It separates itself from the obvious areas from which FATF will review their 40 recommendations such as PEP’s and expansion of the regime. These changes will result in the 4th Directive; however with a proposed implementation date of 1 April 2012 we could be in for two sets of new regulations in a short space of time.

After going through the document there is lots of discussions. However the main ones are

• Removal of criminal sanctions
• Increase supervisor powers to mitigate the risk of the removal of the above
• Reliance to be extended to all professional bodies in Schedule 3
• De-minimus exclusion to small businesses of euro 15,000 or below annual turnover
• UK estate agents selling offshore property to be bought into the Regulations, though not letting agents
• Powers for all supervisors to impose penalties when not allowed to enter business premises
• Powers to impose penalties for unreasonable behaviour to provide information
• Supervisor powers to enforce payment of fees and powers of de-registration
• More freedom for the exchange of information for supervisors.

There are a lot of general discussions surrounding policies and procedures and general guidance coupled with the risk based approach and the various sectors. Generally it is perceived that it is not so much as “on the shelf” guidance that does any good but those that promote active participation, the ‘toolkits’, that works. In 7.11 on this subject, I think I can take some pride here, since I believe they may be talking about the one I wrote for one of the supervisors and which is possibly going to adopted by two more.

In reality the document is a reinforcement of the risk based approach, almost a plea to work in that less rigid way, the end of the tick box approach whilst working without fear of prosecution if we should not always get it right. An approach that can only be undertaken if law enforcement, our supervisors and the regulated businesses themselves work towards the same outcome together. If achieved, it should increase compliance at a reduced cost.

Firstly, the FATF 4th round of evaluation, which proposes changes to the way we approach PEP’s and beneficial owners, reinforcing the risk based approach and importantly, including tax evasion, of both direct and indirect taxation as predicate reportable offences of the money laundering regime. These changes will be formally approved at the February 2012 Plenary. It is expected the EEC will have the 4th European directive passed by the end of 2012 to reflect the changes, prompting the UK to adopt the 2013 or 2014 Money Laundering Regulations. 

Further to these changes HM Treasury will shortly issue there proposals for changes to the UK’s own regime following their ‘call for evidence’ and other reviews of the regime. These proposals will be made available for review and consultation by all interested parties and on finalisation will be included with the implementation of the 4th directive. 

The proposed changes will include amendments such as including into the regime businesses that offer high value services for cash and a tightening up of how to demonstrate compliance to a supervisor through formal policies and procedures, amongst other adjustments to the regime.

Also included will be the two proposals made by the Chancellor in his budget speech which caused a bit of a debate. Firstly, it will be the Governments intent to remove criminality from the Regulations aimed at the private sector. This approach was confirmed by the Attorney General and further expanded to aspects of PoCA, namely sections 330 to 332, for the failure to report SAR’s it would not generally be in the public’s interest to take criminal action against the private sector, but instead make a referral to the relevant supervisor for them to deal with or commence civil proceedings for the breach. S336 concerning consent, is also an area on concern which will see an overhaul making life easier for the reporter.  

Lastly, the one that got everybody excited, is there going to be an exemption to the Regime for smaller businesses? Yes, they want to propose a £15,000 annual turnover exemption from the requirements of the regulations.  This will help many in the accountancy sector who are caught by the regime, such as part time bookkeepers, semi-retired practitioners and those staff members who do a bit extra on weekends and evenings in their own name.  This will also allow new business to get started, before firstly having to the implement ML Regulations.

I would suggest that the accountancy sector more than any other would benefit from this piece of deregulation.

The UK Government has announced financial sanctions against the regimes in Libya and Zimbabwe and against anyone associated with either Al-Qaida or the Taliban.

Recent developments in the Middle East have highlighted the need for businesses to be vigilant and have robust systems and controls for dealing with actual or potential politically exposed persons. Your business needs to consider the possible impact these events may have on patterns of financial activity when assessing risks related to particular customers and flows of funds.

Businesses need to establish and maintain systems and controls to counter the risk that they might be used to further financial crime. This is covered in the Money Laundering Regulations (MLR). The Money Laundering Regulations 2007 (Regulations 14(4) and 20(2)) and transaction monitoring (Regulations 8 and 20)

If your business is registered under MLR you need to review your anti-money laundering policies and procedures risk assessment as a result of these developments. You will need to check your risk assessment and to take the steps necessary to ensure you continue to meet your legal and regulatory anti-money laundering and reporting obligations.

