Why does Anti-Money Laundering (AML) matter?
Money laundering is estimated to cost the UK economy more than £100 billion each year. The proceeds of money laundering can also be linked to other illegal activities, such as weapons, drugs and human trafficking.
How does money laundering work?
In the UK, establishing a business is relatively easy, with only a limited number of restrictions. This can provide the opportunity for criminals to set up seemingly legitimate companies through which they can process the proceeds of crime, to make them appear to come from a legitimate source.
For example, on 05 February 2024 the Financial Times revealed a sanctioned Iranian company used two of the UK’s biggest banks, Lloyds Banking Group and Santander UK, to covertly move money and evade US sanctions. This was done by the banks providing business bank accounts to two seemingly legitimate British companies which were secretly owned by the sanctioned Iranian company.
What is the legislation?
In 2002 the Government introduced the Proceeds of Crime Act (PCA) and in 2017 they introduced the Money Laundering, Terrorist Financing and Transfer of Funds Regulations. Together these pieces of legislation have the goal of reducing the economic loss caused by money laundering.
Under the PCA it is a criminal offence to conceal, disguise, convert or transfer criminal property (including money). It is also a criminal offence to enter an arrangement which you know, or suspect, involves criminal property, or to possess criminal property.
Under the PCA if an individual is found to have been involved in money laundering they could face up to 14 years in prison and/or an unlimited fine. They may also face irreparable reputational damage.
Which businesses should be more vigilant?
The 2017 Regulation sets out that the following businesses should conduct due diligence on anyone they have a business relationship with:
- Credit institutions;
- Financial institutions;
- Auditors, insolvency practitioners, external accountants and tax advisers;
- Independent legal professionals;
- Trust or company service providers;
- Estate agents;
- High value dealers; and
- Casinos.
These regulations were put in place as businesses of these types are seen to have the highest risk of being used by criminals for money laundering purposes.
What can I expect when engaging with a law firm or an affected business?
- Identity checks – the business will want to identify who their client is. This may include verifying your identity through documentation, so be prepared to provide proof; It is crucial that a firm identifies who you are before they engage in business with you.
- Source of funds – affected businesses must identify where your funds originate. They will be looking at whether the amount of funds and/or their source is unusual for the circumstance. This could include funds being received from a country which is considered ‘high risk’ for money laundering. You should be prepared to explain where any funds came from and to provide documentary evidence of the source of funds.
- Beneficial owner – If a transaction involves a beneficial owner who is not their client, the business will want to verify who the beneficial owner is. This involves understanding the ownership and control structure of a business, legal person or trust. You should be prepared to provide sufficient information and documentation to identify any beneficial owners.
- Questions – Be prepared to answer questions. Businesses are not trying to catch you out but they will be looking for any inconsistencies in the information you provide, in order to determine whether money laundering may be involved.
What should I do if I suspect money laundering?
If you suspect someone you are doing business with is involved in money laundering, report them as soon as possible. This could be to an appropriate person at your organisation or to the National Crime Agency (NCA) via their Suspicious Activity Report Portal.
By reporting your suspicions to the NCA you will be requesting a defence to the criminal offences listed in the “what is the legislation?” section above.
If you do submit a report to the NCA, you must not inform your client/customer that you have made a report as this may prejudice their investigation and you may commit the offence of tipping off.
What happens if I make a report to the NCA?
After a report is submitted, the NCA have seven working days to respond. At which time the NCA will either:
- Ask for further information on your suspicions;
- Provide you with a defence to Sections 327 – 329 of the PCA, this is done via an email with a letter attached; or
- Refuse to provide you with a defence, this is done via a telephone call.
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