Money Laundering Supervison

Steve O’Neill reviews the latest statement concerning Money Laundering Supervision

The UK’s supervisory approach to compliance of obliged entities to the Money Laundering Regulations were branded “woefully inadequate” and are failing to block “corrupt money” and terrorist funds, an anti-corruption body has warned.

This statement was made by Transparency International UK who went on to say billions of pounds of “dirty cash” is entering Britain every year. They state that this is partly due to a fragmented network of regulators means that only a very small amount is being investigated.

The Transparency International report goes on to say of 22 supervisory bodies, only one meets best practice for enforcement action, the group found. Total fines last year in the seven sectors regulated by HMRC, including estate agents, money services business and high value dealers were £768,000, less than the average house price in central London.

Enforcement

Transparency International urged the government to go further by stripping the various private sector institutions and professional bodies of their anti-money laundering roles, and creating a “super” supervisor instead.

The supervisory bodies were subject for a ‘call to evidence’ in 2010 which lead to amendments in the Regulations resulting in the Money Laundering Regulations 2012. Once again a consultation paper has been released by Government in the summer over the role of and enforcement by the supervisory bodies.

There is already a counter view rather than a radical overhaul, more funding was needed for existing regulators.

Key findings in the report were;

A system not fit for purpose:

  • Poor oversight – The majority of sectors covered in this research are performing very badly in terms of identifying and reporting money laundering. Major problems have been identified in the quality, as well as the quantity, of reports coming out of the legal, accountancy and estate agency sectors. One supervisor even admitted it carried out no targeted AML monitoring at all during 2013.
  • Lack of transparency – 20/22 supervisors fail to meet the standard of enforcement transparency demanded by the Macrory standards of effective regulation.
  • Ineffective sanctions – Low fines, in relation to the amounts being laundered, failing to be effective deterrents. Of the 7 HMRC regulated sectors, that includes estate agents, the total fines in 2014/15 amounted to just £768,000.
  • Independence questioned – Just 7/22 supervisors control for institutional conflicts of interest, whilst 15 are also lobby groups for the sectors they supervise.

 

The research highlights that:

  • A third of banks dismissed serious money laundering allegations without adequate review
  • In the accountancy sector, at least 14 different supervisors have some responsibility – leading to widespread inconsistency and variations.
  • In property, only 179 cases deemed suspicious by estate agents in 2013/14.
  • Just 15 suspicious cases reported through art and auction houses

    Rather than a super body covering all supervisory functions I would recommend some changes based upon detailed knowledge of the sector. The FCA is the perfect place to deal with financial institutions, The SRA deals with a ‘closed shop’ so being expelled there does put you out of business. For HMRC their biggest problem is the supervision of money services businesses (MSB’s) which suck out most of their small resources and lead other sectors like the estate agents to be woefully under supervised. The supervision of MSB’s should be by a separate unit of HMRC concentrating on that sector alone. This unit should be fully resourced by central Government, not just reliant on the annual fees it collects, as it represents the highest risk of money laundering by any sector.

    When I was taking part in the Governments UK Risk advisory project jointly run by the Treasury and the Home Office, one of the main concerns of law enforcement was the disjointed supervision of the accountancy sector. There is a case for all the accountancy bodies to pool their AML compliance works, the professional bodies can still enforce their best practice and practice assurance type of visits. HMRC when supervising accountancy service providers only view AML compliance for professional bodies practice assurance dominates a visit rather than AML compliance.

    A way forward may be to borrow a continental model. Those professional bodies who licence their members for taxation form a super AML monitoring body all others including bookkeepers and payroll bureaus are supervised by HMRC. This does bring in back door legislation of the sector by defining tax accountants rather than the term accountant. This would mean all unqualified accountancy and taxation firms will not be practicing or advising on taxation.

    All this said from all parties there is no apparent appetite in Government for extra supervision or interference in the self-regulatory market.

     

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