Find out how to subscribe to the HM Treasury mailing list (Opens new window) for latest announcements on anti-money laundering and counter terrorist financing.

HM Treasury

HM Treasury today issues a Statement on Money Laundering controls in Overseas Jurisdictions  

The notice constitutes advice issued by HM Treasury about risks posed by unsatisfactory money laundering controls in a number of jurisdictions.

The Money Laundering Regulations 2007 require firms to put in place policies, procedures or systems in order to prevent money laundering or terrorist financing. Regulated businesses are also required to apply enhanced customer due diligence and enhanced ongoing monitoring on a risk-sensitive basis in certain defined situations and in “any other situation which by its nature can present a higher risk of money laundering or terrorist financing”.

This advice is in two parts, A and B. This advice is especially relevant if you conduct any business with any of the jurisdictions referred to in Part A or Part B or businesses based in those jurisdictions.

This advice supersedes previous advice issued by HM Treasury in connection with deficiencies in these areas.

Part A

On 18^th February 2010 the Financial Action Task Force (FATF) issued a public statement drawing attention to serious deficiencies in

• Iran,  
• Angola, the Democratic People’s Republic of Korea (DPRK), Ecuador and Ethiopia 
• Pakistan, Turkmenistan, and São Tomé and Príncipe.

 The UK fully supports the work of the FATF on these matters and HM Treasury agrees with the FATF’s assessments.

 IRAN

All UK businesses regulated under the Money Laundering Regulations 2007, whether financial institutions or other regulated persons should treat transactions associated with Iran as situations that by their nature can present a higher risk of money laundering or terrorist financing, and which therefore require increased scrutiny, enhanced due diligence, and ongoing monitoring, particularly in the case of correspondent relationships.

All other persons authorised by the Financial Services Authority should also take this advice into account in respect of their systems and controls to counter financial crime, and take appropriate actions to minimise the associated risks.

ANGOLA, THE DEMOCRATIC PEOPLE’S REPUBLIC OF KOREA (DPRK), ECUADOR AND ETHIOPIA

The attention of UK financial institutions and other persons regulated for money-laundering purposes is also drawn to the FATF statement in respect of Angola, the Democratic People’s Republic of Korea (DPRK), Ecuador and Ethiopia, and the risks that they present. They should take this advice into account in respect of their systems and controls to counter financial crime, and take appropriate actions to minimise the associated risks.

PAKISTAN, TURKMENISTAN, AND SÃO TOMÉ AND PRÍNCIPE

The FATF has also drawn attention to the continuing AML/CTF deficiencies in Pakistan, Turkmenistan, and São Tomé and Príncipe.

The attention of UK financial institutions and other persons regulated for money-laundering purposes is therefore drawn to the FATF statements in respect of those jurisdictions, and the risks that they continue to present. They should take this advice into account in respect of their systems and controls to counter financial crime, and take appropriate actions to minimise the associated risks.

Part B

In a separate statement on the ongoing process to improve global anti-money laundering and countering terrorist finance (AML/CTF) compliance the FATF has also drawn attention to deficiencies in the AML/CTF regimes in the following jurisdictions; Antigua and Barbuda, Azerbaijan, Bolivia, Greece, Indonesia, Kenya, Morocco, Myanmar, Nepal, Nigeria, Paraguay, Qatar, Sri Lanka, Sudan, Syria, Trinidad and Tobago, Thailand, Turkey, Ukraine and Yemen.

The attention of UK financial institutions and other persons regulated for money-laundering purposes is drawn to the FATF statements in respect of each of those jurisdictions. They should take this advice into account in respect of their systems and controls to counter financial crime.

This FATF statement is available at: http://www.fatf-gafi.org/dataoecd/34/28/44636196.pdf

Over recent months, the JMLSG carried out a review of its Money Laundering Guidance (“Guidance”) for the financial sector. The newly released amendments cover Part 1 of the text.  Further amendments to Part 2 are still under consideration.

