What the UK Economic Crime Act and UAE grey listing means for business

There’s been a number of important changes to money laundering in recent weeks which will affect all businesses, but in particular regulated entities. Those are businesses such as law firms and estate agents which are required to adhere to money laundering rules and conduct actions such as due diligence on their customers.

UK Economic Crime Act becomes law

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On 10 January 2022, the European Commission published an amendment to the delegated regulation of high-risk jurisdictions for anti-money laundering and counter terrorist financing.

The EU’s prescriptive list contains details of third-country jurisdictions which have strategic deficiencies in their Anti-Money Laundering / Counter Terrorist Financing (AML/CFT) regimes that pose significant threats to the financial system of the European Union must be identified in order to protect the proper functioning of the internal market.

The EU commission see the following countries as having strategic deficiencies in their AML/CFT regime: 

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As part of a settlement agreement with the SRA, a large SRA regulated firm has been fined £232,500 for money laundering breaches. The firm has also been ordered to pay the SRA investigation costs of £50,000.

Between September 2015 and September 2018 the SRA found that the firm in question carried out serious breaches of the relevant money laundering regulations and the SRA’s rules. These included: 

  1. Failure to retain customer due diligence (CDD) for a minimum period of 5 years: The firm believed that customer due diligence was obtained for certain clients, but the firm did not retain the hard copy file of such documents and no electronic copy of the records was retained.
  1. Not all client documents were obtained: Some documents, but not a full set of CDD documents were obtained in relation to a corporate vehicle. 
  1. Failure to conduct adequate Enhanced Due Diligence, or adequately apply enhanced ongoing monitoring: Certain transactions that the firm carried out presented a “higher risk of money laundering or terrorist financing”, but enhanced customer due diligence (EDD) and ongoing monitoring was not adequately applied.
  1. The firm did not secure full CDD before each relevant transaction took place: The firm secured CDD in relation to the ultimate beneficial owner in a transaction but, because it opened each matter file in the name of a different entity in the corporate structure, the firm did not secure full CDD for each special purpose vehicle before each relevant transaction took place.
  1. No firm-wide risk assessment in place: When the SRA requested a copy of the firm-wide risk assessment the firm did not have a risk assessment in place. The practice-wide risk assessment wasn’t put in place until March 2019, and wasn’t provided to the SRA until May 2019.
  1. AML training was not carried out: A former partner at the firm rhad not received mandatory training as required by anti-money laundering regulations. The absence of training was due to personnel absence but  there was no contingency plan in place for AML training if such personnel absence occurs.
  1. Permitting the client account to be used as a banking facility: The firm accepted four payments in the firm’s client account but they should not have been permitted under the SRA accounts rules.
  1. Confusion with funds being used to discharge the firm’s fees: The firm improperly transfers funds belonging to one entity to the client ledger for another entity, which was then used to discharge the firm’s fees and disbursements in relation to the latter entity.
  1. Failure to send notifications before transferring funds out of a client account: The firm did not send a bill of cost or other written notification to relevant entities before two invoices were raised and paid out of monies held in client accounts.
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It is estimated that between 2–5% of all economic activity worldwide is related to the laundering of proceeds from criminal activities. Trillions of dollars every year are funnelled through innocent-seeming channels to support the operations of terrorists, drug traffickers, prostitution rings, cyber attackers and other dangerous actors.

Money laundering refers to the processes these groups use to disguise the origins of their money. Because banks and other financial institutions require clients to disclose how large money was obtained, criminals are forced to hide their sources by funnelling money through legitimate sources in order to clean their trail. In many cases, they weave elaborate webs of intrigue involving complicated corporate structures, unusual real estate investments or exotic locations in places with minimal law enforcement, known as tax havens.

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What happened in AML compliance in 2021?

Fines running into the billions and jail terms totalling hundreds of years. AML enforcement has not taken a back seat during the pandemic, with fines, scandals, leaks and sweeping new regulations. The past year has been a blockbuster one for money laundering compliance. Here, we round up the biggest money laundering stories of 2021.

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Branch safes literally overflowed with ill-gotten gains

In the first criminal prosecution of a financial institution by the Financial Conduct Authority (FCA), a litany of failings took place at NatWest which enabled black bin liners stuffed with cash to be deposited, literally bursting out of floor-to-ceiling branch safes.

The trial centred on a textbook case of money laundering by a supposed jeweller, Fowler Oldfield. Their predicted turnover was around £15m when the bank took them on as a client, but they ended up depositing over £365m over a five year period, with the vast majority being in hard cash.

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What is the Legal Sector Affinity Group AML Guidance?

The Legal Sector Affinity Group (LSAG) has published its Anti-Money Laundering guidance for the Legal Sector 2021. As set out in its background, LSAG aims to “aid… compliance and to effectively protect against Money Laundering and Terrorist Financing risks”. The LSAG guidance is an invaluable aid to those in the legal sector, and has been written in light of changes to the Regulations. While an invaluable aid to those in the legal sector, the complex guidance is over 200 pages long.

Why is Anti-Money Laundering Guidance for the Legal Sector Important?

Though it is not officially mandatory, the LSAG guidance is vital for protecting your practice. The SRA website says that “for firms supervised by the SRA for AML [the LSAG guidance] now constitutes official guidance,” and as stated at the start of the guidance, “legal sector supervisors will consider whether a legal professional has complied with this guidance when undertaking its role as regulator of professional conduct”.

Core Concepts of the LSAG Guidance – VinciWorks Free Guide

VinciWorks has created a concise guide highlighting the core concepts of the LSAG guidance, including practical tips. The guide includes an introduction to the guidance, an overview of risk assessments, what you need to know about Client Due Diligence (CDD), Enhanced Due Diligence (EDD), and Simple Due Diligence (SDD), and how the use of technologies such as Omnitrack can be helpful in carrying out risk assessments, CDD, ongoing monitoring, and ‘just in time’ training.

Click here for a free download of the guide.

The Joint Money Laundering Steering Group has produced guidance on the prevention of money laundering for the UK financial sector. JMLSG’s Guidance is aimed at both firms: (i) in sectors represented by its members (comprising a number of UK Trade Associations) and (ii) regulated by the Financial Conduct Authority (FCA). 

There are a plethora of ways the guidance can assist those in the financial sector. However, two key areas are: providing an overview of the requirements for undertaking risk assessments and CDD. 

AML risk assessments 

Chapter 4 of the guidance is entitled the “Risk-based approach”, and sets out an overview on how to comply with certain obligations, such as: 

  • Identifying and assessing the risks of money laundering and terrorist financing which a business is subject to
  • Putting in place appropriate systems and controls to reflect the risks identified 
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Anti-money laundering could be any law, regulation or procedure designed to respond to the threat of money laundering. However, it can be hard to decipher the precise rules which you need to be aware of. This is because the AML policies and procedures which apply to your organisation will depend on a number of factors, such as the jurisdiction in which you are based, the customers you work with, and the products and services you offer. In this blog, we will focus on the AML rules which apply to the UK’s financial service firms and introduce the guidance produced specifically for this sector. 

The Proceeds of Crime Act 2002

The offences in the UK’s Proceeds of Crime Act 2002 (POCA) fit into two categories. First, are the ‘core’ offences that apply to everyone, and aren’t specific to the financial sector. These include:

  • Concealing or disguising criminal property
  • Removing criminal property from the jurisdiction
  • Acquiring, using or possessing criminal property
  • Entering into – or becoming concerned in – financial arrangements which you know or suspect involve criminal property

An arrangement concealing or transferring terrorist property could also be an offence under POCA. But this is explicitly prohibited under the Terrorism Act 2000

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