In Short
- UK money laundering regulations require businesses in certain sectors to implement systems to prevent their services being used for money laundering or terrorist financing, including customer due diligence, record-keeping and reporting suspicious activity.
- Regulated businesses must register with the appropriate supervisory authority, appoint a nominated officer to handle reports, train staff to recognise suspicious transactions and conduct risk assessments of their operations.
- Failure to comply with anti-money laundering obligations can result in criminal penalties including unlimited fines and imprisonment for individuals, as well as regulatory sanctions and reputational damage to the business.
Tips for Businesses
Determine whether your business falls within the regulated sector and register with the relevant supervisory body if required. Implement robust customer due diligence procedures to verify client identities and understand the nature of business relationships. Appoint a money laundering reporting officer and ensure all staff receive regular training on recognising and reporting suspicious activity. Maintain detailed records of due diligence checks and transactions for at least five years, and conduct regular risk assessments to identify vulnerabilities in your anti-money laundering controls.
Summary
This article explains UK money laundering regulations and compliance requirements for businesses operating in regulated sectors. LegalVision is a commercial law firm that specialises in advising clients on regulatory compliance and commercial matters.
Money laundering is high-risk, and the rules to prevent it are strict, with breaches having the potential to lead to extremely serious consequences. Following anti-money laundering (AML) rules is important to help protect a business from risk, as well as protect the UK economy and prevent crime.
Businesses must understand how AML laws affect their operations and what steps they should take to manage risks. Though not every business has the same legal duties, many businesses can face money laundering risks. Where AML rules apply, businesses must focus on establishing strong systems to detect and prevent money laundering and comply with their legal duties.
This article introduces what money laundering is and provides a brief overview of key AML rules and who they apply to, as well as practical steps to help businesses improve their compliance and reduce risk.
Given that the specific AML rules to follow will heavily depend on factors such as an organisation’s size, risk factors, industry and where it operates, it is important to seek legal advice to fully understand all applicable rules and steps to take for compliance.
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Understanding Money Laundering
Money laundering is essentially the process whereby criminals hide the proceeds of crime in money or assets so they can be used without suspicion, meaning they use the funds as if they had obtained them from a legitimate source. This can involve depositing the criminal earnings into a bank account or using complex, multi-layered transactions to hide the origin, ownership, or control of the funds.
Money laundering can pose a significant threat to UK businesses and the wider economy. For example, criminals may:
- use businesses to move or hide illegal funds;
- involve professional advisers in laundering schemes; or
- set up complex arrangements to conceal the true owners of criminal assets.
The Legal Rules on Money Laundering
In the UK, there are important laws that govern money laundering.
The Proceeds of Crime Act 2002
This act establishes key money laundering offences and a framework for reporting suspicious activity. It is broad and applies to businesses and individuals, as well as imposing additional obligations (supported by criminal sanctions) on those operating in the regulated sector.
This law regards it a criminal offence to engage in money laundering via directly handling the proceeds of crimes. Offences can include:
- concealing, disguising, converting or transferring criminal property;
- entering into arrangements that facilitate the retention;
- using or controlling criminal proceeds;
- acquiring, using or possessing criminal property;
- failing to report suspicions of money laundering (in regulated businesses); or
- tipping off a person who is the subject of a money laundering investigation.
The principal money laundering offences carry a maximum penalty of up to 14 years’ imprisonment and an unlimited fine.
The Money Laundering Regulations 2017
This law governs how certain organisations must conduct business and transactional work to prevent money laundering. These regulations apply to ‘relevant persons’ acting in the course of business in the UK, including:
- financial institutions;
- auditors;
- insolvency practitioners;
- legal and accountancy professionals;
- trust or company service providers;
- estate and letting agents;
- high-value dealers;
- casinos; and
- art market participants.
