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.

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. 

This is the sixth blog in series to help law firms grapple with the latest Legal Sector Affinity Group (LSAG) guidance on the Money Laundering Regulations.

In this series, we looked at some key points from the LSAG Guidance on the Money Laundering Regulations 2017. This included the different types of risk assessment which firms should undertake, as well as the general importance of the risk-based approach. We also discussed the need to undertake CDD on clients, and the various levels which can be applied in different situations (standard, simplified or enhanced).

In this, the last in our six-part series, we will address some of these points from a more practical perspective, and look at how technology can both save you time and help you remain compliant. We will also set out some of the potential problems posed by the use of technology, and explain how these can be averted. 

When can I undertake simplified CDD (SDD)?

This is the fifth blog in a series to help law firms grapple with the latest Legal Sector Affinity Group (LSAG) guidance on the Money Laundering Regulations.

In the previous LSAG blog, we looked at the situations which require enhanced due diligence (EDD). These are occasions where, due to a client’s risk profile, you must undertake more extensive checks than when applying standard CDD. 

In this blog, we will look at the situations in which the Regulations say you may consider applying simplified due diligence (SDD). The LSAG Guidance explains that, as SDD is,“the lowest permissible form of due diligence… [it] must only be used where you have determined that the client presents a low risk of money laundering or terrorist financing.”

When determining whether the client poses a low-risk of money laundering or terrorist financing, the Regulations state that you must consider the results of the risk assessment undertaken. Specifically, you must take into account: