The Law Society has published proposed updates to Legal Sector Affinity Group (LSAG) as an addendum. They await Treasury approval of the wording. The changes are largely reminders and clarification on certain points and are not likely to have a large impact.
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Jerry Yu is a 23-year-old NYU student and a Chinese national. He is also the majority owner of a Texas-based crypto mining facility called BitRush. But it appears that there is more to the company, which was acquired last year. It was recently revealed that the company, bought for $6 million, is backed by undisclosed Chinese investors thanks to Tether, a cryptocurrency routed through Binance, a cryptocurrency exchange.
According to a recent report from The New York Times, the story started with a series of lawsuits from contractors who claimed they weren’t paid for the work they did on the facility, located in Channing, Texas.
Continue readingTerrorist financing involves the collection, movement, and disguising of money in order to finance terrorist operations.
Terrorist activities can be financed from both legal and illegal sources – from political donations, to trading digital currencies, to proceeds of crime, e.g., kidnapping for ransom and fraud, and terrorist financiers often exploit intermediaries in the legitimate economy to hide their illicit activities (think financial institutions, charities, religious organisations, and other shell companies).
Because terrorist financing can be hard to detect, and money can pass through many hands and several territories before reaching its final destination, it’s important that organisations train their employees on how to spot signs of potential terrorist financing and also how to report any suspicious activity they come across whilst being vigilant.
Anti-terrorist financing procedures are often thought-of alongside anti-money laundering practices since the techniques used by terrorist financers to disguise and move money around are closely related to money laundering techniques and sometimes involve actual money laundering.
The signs and red flags for terrorist financing therefore overlap with money laundering red flags, so it’s important to offer training to employees in both subjects alongside your anti-money laundering modules.
Terrorist financing is any form of financial support for terrorism, terrorist organisations, or anyone encouraging acts of terrorism. This includes direct funding as well as the processing of funds intended to facilitate terrorist operations.
Regulations and legislation criminalise the direct funding of terrorism, as well as activities that can contribute to terrorist financing. While specific definitions of terrorist financing offences vary by jurisdiction, they generally include:
Client/customer due diligence (CDD) is a key element of the anti-money laundering (AML) and counter-terrorist financing regime.
Performing proper due diligence should uncover any stakeholder who has a controlling influence on a customer or supplier and who benefits from that account or organisation. These stakeholders are known as ultimate beneficial owners (UBOs).
Since those involved in terrorist financing may not be known to authorities or belong to a terrorist organisation, and since UBOs may not be listed as a legal owner and may be hidden behind layers of ownership, terrorist financers often channel money to hidden UBOs who turn out to be terrorists or other sanctioned entities.
This is exactly why the importance of customer and supplier due diligence checks is emphasised in the fight against terror.
The three component parts of customer/supplier due diligence are as follows:
Due diligence is required whenever a new business relationship is established or where organisations carry out odd/occasional transactions.
It is also good practice to carry out additional due diligence (and report!) if you suspect money laundering or terrorist financing is taking place, or if you doubt the veracity or adequacy of documents or information previously obtained for the purposes of identification or verification
Find out more about due diligence.
Being able to spot and report warning signs of potential terrorist financing activity is an essential component in stopping the flow of terrorist funds, protecting your organisation, and maintaining national security.
In order to remain compliant with anti-terrorist directives, employees should look out for the following red flags:
Terrorists and terrorist organisations are often subject to international sanctions. Sanctions are restrictions imposed on individuals or legal entities (otherwise known as targets) to restrict access to financial services, funds, or economic resources. For example, terrorist organisations such as Al-Qaeda as well as individual Al-Qaeda operatives appear on international sanctions lists.
Different jurisdictions maintain their own sanctions lists. It is therefore important to screen customers and suppliers against your organisation’s consolidated list, which will include sanctioned entities from all jurisdictions where you operate.
Your organisation should have a procedure for internal reporting of red flags and other suspicious activity. These reports are commonly known as suspicious activity reports (SARs), suspicious transaction reports (STRs), or unusual activity reports (UARs).
It’s the Money Laundering Reporting Officer (MLRO)’s – or other nominated officer’s – responsibility to determine whether further action is required and whether the report is escalated to the authorities.
Some organisations have a special form to fill in for reporting suspicious activity, whilst others permit reports to take any form such as an email, a phone call, or a face-to-face meeting. Always use the method required by your organisation (and if more than one is offered, choose whichever you are most comfortable with).
Regardless of the format, reporting suspicious activity is a confidential process. Only share report details with colleagues who need the information to do their job, and never tip off a customer or supplier that a report has been submitted about them – this is a criminal offense!
If you are ever unsure how to report a suspicion or whether an activity is suspicious, seek advice from your manager. Your organisation’s nominated officer or MLRO can also advise whether a report is needed.
The important thing to remember is that failure to report a red flag or other suspicious activity is illegal, so you must never ignore it. If something doesn’t seem right, seek additional information, get advice, or submit a report.
We hope this article has helped our readers understand what terrorist financing is and how to help prevent it taking place at your organisation. If you need help training your employees on anti-money laundering and anti-terrorist financing best practices, feel free to drop our friendly team a line via email or on 01509 611019. We’re a friendly bunch and would be more than happy to help!
Click here to view our updated for 2022 anti-money laundering collection of eLearning courses!
All business interactions require thorough and effective due diligence in order to confirm that customers and suppliers are who they say they are.
This involves conducting checks at the initial onboarding stage, at ongoing regular intervals thereafter, and if any change in circumstance should trigger concern (e.g., if someone has lost their job but appears to have a lot of newly acquired funds – as this could be perceived as a red flag).
The aim of due diligence is to detect, deter, and prohibit money laundering and associated terrorist financing activity from taking place, and it’s important that everyone at your organisation understands the role they play in mitigating these risks.
It is estimated that money laundering activities in the UK equate to approximately 2-5% of GDP. This means that between £36-90 billion of criminal finances are laundered through the UK economy annually (and that’s a prudent estimate!).
People who commit financial crimes are not always easy to spot; they often distance themselves from suspicious activity by using third parties, moving money around different jurisdictions, or hiding behind shell (false) companies.
There are signs and risk factors that indicate that a link to money laundering could be likely, however – and this is exactly why knowing your customer and performing effective due diligence for each client, supplier, and transaction is an essential part of anti-money laundering compliance.
Put simply, due diligence helps organisations tackle financial crimes and ensures your assets and your customers’ assets stay safe.
Standard due diligence involves a process called ‘know your customer’ or ‘KYC’. This process is designed to protect organisations against types of fraud, corruption, money laundering, and terrorist financing and involves three steps:
Recently banks and other regulators have indicated that a move towards standardised KYC requirements would be beneficial. After all, having common internal processes across the board would remove any ambiguity about KYC procedures and ensure everyone – no matter the size of their company or the industry in which they operate – performs these checks to a universally accepted, basic level.
Unfortunately, there is still a way to go before we achieve this, and a number of global and local initiatives to collaborate on this and set standarised KYC checks have failed to stick.
With this is mind, it’s more important than ever that each organisation take responsibility for performing their own KYC to a high standard, training employees on its importance, and ensuring appropriate steps are in place to protect individuals and the company alike.
For some customers and suppliers understood to be ‘high risk’, standard due diligence is not enough.
In fact, in order to mitigate the risk of financial crime effectively, it’s imperative that organisations make additional, in-depth background checks on certain people. This is known as ‘enhanced due diligence’ or ‘EDD’.
EDD is essentially a risk-based approach; it doesn’t automatically suggest wrongdoing by anyone, rather it’s a way of ensuring protections against financial crime remain effective.
High risk clients or suppliers who necessitate EDD might include:
There are other geographical factors considered high-risk and that would necessitate EDD too, these include people with links to:
Additionally, any person using private, offshore, or correspondence banking may be considered high risk (particularly if they have no family or business ties to where their bank is geographically located). The high-levels of confidentiality that private banks offer make them much more likely to be involved with money laundering and clients of these organisations are therefore subject to additional EDD checks.
Enhanced due diligence involves requesting additional identity documents in order to verify that customers are who they say they are and often includes more in-depth background checks and additional investigations.
When performing enhanced due diligence it’s important to:
1. Establish the origin and ultimate beneficial ownership (UBO) of funds
This means obtaining proof to indicate the origin of wealth and ensure its legitimacy.
Organisations may also compare the value of a person’s financial and non-financial assets with that of their real assets to ensure the numbers add-up and seem viable. Inconsistencies between net-worth, source of wealth, and earnings should be cause for suspicion and trigger further investigation work to take place.
If the person owns an organisation, it will also be important to establish who benefits financially from the ownership and to thoroughly verify this identity.
2. Track ongoing transactions
Organisations will need to keep a close eye on the transaction history of their client or supplier, including that of any interested stakeholders, persons, or organisations, and analyse the purpose and nature of these transactions.
In particular, be on the lookout for inconsistencies between the projected value of goods and services and the amount paid or received. Again, any inconsistencies should trigger alarm bells and will require a valid explanation.
3. Check for adverse media coverage
Negative news reports about your client or supplier should be a red flag, as these speak to the track record and public reputation of the person or entity you’re about to enter into business with.
Any past accusations of financial crime – even if charges were dropped – will be cause for enhanced monitoring and investigation and, of course, established involvement with financial crime indicates a very high risk indeed.
4. Conduct an onsite visit
You may wish to visit your client or supplier at their physical business address to verify their place of work and to verify they are the person they claim to be.
This is also an opportunity to check that the operation address matches the address on any documentation they have provided (e.g., invoices). If these addresses do not match, or the organisation you find is not what you expected based on the information your customer presented to you, this is cause for concern.
An on-site visit may also be vital to obtain physical verification documents that cannot be sourced digitally.
5. Create a further investigation plan
After you’ve conducted all the above processes and determined that the client in question isn’t too high-risk for you to continue working with them, you’ll need to create a report outlining your EDD plans for monitoring your client in the future.
A timetable should be included in this report, detailing when certain monitoring actions will be carried out. Your report, along with all of the information you’ve acquired up to this point, should be kept in a secure location.
6. Develop an ongoing monitoring strategy
Make a plan to keep track of your client’s progress in the future. This should be done alongside a thorough review of the information they’ve already provided. Certain transactions may not appear suspicious in isolation, but they may be part of a larger pattern of activities that point to illegal activity.
Did you know, getting your employees up to speed on the latest AML regulations, including the importance of due diligence checks, is one of the most effective ways to protect your company and its assets from illegal activity?
We hope this article has helped our readers understand the importance of due diligence and what it means for your organisation. However, if there’s anything we can help you with, please do get in touch via email or on 01509 611019.
Check out our freshly updated, all new, anti money laundering collection including short courses on Due Diligence and Enhanced Due Diligence.
We have today announced the availability of our newly refreshed and expanded Anti-Money Laundering (AML) collection of online training courses. With a comprehensive offering of 16 courses, the AML collection provides everything an organisation needs to train employees about compliance with AML best practices and legislation, and in turn, ensure their business remains compliant and avoids financial penalties.
The updated collection of training solutions allows organisations to navigate recent changes to AML legislative requirements, and through a catalogue of courses, offers guidance on global best practices. Available in various course lengths and learning styles, the online training supports different learning preferences. This includes immersive training, detailed study, gamification and interactive courses, toolbox talks, adaptive courses, diagnostic assessments, and ‘take 5’ microlearning courses.
With organisations facing increasing scrutiny surrounding anti-money laundering legislation, educating employees on the importance of recognising red flags and reporting suspicious activity are fundamental to ensuring compliance. Using AI-powered technology and diagnostic assessments, the adaptive AML course saves employees valuable time by only recommending learning content they need to know – adapting learning pathways to each individual. Adaptive learning not only reduces costs but improves employee engagement with compliance training.
Leveraging the scenario-led immersive courses allows employees to use gamified scenarios to learn due diligence, understand global best practices for AML compliance and find out how regulated and non-regulated sector businesses have different responsibilities.
The new list of courses include:
“Time and time again, financial and non-financial institutions fall victim to lack of compliance with anti-money laundering legislation, causing them to face extortionate sanctions. Mitigating this risk is key, and that can only happen with the right training,” highlights Darren Hockley, Managing Director at DeltaNet International. “With the global workforce dispersed across a mix of office, hybrid and remote teams, ensuring employees understand the latest AML regulations and how they each have the responsibility to their organisation to report suspicious activity is critical. We are thrilled to have extended our course offerings for AML compliance to provide a comprehensive overview, allowing organisations to provide more effective training.”
For more information on DeltaNet’s AML training courses collection, please visit: https://www.delta-net.com/anti-money-laundering.
Anti-money laundering regulations refer to procedures and processes that are put in place by organisations across every industry to discourage and prevent potential criminals from performing money laundering, either on or via their premises.
Through various standard controls and directives, compliance with anti-money laundering best practices empowers employees to identify, report, and terminate money laundering activities, helping to protect their business, their community, and the economy – as well as preserving national security (since money laundering is associated with terrorist financing).
Complying with money laundering regulations involves several areas of operation and it’s important that employees are given the information they need to understand and comply with these responsibilities as far as they could impact their job role.
Here’s what you need to consider:
Due Diligence
All business interactions require effective due diligence. These are thorough checks that – put simply – are designed to verify your customers are who they say they are.
Performing due diligence helps organisations calculate the risk-level of a customer or supplier and flag any areas for concern, such as if they are a politically exposed person, have residency in a high-risk location, or have links to organised crime.