Businesses covered by these regulations must follow specific and detailed AML obligations, such as:
- carry out risk assessments;
- maintain appropriate policies, controls and procedures;
- provide anti-money laundering training to staff;
- conduct customer due diligence (including identifying beneficial ownership); and
- retain records.
Sanctions and Anti-Money Laundering Act 2018
The rules in the Sanctions and Anti-Money Laundering Act 2018 apply to all businesses and individuals. Breaches of sanctions or measures may result in criminal or civil penalties.
Whilst this sets out a simplified summary of relevant rules, money laundering laws are extremely complex, and businesses should take legal advice from a regulatory solicitor to understand the scope of relevant rules that apply to their activities.
Continue reading this article below the formPractical Obligations for Businesses
For regulated businesses, anti-money laundering laws impose a range of practical obligations. For example, employees must report if they know or suspect money laundering is taking place to a nominated officer. This is often the Money Laundering Reporting Officer.
The nominated officer will assess the information provided and decide whether to submit a Suspicious Activity Report to the National Crime Agency. Employees must not inform anyone who may be the subject of suspicion or interfere with an investigation. The legal threshold for suspicion is low and does not require certainty. Therefore, businesses must ensure that employees understand how to identify warning signs and escalate concerns where necessary.
AML systems and controls include internal policies, procedures, and processes that businesses use to comply with money laundering laws. These systems can help to:
- identify;
- manage; and
- reduce money laundering risk.
There is no one-size-fits-all approach, but effective systems and controls must consider factors such as:
- organisation size;
- risk profile;
- regulatory obligations;
- sector; and
- geographic reach.
It is important to remember that not all UK businesses are subject to the same AML requirements, and a business should seek advice from a regulatory solicitor to understand exactly which rules to follow.
How to Strengthen AML Compliance
It is important to take a practical and organised approach to reducing money laundering risk.
Examples of actions that organisations can take to help strengthen compliance include:
- Assign responsibility for AML compliance to a senior individual with clear authority and accountability, and implement appropriate AML policies and procedures.
- Deliver thorough and regular training to all relevant employees. Training should include key legal rules, risks specific to each role and cover matters such as customer due diligence, spotting important discrepancies, AML warning signs, Suspicious Activity Reports, tipping-off offences, record-keeping duties and relevant regulatory guidance.
- Company directors should take part in AML training to set expectations and show accountability.
- Maintain clear internal reporting procedures that allow employees to report knowledge or suspicions of money laundering promptly to a Money Laundering Reporting Officer.
- Raise awareness of money laundering warning signs, such as mismatched identification details, unexplained wealth, connections to sanctioned countries, efforts to hide who owns assets, or overly complex ownership structures. Employees should understand that suspicion does not require certainty.
- Apply robust and risk-based customer due diligence measures.
- Keep AML processes up to date with guidance from regulators and professional bodies, as risks and expectations can change.
- Ensure ongoing monitoring of AML policies, procedures and controls to make sure they remain effective and suitable as business activities and rules change.
While these are common action steps, businesses should seek legal advice to understand their specific duties under AML laws, as compliance can be complex and business-specific.
Key Takeaways
Under UK law, money laundering can range from simple transactions to complex schemes designed to conceal criminal funds. Businesses within the scope of the Money Laundering Regulations 2017 must implement strong, risk-based AML systems. Even businesses outside the regulated sector can be liable under the Proceeds of Crime Act 2002 and should take steps to:
- identify;
- manage; and
- reduce money laundering risks.
Robust, tailored AML systems can help to detect, prevent and reduce risks.
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Frequently Asked Questions
Money laundering is the process of turning the proceeds of crime into money or assets that appear legitimate. Criminals do this so they can use or spend the funds without revealing their criminal origin.
Businesses can lower AML risk by understanding if they must follow specific AML laws and taking appropriate legal advice and steps to comply. Key steps can include understanding their money laundering risks, training up staff to notice warning signs, conducting robust customer checks, keeping clear reporting procedures and regularly reviewing their AML controls for effectiveness
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