Important revisions to the Guidance have taken place at various stages in order to reflect the implementation of AML and CTF laws and regulations. Amendments to Part 1 of the text are minor in nature and include, inter alia, the following:

• Further clarification of the MLRO’s role has been introduced and the Guidance now states that the decision over whether to make a SAR should not be subject to the review of others. It clearly sets out that any decision made must be that of the MLRO and should not be exposed to the direction or approval of other parties within the firm.
• An additional category of customer has been added to the Guidance at paragraph 4.16. It is suggested that along with PEPs and activities involving large amounts of cash, firms should also be on alert when faced with customers who are engaged in industries that might relate to proliferation activities (transfer or export of nuclear, chemical or biological weapons, their means of delivery and related materials).
• At chapter 5, a new category of customer is added to the Guidance. ‘Clients who are listed on exchanges that are not equivalent’ are still subject to some degree of accountability and transparency. The Guidance suggests that as part of their risk-based approach, firms should have regard to the listing conditions that apply in the relevant jurisdiction when deciding whether that company falls into the private company category and consequently one that is deemed to have clear and comprehensive structure, ownership, purposes and activities.
• Other amendments to this chapter comment on PEPs and make it clear that it is for each firm to decide the steps required to implement EDD in respect of higher risk customers. Examples are provided of some jurisdictions that make it illegal for (a generally defined list of) PEPs to hold foreign bank accounts, some require asset declarations to be made and others will make this information publicly available.
• The Guidance now states that the power for firms to carry out EDD is contained within section 7 of the Counter-Terrorism Act 2008. Following the Royal Assent of this piece of legislation in February 2008, section 5.8 was added to the Guidance. The Guidance sets out the circumstances in which HM Treasury has the power to issue directions to firms in the financial sector in relation to their CDD. The Guidance also sets out the types of directions that may be imposed.

Firms must remain vigilant when it comes to updating their AML/CTF policies and procedures. A constant awareness of the changing legislation and resulting amendments to the Guidance is essential. By remaining sufficiently flexible, responsive and well resourced, firms will ensure they better protect themselves from the risks associated with financial crime.

Visit the BTC website for compliance help and support for firms in the regulated sector.

Who is this guidance for?
This guidance is for MSBs supervised by HM Revenue & Customs (HMRC).
Purpose of this guidance. The purpose of this guidance is to provide MSBs that are supervised by HMRC with comprehensive guidance on complying with directions issued by HM Treasury (HMT) under the Counter Terrorism Act 2008 Schedule 7

The guidance:
• Outlines the legislation in the Counter Terrorism Act 2008 Schedule 7
• Explains the requirements of the Counter Terrorism Act 2008 Schedule 7 in relation to MSBs and how these should be applied in practice
• Explains the link between these requirements and those under the Money Laundering Regulations (MLR) 2007

The Counter Terrorism Act 2008 Schedule 7
Schedule 7 of this Act:
• addresses the risks from money laundering, terrorist financing and the proliferation of nuclear, radiological, biological or chemical weapons

• gives new powers to HMT to issue directions to firms in the financial sector including MSBs

• requires MSBs to comply with directions issued by HMT

• appoints HMRC as an enforcement authority and gives new powers to HMRC to supervise MSBs to ensure their compliance with the requirements imposed by any direction

What is a direction?
A direction will contain specific legal requirements imposed by HMT on businesses in the financial sector in relation to their transactions or business with:
• a person carrying on business in a country
• the government of a country
• a person resident or incorporated in a country

The requirements may be imposed on particular businesses in the financial sector, a category of businesses, or all businesses in the financial sector.
When can HM Treasury issue a direction under the Counter Terrorism Act Schedule 7?

HMT may give a direction if one or more of the following conditions is met in relation to a country outside the European Economic Area (EAA.)?
The Financial Action Task Force (FATF) has advised that measures should be taken in relation to the country because of the risk of terrorist financing or money laundering activities being carried on
- in the country
- by the government of the country
- by persons resident or incorporated in the country

HMT reasonably believes that there is a risk of terrorist financing or money laundering activities being carried on:
- in the country
- by the government of the country
- by persons resident or incorporated in the country

and that this poses a significant risk to the national interests of the UK
HMT reasonably believes that:
• the development or production of nuclear, radiological, biological or chemical weapons in the country
• or the doing in the country of anything that facilitates the development or production of any such weapons poses a significant risk to the national interests of the UK.

