The EU Fourth Money Laundering Directive (4MLD) was adopted in June 2015.
One of the main requirements which are an enhancement over the 3rd directive is that it requires all Member States to hold central registers on company beneficial ownership information from 2017. The UK has been ahead of other Member States in creating its own central register. The directive draws heavily on the UK model although there are some minor differences between the two regimes. (more…)
Lawyers, couriers and accountants could be jailed if they turn a blind eye to criminal activity they profit from, under Home Office plans.
It wants to see a new offence of “participation in an organised crime group” to target those with reason to suspect they are part of an illegal enterprise.
This offence is not in replacement of any money laundering offences which may not be picked up by an AML supervisory or lack of supervision. It is in fact an offence which brings the fees or charges or salary earned into play, when they are charged to or paid by an organised crime group for the service or works done.
The Proceeds of Crime Act in its predicate offences of Money Laundering already has a ‘professionals’ offence under S328, which state;
A Person Commits an office if: if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.
The predicate offences of Money Laundering including S328 are applicable to all. S328 is backed up by an objective test of negligence covering the blind eye approach but has not been tested in court. Perhaps it is this weakness of PoCA which has spurred on this new offence.
Professionals including accountants have already been jailed under S328 for aiding in the money laundering of organised crime groups. In a recent disciplinary tribunal, I was a part of on behalf on one accounting body, the case was to strike off the member upon release from jail after serving time for a conviction under S327 and S328 of the PoCA, for an organised crime group dealing in drugs. The Judge commented as part of his report that there was no evidence that the professional was involved in anything related to the drugs trade, but the laundering of the proceeds only.
When taking part in the panel for the UK Risk Assessment as part of the FATF recommendations for Government to put in place, each section, be it banker, Government department or law enforcement agency, all had their number one area of concern, for example, tobacco smuggling. However the common number two problem across all strands of law enforcement was the ‘professional enabler’, that is the lawyer, accountant or trust and company service provider who put schemes in place to enable identities of beneficial owners to be kept hidden or help move the proceeds of crime.
This new offence seems to go one step to the side of the S328 offence, rather than a replacement it is an offence on its own, getting into the ‘administration and management’ functions of the crime group, for those who actively participate in these functions, more knowingly rather than under the a suspicion that wrongdoing may be taking place within their normal practice environment. For example the actual fee charged for the services to an organised crime group will be the profiteering subject to the charge.
So you would imagine, as with a drug dealer getting charged with his main criminal offence and money laundering, usually S327, the person aiding the crime group would be charged with ‘participation in an organised crime group’ and possibly money laundering, a S327 and/or S328 offence. This would give a better chance of prosecution.
The Government seems to confirm this point, they say the new offence would also target the “Mr Bigs” in charge of criminal networks who do not always “get their hands dirty”. This seems to be another tool to help law enforcement tackle their problem of the professional enabler more quickly as well.
However will it be limited to a Mr Big or can it run deeper? When the Cyprus banks were bailed out am investigation was commissioned which discovered that over 70% of the banks customers had not passed any due diligence test and had up to 7 layers of beneficial ownership information crossing various jurisdictions designed to conceal true identities. Most of these opaque structures had been designed and setup by lawyers, accountants and company service providers, these are the very professional enablers law enforcement would like to target.
Some accountancy and trust and company service provider firms’ setup company structures involving offshore structures often with nominees in place and say to the client there you go do what you want with it, but yet charge reoccurring fees for the maintenance of the company structure. They enable the beneficial owners to do what they want, even if they are criminals and known to be involved in criminal activity or tax evasion, the agent simply states they are not breaching the Money Laundering Regulations, since they understood the purpose was for legitimate activity and they had verified the identity of the beneficial owner. Prosecution for breaches under the Money Laundering Regulations would only likely carry a civil penalty in these instances.
Under the new offence criminal sanctions may be taken instead for the fees charged. This again is hinted at in the statements of the Home Office.
“If you are helping to oil the wheels of organised crime, you will be prosecuted” stated Karen Bradley, Home Office minister
The Home Office believes too many people and corrupt professionals are helping criminal gangs by not asking questions about why their services are required, and later deny any knowledge of the criminal activity when cases reach court.
