Category: AML Legislation updates

Latest updates to ML Legislation

  • 20.01.11 UK identity cards can no longer be used to confirm identity under MLR

    Under the Money Laundering Regulations businesses need to carry out customer due diligence on their customers. This involves asking to see documentary evidence of a customer’s identity.

    Since November 2008 the UK Borders Agency (UKBA) has issued an ID card to migrants from countries outside the European Economic Area (EEA). From 21 January 2011 this form of identity will no longer be valid. If you are carrying out customer due diligence on or after that date you should not accept an ID card issued by the UKBA as proof of identity under the Money Laundering Regulations.

    Acceptable forms of documents, data or information will still include passports and photographic driving licences, as well as a range of other paper based evidence, as well as electonic verification reports

  • 04.11.10 FATF to add Tax Crimes as a ‘Predicate offence’ for money laundering

    The Financial Action Task Force in its consultation document ‘Preparation for the 4th Round of Mutual Evaluations’ states that is considering including tax crimes as a predicate offence for money laundering in the context of its recommendation 1. More precisely, it proposes to amend the list of designated categories of predicate offences for money laundering as follows:

    • To clarify the current designated category of smuggling by referring to: smuggling including in relation to customs and excise duties and taxes.
    • To add a separate designated offence category: tax crimes – related to direct taxes and indirect taxes.

    For the private sector, the key result of this change will not be the impact of this change on recommendation 1, which already states crimes punishable by over 6 months of imprisonment be included within the predicate offences, but rather to the obligation to support suspicious transactions under recommendation 13.  Thus transactions related to the laundering of the proceeds of tax crimes would have to be reported as suspicious activity.

    In the UK, the accountancy sector has sometimes been reluctant to be included within the money laundering regime, in some ways understandable when comparing the requirements of recommendation 13 and the all powerful PoCA 2002 and the all crimes regime, sometimes seeming to ‘gold plate’ the EU 3rd  Directive. This can be seen from the differing approaches from some of the 16 supervisory bodies within the UK, some have more urgency than others.

    After another year of advising and training accountants and tax advisors in the UK, probably almost 2,000 firms and individuals of all sizes and expertise in total, I am still surprised that most have no concept of the ‘risk based approach’ and that tax evasion is reportable under PoCA. With a lot I get, I do not deal with my clients funds, I have copied their passport, tick, and I have a copy of a utility bill, tick. I have complied in full.

    This concept of ‘transaction’ based compliance seems to have seeped down into the sector, people and firms wanting to believe that they are too small to have to report or indeed be seen or even comply. The concept of transactional limits has even been debated in the House of Lords and other Parliamentary review boards so is in any wonder then given the reluctance of the sector as a whole this is the case? This is backed up by the statistic that there are still around 25,000 firms and business in the accountancy sector who just have not registered for supervision.

    However, from a point of clarification the main thrust of the FATF review is the mandatory risk based approach for all countries and regulated firms for risk assessment, risk management and mitigation and higher risk concepts. This is removal once and for all of the doubt of being too small for the Regulations, it is not size that matters rather it is the risk. Couple this with tax evasion becoming a predicate office of money laundering; I would hope finally the sector as whole embraces the UK compliance culture; apparently it is not as gold plated as people thought, just ahead of its time.

  • 10.08.10 External consultants cannot act as a Nominated Officer under Money Laundering Regulations

    As an external consultant I am usually in the situation where systems we devise for compliance starts with a simple policy statement, which firstly details who is and how to communicate with, the nominated officer, who will be a senior member of the firm, a director, partner or owner manager.  We remind firms of their responsibilities under the Money Laundering Regulations, It is after all their business and they must accept reasonability for its successful running.

    It does come as no surprise, therefore, that the Financial Services Authority (FSA) has recently censured and banned three directors from acting as senior managers for failing to meet their supervisory standards. The FSA investigation found that the directors had been relying too heavily on external consultants for advice on how to run their business.

    It is equally unsurprising then that HM Revenue & Customs (HMRC) have also announced that they take the same view to the FSA in relation to businesses meeting their obligations under the Money Laundering Regulations.

    HMRC also state that they have no objections to businesses getting advice from external consultants regarding their obligations under the Regulations, as long as the responsibility for complying with the Regulations remains on the business rather than any consultant.

    What does come as a surprise is that some consultants, who should frankly understand the Regulations better, have recently offered their services to act as the Nominated Officer for a business. HMRC has no formally announced that it does not consider that a consultant outside the business can be appointed Nominated Officer for any of the businesses HMRC supervise under the Regulations.

  • 16.04.10 Decision on appeal against registration under the Money Laundering Regulations 2003

    Decision on appeal against registration under the Money Laundering Regulations 2003

    A First-tier Tribunal (Tax Chamber) decision regarding registration of businesses under the Money Laundering regulations 2003 has now been published.

    The Appellant had claimed that it was not liable to register with HMRC under the Money Laundering Regulations 2003 because it was not carrying out any business as a money transmitter in the UK and any money transfer services in the UK were operated by its UK agents. The Tribunal, however, has dismissed this appeal and ruled that the appellant did carry on a money service business in the UK and carried that business on at each branch of its agents or sub-agents.