In order to know who you’re dealing with, where their funds originate, and who benefits from the intended transactions, then, it’s good practice to conduct due diligence checks at onboarding stage (before you agree to work with a new customer) and also at ongoing, regular intervals – including if any change in circumstance triggers concern.
Whilst some customers and suppliers require additional checks (known as ‘enhanced due diligence’), performing standard checks should protect both your organisation’s and your client’s interests/assets and help reduce or eliminate exposure to financial crime, including money laundering, fraud, and terrorist financing.
Following good due diligence practices means that customers can rest assured that you take their data privacy seriously and helps mitigate the risk of bad publicity, loss of reputation and legal consequences for your organisation. Remember, corporations and individuals are increasingly being held accountable for their due diligence practices and both can face high fines and, in extreme cases, even imprisonment if found to be criminally complicit in this respect.
Terrorist Financing
Just like it sounds, terrorist financing involves the funding and movement of money in order to finance terrorist operations. Terrorist activity can be financed through legal and illegal funds – from political donations to proceeds of crime – and terrorist financiers often exploit intermediaries in the legitimate economy to hide their activities and transfer funds (think financial institutions, charities, religious organisations, and other shell companies).
Because terrorist financing can be hard to detect (money can pass through many hands before reaching its final destination, spanning several territories), it’s important for employees to be able to recognise signs of potential terrorist financing and how to report them.
The techniques used by terrorist financers to move money are closely related to money laundering techniques and sometimes involve actual money laundering. The signs and red flags for terrorist financing therefore overlap with money laundering red flags.
Regulations and legislation criminalise direct funding of terrorism, as well as activities that can contribute to terrorist financing. While specific definitions of terrorist financing offences vary by jurisdiction, they generally include:
Find out more about how to prevent terrorist financing.
Accounting red flags
As a professional working in the financial sector, accountants and other types of finance administrators often stand in the way of criminals who want to use their place of business to launder money.
Due to this, it is important for all financial professionals to arm themselves with knowledge and understand what to look out for to spot money laundering and what anomalies ought to ring alarm bells about unlawful intent to investigate further.
Empowering your employees with this information will help your organisation to work in compliance with the law and combat financial crime.
Here are some accounting red flags your employees need to know about:
Politically Exposed Persons
A politically exposed person (PEP) is someone who currently holds, or has held, a prominent public office. Due to the nature of the position, the immediate relatives or close associates of PEPs are also considered to be ‘politically exposed’ and are subject to enhanced due diligence checks for anti-money laundering.
PEPs are considered higher risk due to their position and influence, which increases their potential involvement in money laundering, bribery, fraud, and terrorist financing.
Politically exposed persons may have access to state assets, they may be able to put processes in place to prevent the detection of money laundering or terrorist financing, or they may own or control financial institutions, businesses, or other enterprises that could be used to launder money or generate illicit profits.
It’s worth mentioning that most PEPs do not abuse their position of power. However, these people are often targeted by those who wish to get close to them and abuse either them or their position of power. Therefore, PEPs are always considered to be high-risk clients and are often subject to a detailed background check and other enhanced due diligence.
Know Your Customer
Know Your Customer (KYC) standards are designed to protect financial institutions against fraud, corruption, money laundering, and terrorist financing. Indeed, for many organisations, KYC is the first and most crucial step of their AML compliance program and consists of the process used to verify a client’s identity, construct their risk-profile, and continuously monitor their account.
It’s important for organisations to carefully verify any customer’s identity, assess their risk, and understand their general financial habits as this makes it much more likely that any abnormalities and red flags will be identified. In turn, this allows organisations to act quickly and investigate any signs of money laundering (or other crimes) before the situation escalates.
There are three components of KYC:
This involves verifying a customer’s identity (i.e., that they are who they say they are) and usually calls for customers to share credentials such as name, date of birth, and address. In The UK, this commonly involves checking that the individual is on the electoral register and asking them to provide a current passport, full driving license, or birth certificate, as well as a utility bill, council tax bill, or mortgage statement.
Due diligence aims to uncover any potential risk to the organisation should the company agree to do business with a specific individual. For this reason, organisations will use the above information to check that the customer in question is not on any sanction lists, such as the one published by The International Criminal Police Organisation (Interpol). They will also want to check that the prospective customer is not Politically Exposed.
It’s not enough to perform identity checks and customer due diligence just once. Rather, in order to gain a full understanding of how customers typically use their accounts – and to catch any irregularities and mitigate risks as they arise – financial institutions must complete continuous monitoring and checks across their clients’ accounts.
