Revealed: the common root causes behind ‘wholly avoidable’ workplace accidents

According to new research by our sister company, WorkNest, 200 organisations have faced over £47million in fines since 2005 for workplace accidents judged to be ‘wholly unavoidable’.

The study looked at 200 health and safety prosecutions brought by the Health and Safety Executive (HSE) dating back to 2005, spanning ten different sectors to establish common root causes. WorkNest specifically examined the prosecutions with commentary containing phrases such as “wholly unavoidable”, “could have been prevented”, and “entirely preventable”.

In 97 of the 200 cases that were reviewed (48.5%), inspectors stated that the employer had failed to put in place adequate risk control plans and strategies to manage health and safety risks – a fundamental error which resulted in serious injuries and even fatalities.

The fact is, the vast majority of workplace accidents are preventable. These statistics are especially alarming, as in 2022, there is simply no excuse for organisations not to be managing their health and safety risks, and for business owners not to know what is required of them under health and safety law. Still, annual fatal injury statistics continue to remind us that serious incidents can and do occur in all manner of workplaces, and in order to drive down the numbers, business leaders need to know why.

So what health and safety mistakes are employers still making?

Whilst some accidents have multiple contributing factors, the three most common primary root causes of serious safety incidents in the workplace, according to WorkNest’s research was: Lack of planning (48.5%), Failure to risk assess (32.5%) and Lack of machine guarding/ maintenance (8%).

Other underlying failings cited by the HSE included a lack of training (3.5% of cases), poor supervision (1.5% of cases) and poor management systems (1% of cases).

A lack of training is a key mistake

The HSE’s Accident Prevention Advisory Unit has shown that human error is a major contributory cause of 90% of accidents, 70% of which could have been prevented by management action. Enrolling employees in courses such as Health and Safety Essentials and Introduction to Working Safely – as well as immersive training challenges – will help to prevent accidents by ensuring everyone in your organisation is aware of their responsibilities.

Note that training was also identified as a secondary reason behind many of the incidents that formed part of the research, so it’s importance should not be overlooked.

What does this analysis tell us?

Examining the root causes of these cases highlights that even in 2022 – nearly 50 years on from the introduction of the Health and Safety at Work Act – many organisations are failing to implement even the Plan and Do phases of Plan, Do, Check, Act. These are the basics of good health and safety management, and the fact that some employers are still not taking these steps – and are running the gauntlet for whatever reason – is very concerning.

Aside from the devastating human impact, these oversights are costing employers significantly. In fact, taking into account the fines and legal costs involved, these 200 prosecutions cost employers over £47 million, plus almost £4 million in legal costs.

Often, the rationale for poor practices is “I wasn’t aware”, “I don’t have the time”, “that’s not my job”, “we don’t have the funding” or simply “it will be alright”. When you run a business, time and money is precious, but a lot more time and money will be consumed by a serious incident or fatality – and many organisations have learned the hard way, so invest in good health and safety training practices now.

Not sure your safety training processes are up to scratch?

EssentialSkillz can help your organisation take a proactive approach to health and safety compliance through a comprehensive suite of RoSPA and IIRSM Approved Health and Safety e-Learning courses. From Fire Safety to DSE online training, all of our health and safety courses are fully interactive and provide users with everything they need to stay safe in the workplace. Each and every course is regularly updated to ensure technical accuracy and their alignment with best practice.

Get in touch with us to arrange your 7-Day free trial.

From compliance to cultural normality – the case for getting diversity and inclusion right

If employers were hoping that the issues of diversity and inclusion were just a passing storm to be weathered, they would be very wrong. Societal and legal pressures are coming together as employees demand change.

Research into Google’s online search habits shows consistency in growth across diversity and inclusion issues in the workplace over the last three years.

Searches online for ‘gender pronouns in the workplace’ has risen by 500% over the past three years (April 2020 – April 2022). It remains unclear if this is employers finding out what they need to do to be supportive in the workplace or employees trying to find out their rights.

Further data showed a significant increase in searches for ‘unconscious bias at work’ of 58% in the same period. Interestingly, it also revealed a noticeable spike in March 2022, coinciding with International Women’s Day, where this year’s theme surrounded ‘breaking the bias’. March continues to be a prominent month for diversity and inclusion related searches as organisations endeavoured to compile their mandatory Gender Pay Gap reports in line with Government reporting deadlines.

Most alarmingly, the findings revealed that several types of discrimination continued to fuel search results in the same period. It found that ‘bullying, harassment and discrimination at work’ searches grew dramatically by three-fifths (62.5%), ‘disability discrimination at work’ searches increased by half (51.25%), ‘racial discrimination at work’ searches rose by 40.3%, and ‘age discrimination at work’ searches grew by almost a third (30.6%). Definitely not a passing storm.