It is hoping to target people such as couriers or van hire companies who help to move counterfeit goods, or lawyers and accountants who take a “no questions asked” approach while assisting criminals with services such as writing up contracts.
Those convicted under the new offence would face up to five years in jail and could be subject to further civil measures.
Home Office minister Karen Bradley said: “Nobody is above the law. But for too long corrupt lawyers, accountants and other professionals have tried to evade justice by hiding behind a veneer of respectability.
“This new offence sends out a clear message to those individuals – if you are helping to oil the wheels of organised crime, you will be prosecuted and face being jailed.” The Home Office says it will legislate on the measures as soon as parliamentary time allows.
So what does this mean to the practitioner, the accountant or bookkeeper facing the day to day problems on the Money Laundering Regulations, where you are used unwittingly by your client or a money launderer for your good name and expertise? In reality there should be no difference, make sure your client due diligence is up to date, leaving no holes, use the tools available to you such as electronic verification when necessary. Ensure your risk assessments of the clients are done and robust enough and reviewed as circumstances dictate.
A quick note on risk, look for the country risks, does your client trade with overseas jurisdictions or have significant personal flows of money to or from another jurisdiction? Banks when looking at risk and will invariably look at the country risk first. Remember Spain and Holland have the highest concentration of organised crime groups in the world and many of the targeted criminals in Spain have now moved to South Africa.
What about those practitioners who are not so robust in their procedures, those who may turn the occasional blind eye to things for a quiet life? Remember the money launderer will present to you the persona you expect to see before you, the books, records and transactions you expect, all matching the ‘know your client’ information you have, which in many cases is just what the money launderer has told you and wants you to believe. Suspicion is quite often about what you do not see rather than what is presented to you. If you then get involved in opaque company structures, aggressive avoidance schemes or any other areas designed to provide some form of anonymity without proper care as to the true purpose and legitimacy you may well find yourself caught by this legislation.
For More Information on verifying the client or risk see our pages on Customer Verification
HM Treasury has issued new advice about risks posed by unsatisfactory money laundering and terrorist financing controls.
On 14 February 2014 the Financial Action Task Force (FATF) published two statements identifying jurisdictions with strategic deficiencies in their anti-money laundering and counter financing regimes.
The Money Laundering Regulations 2007 require regulated entities to put in place policies and procedures in order to prevent activities related to money laundering and terrorist financing.
In response to the statements published by FATF on 14 February 2014, HM Treasury advises firms to:
Consider the following jurisdictions as high risk for the purposes of the Money Laundering Regulations 2007, and so advises firms to apply enhanced due diligence measures in accordance with the risks:
| Algeria | DPRK* | Ecuador | Ethiopia |
| Indonesia | Iran* | Myanmar | Pakistan |
| Syria* | Turkey | Yemen |
Take appropriate actions in relation to the following jurisdictions to minimise the associated risks, which may include enhanced due diligence measures in high risk situations:
| Afghanistan* | Albania | Angola | Argentina | Cambodia | Cuba |
| Iraq* | Kenya | Kuwait | Kyrgyzstan | Lao PDR | Mongolia |
| Namibia | Nepal | Nicaragua | Papua New Guinea | Sudan | Tajikistan |
| Tanzania | Uganda | Zimbabwe* |
*These jurisdictions are subject to sanctions measures at the time of publication of this notice which require firms to take additional measures.
On 15 July, Dr Vince Cable, Secretary of State for Business, Innovation and Skills, announced the launch of the Transparency & Trust discussion paper. This sets out a number of proposals aimed at addressing opaque ownership structures and improving the accountability of company directors, to comply with the Money Laundering Regulations.
The proposed reforms seek to promote growth by improving confidence in the UK as an open and trusted place to invest and do business. Greater transparency and improved trust will mean honest entrepreneurs and investors are more willing to do business in the UK and are not disadvantaged by those who don’t play by the rules.
Business success, and therefore economic growth, depends on investors, employees, consumers and the wider public having confidence in business. When companies do business with each other, those transactions must also be built on trust.
An effective and trusted system that identifies and deals with poor business behavior reassures people that we operate fairly, and encourages honest entrepreneurs to invest in activities promoting growth and employment.