Financial Sanctions
Financial sanctions programmes operate across the world. Different countries or jurisdictions have their own financial sanctions and enforcement bodies, all with one common aim: to combat money laundering, terrorist financing, and financial crime.
Financial sanctions also play an important role in national security, foreign policy and international peace. Common types of financial sanctions include tariffs on imports, trade embargoes, asset freezes (to prevent access to funds), and restrictions on financial markets and services such as banking and investments.
Most financial sanctions programmes maintain lists of individuals and entities who are subject to financial sanctions. These individuals or entities are known as ‘targets’, ‘Specially Designated Nationals’ or ‘blocked persons’ by different sanctions regimes.
Financial sanctions enforcement bodies have international legal reach. Examples include the United Nation’s Security Council and the European Commission. Other bodies, such as The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury, and the Office of Financial Sanctions Implementation (OFSI) of the UK HM Treasury, enforce sanctions based on their laws, national security and foreign policy.
EU Legislation updates
Following 4MLD in 2017 and 5MLD in 2020, the Sixth Money Laundering Directive (6AMLD) was transposed into EU law in December 2020, with firms having until June 2021 to implement the changes.
6AMLD was intended to improve clarity and harmonisation among EU member states, but it also increased member states’ reporting duties (since money laundering continues to go widely undetected and this must be addressed).
Why was 5AMLD important?
This directive was designed to bolster the barriers brought in by 4AMLD in the fight against money laundering and terrorist financing. It achieved this by:
Why was 6AMLD important?
Only six months had passed since 5AMLD came into force when the EU extended this legislation even further by introducing the Sixth Anti-Money Laundering Directive (6AMLD). Its main aim was to expand the list of predicate criminalised offences (those crimes which are committed as a component of a more serious criminal act) and to increase the penalties for money laundering offences, e.g., heavy fines and imprisonment.
Unlike 5AMLD, the UK did not transpose 6AMLD into its domestic AML framework following the country’s withdrawal from the EU in January 2020. The key reason for this decision being the government’s understanding that the UK’s anti-money laundering systems are already compliant with many of the 6AMLD rules – in fact, the government believes ‘the UK already goes much further’ in many respects.
UK AML rules, for instance, already enforce longer sentences for certain money laundering offences (including imprisonment of up to 14 years in some cases) and UK law does include broader provisions relating to predicate offences than the specified crimes that qualify as predicate offences set out in 6AMLD
Final Word
In an ever-changing regulatory landscape, getting your employees up to speed on the latest AML regulations and how to spot money laundering is one of the most effective ways to protect your company and its assets from illegal activity. We hope this article has helped our readers understand what AML means and why it is important for your business. However, if there’s anything we can help you with, please do get in touch via email or on 01509 611019.
Check out our freshly updated, all new, anti money laundering collection!
Anti-money laundering (AML) is a blanket-term used to describe the constantly evolving laws and regulations put in place to prevent money laundering and other related financial crimes. However, in order to fully understand AML activities, it’s important first that we get to grips with what money laundering means and the true extent of this crime.
In short, money laundering is a type of financial crime; more specifically, it’s the process of taking illegally obtained funds (dirty money) and making them appear legitimate (i.e., clean or ‘laundered’).
Criminals involved in money laundering activities want to make it as difficult as possible for the authorities to trace the source of any ill-gotten money, so the more complex the ‘laundering’ process is, the less likely they are to be found out. This means that money is often moved around overseas, for example, or invested in companies, art, and offshore accounts.
It is estimated that money laundering activities in the UK equate to approximately 2-5% of GDP. This means that between £36-90 billion of criminal finances are laundered through the UK economy annually, and that’s a low estimate!
Criminal finances can be generated through organised crime, individual criminal activities, and high-end money laundering schemes – but all of these impact businesses, individuals, and communities in a negative way.
These activities also put national security at risk by financing terrorist activities, armaments, and nuclear weapons.
Anti-money laundering (AML)
AML consists of a series of laws, regulations, and policies designed to prevent money laundering from taking place.
In the UK, anti-money laundering legislation is dictated by the Proceeds of Crime Act 2002 (POCA), the Terrorism Act 2000 (TA 2000), and the The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (MLR 2019). Additionally, the UK is a member of the Financial Action Task Force (FATF) which means the UK’s anti-money laundering legislation meets FATF’s global standards.
It’s also worth noting that, whilst the UK left the EU on January 31, 2020 – and so did not transpose the EU’s sixth anti-money laundering directive (6AMLD) into its domestic AML framework – the government has stated that the UK’s anti-money laundering systems are already compliant with many of 6AMLD’s rules and, in fact, the government believes that ‘the UK already goes much further’ in many respects.