Interestingly, this same pattern is also reflected when looking at Employee Tribunal Data. WorkNest, an employment law and HR advisory firm, revealed that nearly half of the Employment Tribunal Claims they received during Jan 2019 – Dec 2021 included some form of discrimination. Disability was the protected characteristic most relied upon by Claimants during this period.

This same period saw an almost one-fifth growth (17.9%) in disability-related discrimination claims, a 52% surge in sex-related discrimination claims, and over a quarter (27.3%) rise in discrimination claims related to race. Racial discrimination claims also saw a considerable spike during 2020, 42.9% more than in 2019.

Whilst the prevalence of Covid during this reporting period could account for a proportion of claims due to shielding requirements for many employees and their dependants requiring adjustments to their roles – it certainly does not account for it all.

Against this backdrop of growing interest and updates to equality legislation, DeltaNet International, a global compliance and performance eLearning provider, decided to launch a new diversity and inclusion collection of online training solutions. The 15 new courses released aim to help organisations improve their diversity and inclusion awareness among their employees and managers to reduce discrimination in the workplace, both in the UK and globally.

“The data reveals that discriminatory issues continue to rise in the workplace; business leaders and HR teams are responsible for tackling these issues to provide a safe and welcoming working environment for all employees to thrive in,” said Darren Hockley, Managing Director at DeltaNet International. “We believe that diversity and inclusion must be at the core of an organisation; we want to help employees and employers evolve from a compliance-based model to embracing true cultural change.”

With management and HR teams increasingly facing scrutiny for diversity and inclusion issues in the workplace, DeltaNet International’s courses allow employees and managers to understand the UK equality legislative requirements. This includes gender equality, disability inclusion in the workplace and addressing sexual harassment.

These latest training courses allow organisations to create a compliant culture and educate employees on common diversity and inclusion issues, from using the correct gender pronouns to treating disabled workers with respect. Available in various formats, including: immersive learning, detailed studies and microlearning, the eLearning courses have been developed with subject matter expertise, reinforced through the diverse range of characters and accents used by voiceover actors.

“Creating a diverse and inclusive culture starts with education to change behaviours and reduce discrimination.”

For more information on DeltaNet’s diversity and inclusion training collection, please visit: https://www.delta-net.com/equality-and-diversity/.

GDPR four years later – How are businesses getting on?

The EU’s General Data Protection Regulation (GDPR) marks its fourth anniversary after coming into effect on 25th May 2018. Since then, it has paved the way for other data protection regulations, including the CCPA, and 1.6 billion euros of fines have been issued. 

While the UK has adopted its own version – UK GDPR, companies of all sizes continue to fall short of GDPR compliance due to data protection violations such as data breaches.  

Four years on, despite the record number of fines issued by the Information Commissioner’s Office (ICO) over the past financial year (2020/21) at £42m, organisations have taken complying with GDPR and other data protection regulations more seriously.  

Unfortunately, recently, the ICO fined facial recognition database firm Clearview AI £7.5 million for breaching UK data protection rules – which is still a significant reduction from its original fine of £17m in November 2021. The organisation was fined for developing an online database by collecting over 20 billion images of people’s faces and data from publicly available information sources on the internet and social media. It did not notify any of the individuals involved that their images were being collected or used in this way – which goes against data protection regulations. 

What’s the biggest challenge with GDPR? 

We spoke to our CTO, Jason Stirland, who highlighted, “the biggest challenge with GDPR remains that it’s not always fully understood by employees.  

“This is why regularly refreshing data protection training in all employees is crucial – no matter their level – as it ensures that every employee understands their GDPR obligations to protect themselves and the organisation.  

“Data breaches can happen for several reasons, and with employees being the most vulnerable resource, human errors will tend to occur. Be that as it may, reducing the likelihood of data breaches happening remains an organisational responsibility to train employees on cybersecurity awareness training – e.g., learning how to spot a phishing email and not sharing any personal or confidential information with third parties.” 

GDPR and the Great Resignation – Is there an impact? 

Jason revealed that the pandemic created pathways for significant people changes in organisations of all sizes, thanks to the Great Resignation.  

“With this in mind, organisations must remember to do their due diligence and ensure newer team members are provided with GDPR training to ensure compliance. It’s worrying how many organisations fail to consider this within the onboarding process, especially with many employees now joining companies on a remote working or hybrid basis – ensuring they can learn this from home will be vital.” 

