Last month in an interview with The Guardian, the head of the National Crime Agency, David Little said UK authorities were struggling to prevent vast sums of dirty money entering the country.
“The amount of Russian money coming into the UK is a concern”, he said. “One, because of the volume. Two, we don’t know where it is coming from. We don’t have enough cooperation [from the Russian side] to establish that. They won’t tell us whether it comes from the proceeds of crime.”
Those providing professional services such as solicitors and accountants have been required to operate for years under a strict regulatory regime designed to prevent money laundering. But with technology continually advancing new ways for criminals to move money across borders, how can professionals keep their books clean? Meeting compliance obligations with regards to money laundering is one of the biggest challenges that professionals face in their business. Why is it so hard, and what steps can accountants and lawyers take to make compliance with ever-changing regulations, both in the UK and abroad, more effective?
When the phrase ‘money-laundering’ is used, visions of criminal, mafia-type gangs secretly depositing cash made by various ill-gotten gains spring to mind. Is this what money-laundering is? Sort of. Money-laundering is defined as the “process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source”.
The three phases of money-laundering are as follows:
• Placement – getting the dirty money into the financial system. Because banks and lending institutions have strict anti-money-laundering procedures in place, criminals often target professional organisations such as solicitors, accountants and real estate agents.
• Layering – the money is passed through complex financial transactions involving trusts and offshore entities, in a bid to conceal its origins.
• Integration – once the money is ‘laundered’ through the layering process, it can be used to buy assets, property or shares to make the funds legitimate.
Three types of money laundering offences
Dishonesty is not required to commit an offence under UK money laundering law. The Proceeds of Crimes Act 2002 outlines three principal money laundering offences:
• Concealing – it is an offence to conceal, disguise, convert, transfer or remove criminal property. The definition of criminal property includes money. The maximum penalty for this offence is 14 years’ imprisonment following conviction on indictment or a fine or both and six months’ imprisonment or a fine or both summarily.
• Arranging – a person commits the arranging offence if they enter an arrangement which they know or suspect facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person. The penalty for arranging is the same as that for concealment.
• Acquisition, use or possession offence – this applies if a person knows or suspects the property they are acquiring, using or possess is criminal property. Again, the penalty is 14years’ imprisonment following conviction on indictment or a fine or both and six months’ imprisonment or a fine or both summarily.
The Money Laundering Regulations 2007
The Money Laundering Regulations 2007 states that ‘relevant persons’ must establish certain procedures to enable them to identify and report suspected money laundering and terrorist financing to designated regulatory authorities. ‘Relevant persons’ are defined as financial institutions, legal, accountancy professionals and other identified regulated sectors dealing with financial transactions.
Under regulation 45 of the Money Laundering Regulations, it is an offence to fail to comply with the requirements to maintain appropriate procedures. It is a single offence that can be committed in numerous different ways. An example is failing to undergo correct due-diligence procedures when receiving an instruction from a new client or not keeping appropriate records to illustrate compliance.
Compliance obligations under the Money Laundering Regulations 2007
‘Relevant persons’ must take the following actions to ensure they are complying with the Money Laundering Regulations if a new client instructs them, and:
• you suspect they are involved in money laundering, or;
• doubts are raised about the truthfulness of the client’s identification documents, or;
• they client is looking to execute transaction/s of more than €15,000
Existing clients may also require additional due-diligence checks in certain situations.
The due-diligence process must be conducted by a trained member of staff who:
a) Checks the client’s identity by asking for their passport or other government issued documents such as a driver’s licence.
b) Checks the background of a corporate entity or trust to understand its hierarchy and corporate structure. This can be done by obtaining copies of corporate data such as annual accounts, and a list of all subsidiary companies and business assets.
c) Obtains information about the nature and intended purpose of the business relationship between the client and your firm. This includes where the money to fund the transactions is coming from and the purpose of the transactions themselves.
Most clients regardless of their nationality will be accustomed to being asked for identification and details of their business activities; therefore, any questions asked are unlikely to cause offence (unless they have something to hide).
Professional bodies need to be proactive in protecting themselves against money laundering. Steps to take include:
• appoint one person as the organisation’s Money Laundering Reporting Officer (MLRO)
• ensure the MLRO not only receives training on anti-money laundering compliance but passes on that training throughout the organisation
• ensure your staff feel confident to report any concerns that they have about a client and/or their activities, and make it clear they have a legal duty to speak out if they are suspicious of any person or behaviour
• make sure your due-diligence processes are documented and you understand and maintain your record-keeping obligations
Complying with anti-money laundering regulations may seem like a minefield of uncertainty. Engaging a professional advisor to assist you in creating the right policies and procedures to ensure you are meeting your responsibilities will provide you with confidence that you are meeting your compliance obligations as fully as you can.
We have been helping legal professionals with professional disciplinary and regulatory hearings for over 20 years. If you have any questions relating to anti-money laundering compliance, please call us on 0151 909 2380 or complete a Free Online Enquiry.