Know your customer standards
Know Your Customer (KYC) standards are designed to protect financial institutions against fraud, corruption, money laundering, and terrorist financing. Indeed, for many organisations, KYC is the first and most crucial step of their AML compliance program and consists of the process used to verify a client’s identity, construct their risk-profile, and continuously monitor their account.
It’s important for organisations to carefully verify any customer’s identity, assess their risk, and understand their general financial habits as this makes it much more likely that any abnormalities and red flags will be identified. In turn, this allows organisations to act quickly and investigate any signs of money laundering (or other crimes) before the situation escalates.
The 3 Components of KYC
KYC may seem like a simple concept, but the processes of customer identity verification and customer due diligence are critical to a successful AML program.
There are three stages to KYC compliance:
1. Customer identification
This involves verifying a customer’s identity (i.e., that they are who they say they are) and usually calls for customers to share credentials such as name, date of birth, and address. In The UK, this commonly involves checking that the individual is on the electoral register and asking them to provide a current passport, full driving license, or birth certificate, as well as a utility bill, council tax bill, or mortgage statement.
2. Customer due diligence
Due diligence aims to uncover any potential risk to the organisation should the company agree to do business with a specific individual. For this reason, organisations will use the above information to check that the customer in question is not on any sanction lists, such as the one published by The International Criminal Police Organisation (Interpol).
They will also want to check that the prospective customer is not Politically Exposed, as it is deemed at international level that a PEP (Politically Exposed Person) is more susceptible to corruption (meaning this customer would be considered as high risk and subject to more rigorous and specific mitigation measures).
3. Continuous monitoring
Under AML directives, it’s not enough to perform identity checks and customer due diligence just once. Rather, in order to gain a full understanding of how customers typically use their accounts – and to catch any irregularities and mitigate risks as they arise – financial institutions must complete continuous monitoring and checks across their clients’ accounts.
AML Authorities in the UK
The Financial Conduct Authority is the UK’s primary financial services regulator, overseeing banks, building societies, credit unions, and other financial institutions. The Financial Conduct Authority (FCA) was established in 2012 under the Financial Services Act to replace the Financial Services Authority (FSA) and to ensure the safety of the UK’s financial system and financial institutions.
The FCA is in charge of ensuring that AML requirements are followed in the UK, and it has the authority to investigate money laundering and terrorism funding offences in collaboration with other law enforcement agencies and authorities, such as the Crown Prosecution Service (CPS). The FCA requires all banks and financial institutions in the United Kingdom to be registered.
Her Majesty’s Revenue and Customs (HMRC) shares the responsibility to investigate money laundering offenses with the FCA. It also publishes guidance on anti-money laundering in the UK, including what due diligence and transaction monitoring financial organisations are required to carry out in order to be compliant with UK law.
In addition to the FCA and HMRC, the National Crime Agency (NCA) and the Serious Fraud Office (SFO) also have the power to enforce money laundering regulations in the UK. Both these institutions have the power of arrest and may seek warrants and court orders.
UK anti-money laundering and counter financing of terrorism authorities (AML/CFT) also have the power to freeze and confiscate any assets they suspect are involved in money laundering, terrorism financing, and other criminal activities.
AML and non-compliance
Depending on the form and severity of the infraction, noncompliance with the UK’s AML/CFT legislation can result in monetary penalties or up to 14 years in prison. As above, the FCA has the power to close down or restrict the activities of companies proven to be guilty of wrongdoing, as well as to reclaim funds and assets implicated in money laundering violations through court or civil processes.
Additionally, non-compliance with AML/CFT directives in the UK is likely to result in considerable reputational damage for the companies concerned.
The importance of AML
We know that money laundering often funds criminal activities such as smuggling, illegal arms sales, embezzlement, insider trading, bribery, and cyber fraud schemes. It also has links with organised crime, such as human trafficking, drug trafficking, and prostitution rings.
As well as funding unlawful enterprises, money laundering diverts resources away from economically and socially productive uses. This negatively affects a country’s financial system by undermining its stability and erodes public trust. It’s also closely linked with terrorism, since money laundering is used to raise funds to sustain and camouflage terrorist activities.
AML in practice
It’s important for all types of organisations to offer AML awareness training to their employees – not just financial institutions (although these types of organisations will require more in-depth education on the subject).
The significance of effective internal controls and risk mitigation cannot be stressed enough since the effects of money laundering – and, indeed, its increasing regulation – affects all industries.
