affairs.

Things to Remember:

Some firms may be unsure about their responsibilities when it comes to financial sanctions. It’s useful to bear in mind the following facts:

  • Regular anti-money laundering checks do not screen clients against the HM Treasury list that regulates the UK financial sanction regime. Firms should not confuse the sanctions regime with anti-money laundering procedures.
  • Financial sanctions apply to all transactions, there is no financial minimum.
  • Politically Exposed Persons (PEPs) are not always financial sanction targets.
  • Most of the individuals and entities know when they’re on the sanction list issued by the HM Treasury, so the issue of ‘tipping someone off’ shouldn’t really occur.

It is good practice to check:

  • The HM Treasury’s list against your client list
  • All new customers you deal with (before you provide them with any services or transactions)
  • Any updates to the HMT list
  • Any changes to your client’s details

What Anti-Money Laundering Roles and Responsibilities do Employees Have?

Whatever the business, if you are covered by the money laundering regulations (by being part of a firm within the regulated sector), then you need to meet certain requirements to help prevent money laundering activities.

It is the responsibility of organisations within the regulated sector to comply with the regulations; and with penalties that consist of fines and reputational damage, it is in their best interest to follow the rules. A top-down method should be put in place to implement a clear attitude around the problems in money laundering, and by the push starting with the managers and executives, the employees will then follow suit to produce a complaint workforce.

The Importance of Anti-Money Laundering

Anti-money laundering (AML) refers to the procedures, laws, and regulations designed to stop the laundering of ‘dirty’ money into the economy. AML laws are far-reaching and respected when it comes to the power they have over business. For example, AML regulations require institutions to complete due-diligence checks on their customers to make sure they aren’t aiding money laundering activities.

Global recognition of the rules and regulations arose when the Financial Action Task Force (FATF) was formed in 1989. This group set international standards for fighting money laundering, and therefore helped to promote a legitimate and clean stable financial market.

The UK’s AML regime has stepped up recently, as 2018 saw the launch of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS). This group improve general standards by working with advisors and law enforcements to prompt for improved cooperation.

Customer Due Diligence

Due diligence means that you take steps to identify your customers by checking they are who they say they are to increase vigilance and security. This is so you can be sure of who you are doing business with, reducing the chances of problems occurring in the future.

If you fail to check out the background of your customers, you could be used to carry out money laundering, something that means you become tainted if the ‘dirty’ money moves through your business, whether you realise it or not.

Due diligence is an integral part of the buying process for both sellers and buyers because it checks out the assets, liabilities, cash flow, and general financial management of the customer in question. This will either give you peace of mind before getting involved with them, or it keeps you out of the way of the wrong people that are wanting to exploit your business.

Although it can be seen as time wasting, it is a vital step to take in the buying and selling process to stop you from going into business with a group that could cause harm in the future – better to be safe than sorry!

Internal controls and monitoring

A business must make sure that it has adequate internal controls and monitoring systems to avoid becoming the next victim of money launderers. These controls should alert anyone relevant within the business if criminals are attempting to use the company for laundering. Once the right people have been informed, they can take the right steps to prevent the threat from becoming anything more.

Your controls should include:

  1. Having a ‘nominated officer’ creates a figure within the business that employees can report to
  2. If you have a larger and more complex business, have a compliance officer can help maintain an understanding across the workforce around the rules they should be following
  3. Making sure the senior managers know are aware of 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 to create a climate of shared understanding and compliance that take the risks into account in the every-day running of the business
  5. Recording and regularly updating you AML policies, controls and procedures by completing a policy statement (and sticking to it!)