This paper considers a range of proposals to enhance the transparency of UK company ownership and increase trust in UK business, by linking closing with the new Money Laundering Regulations. This will help:
The extensive range of proposals to aid money laundering compliance includes;
Changes will be made to the Companies Act and will be introduced alongside the 4th Money Laundering directive, from which many of the proposals are taken. This joint legislative change will take place 2014/2015.
United Kingdom and Isle of Man to sign enhanced tax information exchange agreement
The Government is to sign a tax information sharing agreement with the Isle of Man which will provide HM Revenue & Customs (HMRC) with a range of additional information about potentially taxable income in Manx bank accounts. This is part of a package of measures being developed by the UK and the Isle of Man as part of a shared commitment to combat tax evasion.
Under the enhanced information exchange agreement, the UK and Isle of Man will automatically exchange a wide range of information on tax residents, on a reciprocal basis. To minimise burdens on financial institutions the agreement will follow, as closely as practicable, the UK-US Agreement to Improve International Tax Compliance and to Implement FATCA. The agreement will be concluded to the same timetable as the agreement currently being negotiated between the Isle of Man and the United States.
Exchequer Secretary to the Treasury, David Gauke said:
“This agreement will significantly boost the UK’s ability to tackle cross-border tax evasion. Automatic information exchange is an important tool in boosting HMRC’s ability to clamp down on those who seek to hide their money overseas. Our ground breaking agreement with the US sets a new standard in international tax transparency and today’s agreement between the UK and Isle of Man to move to much greater levels of automatic exchange is the next step in this process.
“For years people said this couldn’t be done, so I welcome the progress we have made so far with the Isle of Man. We are looking to reach similar agreements with other jurisdictions and are in discussions with Jersey and Guernsey about enhanced information exchange as part of our common commitment to combat tax evasion.”
Details of the necessary operational and implementation requirements are still being discussed and will be announced in due course.
When combined with HMRC’s new centre of excellence in offshore evasion and the development of a comprehensive strategy to tackle it, HMRC will be well placed to clamp down even harder on those who evade tax by hiding their money offshore.
The Government today published its response to its consultation on changes to the Money Laundering Regulations 2007. Following this consultation the Government is now taking forward proposals to reduce the regulatory burden imposed by the current regulations, while strengthening the overall anti-money laundering regime.
The aim of the changes was to make the UK’s money laundering regime more effective and proportionate, with the proposed changes saving firms around £3 million a year. Relevant regulatory changes will take effect from 1 October 2012.
Criminal Offences
The Government has decided to keep the criminal penalties in the Regulations. The consultation highlighted key risks inherent in their removal and there is insufficient evidence to indicate that removing them would achieve either the UK’s policy objectives or address the concerns raised. Indeed, the balance of responses indicates that ‘over-compliance’ behaviour is also influenced by other factors that would not be addressed by removing the penalties. For example, businesses may adopt risk-averse and tick-box approaches if it is more cost-effective for them to do so, in the absence of clear and unambiguous guidelines for front line staff, in order to prevent fraud or in order to comply with other legislation including financial sanctions.
The Government reiterates the point made by the CPS that it is not in the public interest to prosecute employees of regulated businesses for minor, procedural or accidental regulatory failures.
Reliance Purposes
The Government is proceeding with the removal of the distinction between Part 1 and Part 2 bodies. Based on recent and continuing work with Supervisors, it is considered that they are discharging their role satisfactorily and that the proposed change is advisable. This was further confirmed in HM Treasury’s first Annual Report on Supervision1. As suggested in some responses, any new supervisors will be placed in Part 2 until they demonstrate ongoing, robust and effective supervision of their members.
Small Business Exemptions from the Regulations.
The Government does not propose to introduce an exemption based on the size or turnover of a business, as it acknowledges the absence of a positive correlation between the size of a business and the money laundering risk it represents. The Government also recognises the risk of the exemption leading to ‘smurfing’ and other criminal practices; and the practical difficulties of introducing such a measure.
The Government understands the ongoing issues faced by some exceptionally small businesses in relation to the costs of compliance and supervision. Supervisors are encouraged to ensure that the risk-based approach translates into effective, differential treatment in terms of the burden of requirements and, where possible, the fee levied.