What is The Financial Action Task Force (FATF)?
FATF is an inter-governmental body which develops international standards to combat money laundering and terrorist financing. It also produces lists of countries that do not have sufficient legal and regulatory standards to combat money laundering and terrorist financing.

How will HM Treasury issue a direction?
HMT may issue a direction to a particular firm following a ministerial decision. In such cases it will communicate directly with the firm.
When a direction is issued to more than one firm, HMT will lay an order before parliament.

How often will directions be issued?
Directions can only be issued to counter significant threats from high risk jurisdictions and so will not be used frequently.

How long will a direction last?
A direction will last for one year. However, it may be withdrawn before this time.

Will HM Treasury take account of the impact on businesses when they issue a direction?

HMT has a duty to consider the proportionality of any direction, which includes the likely impact upon businesses.

When HMT gives a direction they will consider the administrative burdens it will impose on affected businesses and if possible will give businesses time to prepare.

Does HM Treasury have similar powers under the Money Laundering Regulations 2007 (MLR 2007)?

Under Regulation 18 of the MLR 2007 HMT can direct any relevant person
• not to enter into a business relationship
• not to carry out an occasional transaction
• not to proceed any further with a business relationship or occasional transaction

with a person who is situated or incorporated in a non-EEA state to which the FATF has decided to apply counter-measures. The powers to issue directions under the CT Act 2008 are broader, reflecting the range of counter measure options identified by the FATF. Under the CT Act 2008 HMT can issue directions where the FATF has only advised measures be taken and can only direct businesses operating in the financial sector. Under the MLR 2007 HMT can direct any relevant person, but only where the FATF has decided to apply counter measures.

What does this mean for MSBs?
HMT could issue directions to all MSBs, or to some types of MSBs or to a particular business. This means that you must be ready to deal with these directions by training your staff and including how to deal with them in your anti money laundering systems.

Will cheque cashers or bureaux de change be affected?
Cheque cashers and bureaux de change are MSBs and therefore fall within the scope of the Counter Terrorism Act. Directions may specify some or all types of MSB, but as the purpose of any direction will be to prevent the flow of money to and from the countries affected it is unlikely that cheque cashers or bureaux de change will be affected. Despite this they should always include how to deal with any directions in their anti money laundering polices and processes and sign up to the email alert system.

What will a direction say?
Directions can impose a range of requirements on a business in relation to their transactions or business with the targeted country or institution:
• enhanced due diligence
• enhanced ongoing monitoring
• systematic reporting
• limiting or ceasing business

The requirements to carry out enhanced customer due diligence and ongoing monitoring are in line with similar requirements under the MLR 2007. The requirements for systematic reporting and limiting or ceasing business are new.

What will I have to do?
Specific guidance will be issued with each direction and you will need to read the conditions imposed very carefully to find out what you need to do.
You will have to identify the customers or transactions that are affected and may need to carry out more detailed checks on them.
You may need to do one or more of the following:
• Carry out enhanced customer due diligence (see MLR 8 para. 7.12). You would normally do this in high risk situations such as when the customer is a politically exposed person.

• Carry out ongoing monitoring of customers in a business relationship (see MLR 8 Part 9). This is the kind of monitoring you would normally do in high risk situations.

• Report all transactions with these people and organisations. You may need to do this weekly.

• Cease or limit business with certain people and organisations.

If I have to impose additional requirements will I ‘tip off’ my customers?
There is no tipping off offence under the Counter Terrorism Act. The tipping off offences under the Proceeds of Crime Act and Terrorism Act will not apply when businesses identify affected transactions and carry out any of the four requirements.

Will there be any threshold for applying enhanced customer due diligence for affected transactions?
There will be no threshold for requiring enhanced customer due diligence unless this is specified in the direction.

What if I have to cease business with certain people or organisations?
Within the time set out in the direction you must not do business with the people or organisations specified. HMT may grant a licence to exempt certain transactions or types of transaction from the requirements of the direction. Either your customers or you can apply for a licence. HMT will provide further information on how to apply for licences when they issue a direction.