At its core, AML awareness training is about empowering your employees and equipping them with the right skills to handle the requirements of AML regulation as these affect their daily work tasks. In doing so, the training helps members of staff to flourish and be productive at work because it helps clarify their responsibilities and the boundaries surrounding these.
As well as reducing liability and risks for everyone in the company, then, AML training is a gateway allowing employees to get on with work unsupervised which, in turn, builds trust and drives productivity.
Some good AML controls include:
Final word
In an ever-changing regulatory landscape, getting your employees up to speed on the latest AML regulations and how to spot money laundering is one of the most effective ways to protect your company and its assets from illegal activity. We hope this article has helped our readers understand what AML means and why it is important for your business. However, if there’s anything we can help you with, please do get in touch via email or on 01509 611019. We’re a friendly bunch and would be more than happy to help!
A record number of anti-money laundering (AML) fines were issued worldwide in 2019. US regulators and authorities took the lead, handing out fines totalling over £6.2bn – twice as many fines as UK regulators.
This shows that the global impact of money laundering is showing no signs of abating. Regulators are continuing to crack down against illegally obtained wealth, including businesses that fail to prevent money laundering. For global businesses, preventing money laundering makes good sense and is vital for securing the future of a business. Non-compliance with anti-money laundering (AML) laws can result in heavy financial penalties and loss of reputation – two factors which can threaten the stability of global businesses.
While enhanced customer due diligence and internal procedures and monitoring are important, it is equally important to raise awareness on the pitfalls of money laundering within your workforce. Providing relevant AML training to employees is your first line of defence and ensures your staff are well prepared to spot and deal with any money laundering threats that come their way.
Our new eLearning course focuses on raising awareness on anti-money laundering (AML) legislation and its impact on organisations and their employees. The course is designed keeping global businesses in mind, covering general legal requirements for anti-money laundering on a global level, with a focus on the key roles and responsibilities that help organisations to comply.
Delivered in an immersive and engaging format, this online training course is divided into five modules covering legislation, responsibility, and policy, the definition of money laundering, signs of unusual activity and how to report unusual activity. The course can be taken all at once for a holistic, detailed introduction to AML, or learners can take and revisit separate modules to suit their schedule and preferred learning style.
Find out more about our new course HERE.
The Global Anti-Money Laundering eLearning course joins our suite of Anti-Money Laundering (AML) Training.
Anti-money laundering (AML) laws and regulations are designed to detect and prevent proceeds of crime from financing all sorts of illegal activity globally. Laundered money is often used to fund a range of crimes, including terrorist attacks.
Following the release of the Panama Papers and a range of terror attacks in Europe, European leaders are aspiring to align with the Financial Action Task Force (FATF) AML recommendations for strengthening the 4th Anti-Money Laundering Directive (4AMLD).
In April 2018, the European Parliament announced its intention to adopt the 5th Anti-Money Laundering Directive (5AMLD) which will come into effect from 10th January 2020.
The main purpose of the Fifth Directive is to make amendments and enhancements to the structure of the Fourth Directive which came into force on 26th June 2017 and ensure that AML regulations are effective and up to date. These include additional provisions not originally included in the text of 4AMLD and a focus on enhanced due diligence, improved access to information and increased transparency.
Some of the key changes are summarised below:
The beneficial ownership registers for legal entities, such as companies and trusts, will need to be public. This will enable member states to maintain interconnected Ultimate Beneficiary Ownership (UBO) registries. UBO registers of company ownership will be publicly accessible.
The wider access to beneficial ownership information is aimed at increasing transparency and preventing financial criminals from misusing complex, corporate structures for money laundering and terrorist financing purposes.
The Fifth Directive includes a legal definition of cryptocurrency and assets, defined as “a digital representation of value that can be digitally transferred, stored or traded and is accepted as a medium of exchange.” Cryptocurrency exchanges and wallets will, therefore, be classed as an obliged entity and these will have to perform the same checks as any obliged entity in the Fourth Money Laundering Directive, including customer due diligence, monitoring ongoing behaviour and reporting suspicious activity.
The main aim of regulating virtual currencies is to prevent cryptocurrencies such as Bitcoin from funding crimes and terrorist activity.
Electronic money and prepaid cards will be subject to enhanced due diligence checks. The Fifth Directive lowers the threshold requirement on prepaid card transactions from €250 to €150. The threshold for online transactions with a prepaid card is €50. Anonymous prepaid cards issued outside the EU will only be accepted if their issuance meets requirements equivalent to the EU AML regime.
The enhanced checks are aimed at reducing the risks of anonymous prepaid instruments, such as gift cards and travel cards, from being misused for money laundering and terrorist financing.