Other Changes to be made include;
Overseas estate agents are to be bought within the Regulations. The UK is required to regulate all estate agents in order to ensure they minimise their vulnerability to money laundering. These businesses should be regulated, both to ensure the UK is fully compliant with Financial Action Task Force (FATF) global standards and EU requirements and because these businesses are at high risk of money laundering.
Fit & Proper Tests for MSB’s – The EU Directive allows for all criminal conduct to be taken into account. Given the high risk presented by Money Service Businesses (MSBs) and the case made for enabling the fit and proper test to take into consideration all previous criminal conduct, the Government will proceed with this proposal. The MSB sector is a high-risk sector for terrorism financing and money laundering.
There are a number of issues that have been resolved concerning supervisors’ powers. The widest reaching change is that Government will proceed with the creation of an information-sharing gateway for supervisors. The Government acknowledges the need for safeguards and clarity around the circumstances under which the information can be shared and the nature of the information.
Given the issue of overlapping responsibilities, the Government considers it essential that a new Supervisor is able to access information from a previous Supervisor when a business/person seeks to register for anti-money laundering purposes.
A summary of the changes cited as the Money Laundering (Amendment) Regulations 2012 and come into force on 1st October 2012 are;
Other Changes to the Regulations which were a part of the proposals of the review and call to evidence which are deferred Subject to Revisions to the EU Third Money Laundering Directive expected early 2013
The Financial Action Task Force, the global standard-setter in the fight against money laundering and terrorist financing, has revised the Recommendations after more than two years of efforts by member countries. The Recommendations are used by more than 180 governments to combat these crimes. The revisions, made with inputs from governments, the private sector, and civil society, provide authorities with a stronger framework to act against criminals and address new threats to the international financial system.
The cost of money laundering and underlying serious crime is very large, estimated between 2 and 5% of global GDP. The revision will enable national authorities to take more effective action against money laundering and terrorist financing at all levels – from the identification of bank customers opening an account through to investigation, prosecution and forfeiture of assets. At the global level, the FATF will also monitor and take action to promote implementation of the standards.
The revised FATF Recommendations now fully integrate counter-terrorist financing measures with anti-money laundering controls, introduce new measures to counter the financing of the proliferation of weapons of mass destruction, and they will better address the laundering of the proceeds of corruption and tax crimes. They also strengthen the requirements for higher risk situations and allow countries to take a more targeted risk-based approach.
Giancarlo Del Bufalo, the President of the FATF, said:
“Adoption of the revised Recommendations demonstrates countries’ shared commitment to fight money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction.”
“The revised Recommendations include requirements for stronger safeguards in the financial sector, strengthened law enforcement tools and improved international cooperation.”
The main changes are:
Combating the financing of the proliferation of weapons of mass destruction through the consistent implementation of targeted financial sanctions when these are called for by the UN Security Council.
Improved transparency to make it harder for criminals and terrorists to conceal their identities or hide their assets behind legal persons and arrangements.
Stronger requirements when dealing with politically exposed persons (PEPs).
Expanding the scope of money laundering predicate offences by including tax crimes.
An enhanced risk-based approach which enables countries and the private sector to apply their resources more efficiently by focusing on higher risk areas.
More effective international cooperation including exchange of information between relevant authorities, conduct of joint investigations, and tracing, freezing and confiscation of illegal assets.
Better operational tools and a wider range of techniques and powers, both for the financial intelligence units, and for law enforcement to investigate and prosecute money laundering and terrorist financing.
For more information on the FATF Recommendations, please visit the publication page on www.fatf-gafi.org/recommendations
HM Treasury published its response to the review of the Money Laundering Regulations 2007. It is a consultation document requiring responses to be submitted by 30August 2011.
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
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.
I have just attended the 8th annual conference of IMLPO where two of the key speakers, Edward Garnier QC MP, Solicitor General and Hugh Burns, Head of Financial Crime Team HM Treasury, gave interesting updates to both the international and UK regimes and a time table for new changes.
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.
Financial sanctions imposed on Libya, Zimbabwe, Al-Qaida and the Taliban
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.
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