If you’re looking to reduce GDPR training gaps within the onboarding process or improve GDPR compliance overall in employees, then take a look at our data protection courses and get in touch with us today for a free demo. 

What is Due Diligence and why is it Important?

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.

Know your customer

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:

  1. Establishing customers/suppliers’ identity (in The UK, for example, this commonly involves checking that the individual is on the electoral register and asking them to provide a current passport, driving license, or birth certificate, as well as a utility bill, council tax bill, or mortgage statement as proof of address).
  2. Understanding the nature of the customer/suppliers’ activities and checking the source of their funds is legitimate (this may also include checking the person is not politically exposed and is not on any sanction lists, such as the one published by The International Criminal Police Organisation, Interpol).
  3. Performing continuous monitoring (this process ensures that business relationships and transactions are consistent and that no unusual activity, or ‘red flags’, appear once the relationship is established).

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.

Enhanced due diligence

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:

  • Politically exposed persons (PEPs), in other words people with high-profile political roles or who perform prominent public functions (this also includes the family members and close associates of PEPs).
  • Special interest persons (SIPs), in other words those who have a known history of involvement with financial crimes. Remember, a person doesn’t have to have been convicted to be considered an SIP. They could have been previously accused of financial crimes or be currently facing court proceedings.
  • Anyone with sanctions against them.
  • People who have had negative media reports made against them.
  • People with a high-net worth.
  • Clients who are involved in unusual, complex, or seemingly purposeless transactions (these can be large amounts of money or very tiny transactions).

There are other geographical factors considered high-risk and that would necessitate EDD too, these include people with links to:

  • Countries that have sanctions or embargoes against them
  • Countries on the Financial Action Task Force’s (FATF) list of Other Monitored Jurisdictions (greylist)
  • Countries on the FATF list of Call for Action Jurisdictions (blacklist)
  • High-risk third countries
  • Countries containing proscribed terrorist organisations (including the UK)

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.

What does enhanced due diligence involve?

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.

Can we help?

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.

DeltaNet International Extends its Anti-Money Laundering Online Training Collection

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.

Complete Guide to Anti-Money Laundering (AML)

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:

  • Knowing or having a reasonable suspicion that fundraising money or property may be used for terrorism. This may include making payments, giving loans, inviting others to make payments, or receiving payments that may be used to fund terrorism.
  • Using or acquiring money or other property for terrorist purposes or with reasonable suspicion that it will be used for terrorist purposes.
  • Entering into an agreement intended to make money or other property available to another person if it will or may be used for terrorist purposes.
  • Facilitating retention or control of terrorist property in any way. This might be on behalf of another person, by concealment, through moving it out of the jurisdiction, or via transfer.
  • Failing to report red flags, suspicions, or knowledge of terrorist financing activity.
  • Alerting a person or organisation that they are under suspicion or investigation for terrorism-related activities. This is known as tipping off.

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:

  • Unusual or uncharacteristic behaviours from a known/loyal customer, for example, requiring multiple reminders about documentation when ordinarily the client is very prompt.
  • Seeming reluctant or unable to provide the necessary paperwork.
  • Documents not matching up with previously given information.
  • Invoicing anomalies, e.g., misspelling of critical details, unexplained gaps, or invoice address and head office address being different.
  • Negative remarks in the media concerning the individual and/or organisation in question.
  • Associations with politically exposed persons (PEPs).
  • Use of offshore bank accounts, particularly if the customer/supplier has no presence in the country.
  • Unusual transactions, e.g., clearing an account of funds and/or making multiple small cash deposits.

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:

  • 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.

  • 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.

  • Continuous monitoring

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:

  • Increasing ownership transparency to prevent money laundering and terrorist financing inside organisations that previously could conceal their ownership structures.
  • Creating centralised bank account registers to increase and improve the capabilities of Financial Intelligence Units (FIUs) across Europe.
  • Legally defining cryptocurrencies and reducing the anonymity and risk associated with them.
  • Improving the cooperation and exchange of information between AML authorities and the European Central Bank
  • Broadening the criteria for the assessment of high-risk countries and applying standardised checks and monitoring across the board for these locations.

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!

What is AML and why is it Important?

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

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.

  • HMRC

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.

  • National Crime Agency (NCA)

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:

  • Nominated compliance risk owners within a business that employees can report to, creating a clarity in the whole process of reporting and responding
  • Providing employees with regular information and refresher training on the risks and red flags of money laundering. This means that employees are aware of their responsibilities and importance of AML activities.
  • Regularly updating AML policies, controls and procedures in line with new regulations, as well as completing a policy statement and sticking to it.

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!