5AMLD widens the definition of a Politically Exposed Person (PEP) on a national level to include people who hold “prominent public functions,” for example a politician, and their immediate family members and close associates. Member State will have to issue a list setting out which functions qualify as “prominent public functions”.
The lists will enable smaller organisations to manage ongoing risks, by identifying, monitoring, and screening PEPs and individuals with jobs and roles that may make them vulnerable to corruption.
The Fifth Directive will require enhanced due diligence (EDD) checks and improving safeguards on financial transactions to and from high-risk countries. The countries are deemed high risk due to a lack of AML regulation and due diligence requirements within these nations. As of February 2019, the EU has produced a list of high-risk countries which includes Afghanistan, American Samoa, The Bahamas, Botswana, Democratic People’s Republic of Korea, Ethiopia, Ghana, Guam, Iran, Iraq, Libya, Nigeria, Pakistan, Panama, Puerto Rico, Samoa, Saudi Arabia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, US Virgin Islands, and Yemen.
The draft withdrawal agreement between the UK and the EU commission contains provisions that would oblige the UK to continue to apply EU laws during a transition period, with a jointly agreed (non-binding) political declaration, paragraph 84 which makes clear that the EU and the UK would continue to work together on AML compliance after Brexit.
With key amendments due in 2020, it’s a good time to evaluate if your current approach to financial crime risk management is adequate and for staff to refresh their knowledge of anti-money laundering laws and regulations. Our Anti-Money Laundering (AML) training courses focus on raising awareness around key legislation and laws to ensure compliance. Find out how DeltaNet International can support your business through our AML eLearning courses.
Revolut, the digital banking service with over four million registered users across Europe, announced last week that their CFO Peter O’Higgins was leaving the business after three years. The start-up had been battling a damning report by the Daily Telegraph which revealed lapses in compliance between July and September 2018. The digital banking service switched off an anti-money laundering (AML) system designed to flag suspicious transactions, potentially allowing thousands of illegal transactions to pass across the banking platform.
In a blog posted recently, Revolut CEO, Nik Storonsky, has denied allegations of non-compliance and provided an explanation on the AML breach that never was. This however brings back into focus the compliance challenges fintechs face as they continue to grow and its impact on their workforce.
From making faster digital payments to depositing a check to your account using a banking app on your mobile phone (without setting foot in a bank!), customers today are spoilt for choice when it comes to choosing a financial service for managing their finances and day-to-day transactions. Fintech is transforming the way traditional financial institutions operate and the way customers are consuming financial services. Outdated manual processes and operations are now replaced by state-of-the-art apps and software, making the finance sector more user friendly than ever. Even the big financial institutions are moving on from their conservative approach to new technologies and investing in the workforce to develop innovative solutions to compete with fintech unicorns such as Revolut and Monzo.
With transactions taking place online through apps or websites, regulatory bodies, like the FCA, are wary of how new technology could be used for money laundering and other illicit activity by criminals. Most fintech businesses are subject to AML regulation just like any other financial institution or business. In some countries, including the UK, failure to disclose suspicious transactions is considered a criminal offence that could result in a prison term – in addition to fines. This is detrimental to fintech businesses as it will affect their market share and uptake, and lead to poor reputation. After all customers are more likely to have faith in regulated industries than unregulated ones.
Fintech businesses must look at the impact on their workforce and how they can ensure compliance with regulations while adapting to digital transformation. The FCA requires financial services firms to maintain robust AML systems and controls, since they are at risk from those seeking to launder the proceeds of crime or to finance terrorism. Knowledge and understanding of compliance are therefore essential to ensure that fintech businesses don’t get caught out by criminals looking to outsmart the system. There is a need for businesses to enforce compliance with a proactive approach, developing controls and processes with security and regulation in mind.
Businesses must also ensure that staff are aware of necessary actions to take when they spot irregularities. As part of AML regulation, the FCA requires financial businesses to file suspicious activity reports when the company knows, suspects or has reason to suspect that a transaction may involve money laundering or other unlawful activity.
In the long term, fintechs are expected to work closely with regulatory and legal bodies to develop a common regulatory framework in order to make compliance more seamless and efficient.
With the UK leading global fintech regulation, the best solution for fintech businesses is to adopt compliance as part of their culture and conduct as they continue to innovate with technology.
Find out how VinciWorks can support your business with a wide range of corporate eLearning solutions dedicated to compliance and FCA led regulations. Our eLearning can be delivered as off-the-shelf packages, or we can customise the content to suit your organisation. Visit our website for more information.