    The appellant is therefore required to register with HMRC and pay a fee to HMRC for all premises where they had agents carrying on business on their behalf.

    This confirms the present position concerning registration.

  • 19.01.10 OFT warns of deadline for anti-money laundering registration

    Estate agents and certain consumer credit lenders must register under anti-money laundering regulations before 31 January 2010 to avoid breaking the law, the OFT warned today.

    Carrying on business having failed to do so could result in the imposition of a fine by the OFT, a prison sentence, or both.

    Money laundering controls help prevent legitimate businesses being used to launder money, which is where cash or assets obtained by criminal activities are exchanged for clean money or assets with no obvious link to their criminal origins.

    John Parker, OFT Director of Anti Money Laundering, said:

    ‘The consequences for estate agents and consumer credit financial institutions of not registering under anti-money laundering regulations are severe. It is important that businesses register immediately to avoid breaking the law.

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

  • 10.08.09 JMLSG to Update AML Best Practice

    Proposed amendments to key AML guidance in the UK were released on August 10th by the Joint Money Laundering Steering Group (JMLSG), a group of leading UK financial services trade associations that includes the British Bankers Association. JMLSG guidance is seen as the standard for AML compliance.

    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.

  • 26.04.09 HMRC issue revised guidance to MSB’s

    This guidance is being sent to Money Service Businesses (MSBs) with a copy of the first direction issued under the Counter Terrorism Act 2008 Schedule 7 which affects them and will shortly be included in Public Notice MLR8: Preventing money laundering and terrorist financing.

    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.

  • 16 March 2009 HM Treasury warns businesses of serious threats posed to the international financial system

    The Financial Action Task Force (FATF) has announced that it remains concerned by Iran’s failure to meaningfully address the deficiencies in its Anti-Money Laundering and Combating Terrorist Financing (AML/CTF) regime, particularly in respect of terrorist financing and suspicious activity reporting.

    The FATF has called on its members to consider effective countermeasures to protect their financial sectors from risks emanating from Iran, and to protect against the use of correspondent banking relationships to bypass or evade counter-measures and risk mitigation practices.

    All UK businesses regulated under the Money Laundering Regulations 2007, whether Money Service Businesses 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. In the light of the call for countermeasures the UK is, in addition, considering what further action is required.

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

  • 25/02/2009 FATF Statment

    IRAN
    The FATF welcomes Iran’s initial engagement with the international community on money laundering. However, the FATF remains concerned by Iran’s failure to meaningfully address the ongoing and substantial deficiencies in its anti-money laundering and combating the financing of
    terrorism (AML/CFT) regime. The FATF remains particularly concerned about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system. The FATF urges Iran to immediately and meaningfully address its AML/CFT deficiencies, in particular by criminalising terrorist financing and ffectively
    implementing suspicious transaction reporting (STR) requirements.

    The FATF reaffirms its call on members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with Iran, including Iranian companies and financial institutions. In addition to enhanced scrutiny, the FATF further calls on its members and urges all jurisdictions to apply effective counter-measures to
    protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from Iran. Jurisdictions should also protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices, and take into account ML/FT risks when considering requests by Iranian financial institutions to open branches and subsidiaries in their jurisdiction.

    The FATF remains prepared to engage directly in assisting Iran to address its AML/CFT deficiencies, including through the FATF Secretariat.

    UZBEKISTAN
    The FATF welcomes the process undertaken by Uzbekistan to adopt comprehensive AML/CFT measures within a specific  timeframe. Nevertheless, given that concrete measures to address the identified deficiencies have not yet been implemented, the FATF reiterates its statement of 16 October 2008, calling on its members and urging all jurisdictions to strengthen preventive measures to protect their financial sectors from the ML/FT risk emanating from Uzbekistan.

    TURKMENISTAN
    Despite a prolonged dialogue with the FATF and other international institutions, Turkmenistan has not yet made progress in adopting AML legislation. Financial institutions should remain aware that the lack of an AML/CFT regime in Turkmenistan constitutes an ML/FT vulnerability in
    the international financial system and should take appropriate measures to address this risk. Turkmenistan is urged to adopt without further delay a comprehensive AML/CFT regime that meets international AML/CFT standards. Turkmenistan is encouraged to continue to work closely with the Eurasian Group and the International Monetary Fund to achieve this.

    PAKISTAN
    The FATF reaffirms its public statement of 28 February 2008 regarding the ML/FT risks posed by Pakistan. The FATF welcomes the process underway in Pakistan to improve its AML/CFT regime.

    The FATF encourages Pakistan to continue to fully co-operate with the World Bank and the Asia Pacific Group on Money Laundering (APG) on its mutual evaluation process

    SÃO TOMÉ AND PRÍNCIPE
    The FATF welcomes São Tomé and Príncipe’s recent steps toward addressing identified AML deficiencies, in particular, through the adoption of an AML law in November 2008. The FATF urges São Tomé and Príncipe to address the remaining AML/CFT deficiencies, particularly relating to terrorist financing.

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

  • 03/02/09 Important information for Money Service Businesses (MSBs)

    This note is to alert all Money Service Businesses (MSBs) to HM Treasury’s new powers to issue directions under the Counter Terrorism Act which came into force on 26 November 2008.

    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.