What will happen to the money if I have to stop a transaction?
Preferably, the money should be refused before a transaction can be started. HMT will issue specific guidance with each direction on what to do with transactions that are underway.

How will I carry out systematic reporting?
HMT will explain in each direction what information should be provided about transactions and business including where and when the documents and information should be sent.

Should I continue to submit Suspicious Activity Reports (SARs) in relation to these transactions and business?
Yes, you should continue to submit SARs where necessary alongside systematic reporting.

How will I know that a direction has been issued?
All MSBs should sign up to HM Treasury’s email alert system to receive copies of any directions. HMT will put an announcement on their web site and issue a press statement when they issue a direction and HMRC will put an announcement on their Money Laundering Regulations web site and may contact affected businesses by a mail shot where this is possible.

Will branches of my business based outside the UK be affected?
Yes the direction will apply to all branches of your business within the EEA but not to any subsidiaries legally incorporated in another jurisdiction.
Will the directions list the individuals within a business that I should not deal with?

No, where you are required to limit or cease business with another business or organisation the directions will identify the organisation or business only. Although individuals will not be named in order to comply with the requirements of the direction, you should not deal with any representative of the business or organisation.

What are the sanctions for non- compliance?
There are civil and criminal sanctions for failure to comply with the Counter Terrorism Act 2008 Schedule 7. These include unlimited fines and imprisonment for up to two years.

How will HMRC supervise compliance with the Counter Terrorism Act 2008?
We will integrate monitoring compliance with the Counter Terrorism Act into our existing risk based approach to compliance with the MLR 2007 and Transfer of Funds Regulations 2007.

How will this effect the assessment of customers and products under the MLR 2007?
Customers that are carrying out transactions or business with countries where the FATF has highlighted deficiencies in systems to prevent money laundering and terrorist financing, will be high risk. Where the MLRs require customer due diligence measures to be applied they should be subject to enhanced due diligence and enhanced monitoring even if HMT has not issued any formal direction.

Appendix 1
What countries are included in the European Economic Area EEA?
Austria, Belgium, Bulgaria, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. Iceland, Liechtenstein and Norway are EEA member states, but they are not members of the European Union (EU). Gibraltar is within the EAA.

What countries are not included in the EEA?
Any country that is not listed above including Switzerland which is not a member of the EU or the EEA. The Channel Islands and the Isle of Man are not part of the UK, EU or the EEA.

Visit the BTC website for compliance help and support for firms in the regulated sector.

What powers does HM Treasury have?

HM Treasury (HMT) may give a direction if one or more of the following apply:

• The Financial Action Task Force has advised that measures should be taken in relation to the country because of the risk of terrorist financing or money laundering activities
• HMT reasonably believe that there is a risk of terrorist financing or money laundering activities and that this poses a significant risk to the national interests of the UK
• HMT reasonably believe that a country is involved in developing nuclear, radiological, biological or chemical weapons and that this poses a significant risk to the national interests of the UK

What does this mean for MSBs?

HMT could issue directions to all MSBs, or to some types of MSBs or to a particular business. This means that you must be ready to deal with these directions by training your staff and including how to deal with them in your anti money laundering systems.

How will I know a direction has been issued?

MSBs should sign up to Treasury’s email alert system at HM Treasury AML/CTF mailing list

What will I have to do?

Specific guidance will be issued with each direction and you will need to read the conditions imposed very carefully to find out what you need to do.
You will have to identify the customers or transactions that are affected and may need to carry out more detailed checks on them.

You may need to do one or more of the following:
• Carry out enhanced customer due diligence (see MLR 8 para. 7.12 (PDF 653K)). You would normally do this in high risk situations such as when the customer is a politically exposed person.
• Carry out ongoing monitoring of customers in a business relationship (see MLR 8 Part 9 (PDF 653K)). This is the kind of monitoring you would normally do in high risk situations.
• Report all transaction with these people and organisations. You may need to do this weekly.
• Cease business with certain people and organisations.

What if I have to cease business with certain people and organisations?

If this happens your customer or you can apply for a license to exempt them from this. HMT will provide further information on how to apply for licenses when they issue a direction.

Visit the BTC website for compliance help and support for firms in the regulated sector.