Money laundering: Dirty money
The government’s 2015 National Risk Assessment (NRA) of money laundering and terrorist finance assessed the key money laundering risks in the accountancy sector.
The key money laundering risks seen by the NRA were: complicit professionals facilitating money laundering; collusion with other parts of the regulated sector; professionals coerced by criminals; the creation of structures and vehicles that enable money laundering; the provision of false accounts; failure to identify suspicion and submit suspicious activity reports (SARs); and mixed standards of regulatory compliance, with relatively low barriers to entry for some parts of the sector.
The NRA also assessed accountancy services to be at high risk of exploitation for money laundering. It saw the inherent risks and vulnerabilities of accountancy services arising from the value of these services to those engaging in high-end money laundering.
High-end money laundering is defined as the laundering of large amounts of criminal funds (often the proceeds of serious fraud or overseas corruption) through the UK financial and professional services sectors.
It typically exploits the global nature of the financial system, often transferring funds through complex corporate vehicles and offshore jurisdictions. And the size and global nature of the UK financial industry mean that both money laundering, and the criminality that creates the need to launder money, present significant ongoing risks to the UK.
In 2017 the government announced its decision to create an Office for Professional Body Anti-Money Laundering Supervision (OPBAS) to oversee those professional body supervisors (PBSs), such as the IFA, with responsibility for supervising their members’ anti-money laundering (AML) systems and controls. The announcement recognised that, while PBSs’ knowledge of innovations and emerging risks in their sectors brought substantial benefits to the regime, having several organisations supervising the same sectors and issuing guidance could create inconsistencies which criminals might try to exploit.
In December the Financial Action Task Force (FATF), the global standard setter for AML and counter-terrorist financing, published its report on its mutual evaluation of the UK’s AML regime, setting out the level of effectiveness of the UK’s AML/CFT system and its level of compliance with the FATF recommendations.
The UK has always had an all-crimes approach to money laundering. So fraud, which generates criminal proceeds needing to be laundered, is just as much a predicate offence as, say, supplying drugs. The true scale of fraud is difficult to assess as it is known to be under-reported, often because the victim is embarrassed to have been caught out, from concern for a business’s reputation, or even because the victim has not realised they are a victim of fraud. But the NRA, which identified fraud as one of the two offences in the UK that generate a significant scale of criminal proceeds, estimated the annual cost of fraud as £8.9bn. It also highlighted fraud and tax offences (which often involve fraud) as the largest known source of criminal proceeds from offending in the UK.
Fraud is, in many ways, a unique crime covering a broad range of crime types, victims and perpetrators. It includes crimes against the public, private and charity sectors, and against both organisations and individuals.
The essence of fraud is unchanged, but the channels used to commit it are increasingly sophisticated and high-tech. Fraud is more and more being committed online or using online transmission methods after an initial offline approach. Both approaches are used in bank account fraud (or APP fraud): for example, an initial phone call is made to the victim, who then unwittingly transfers funds to the fraudster online).
According to Europol’s latest assessment, cyber crime is also becoming more aggressive and confrontational. And they see the tightening of data protection law across the EU through the GDPR as giving cyber criminals a new way of extorting money from their victims.
Violations of the GDPR can result in fines of up to €20m (£17.8m) or 4% of global turnover, whichever is higher. Europol research indicates that “hacked companies [may] rather pay a smaller ransom to a hacker for non-disclosure than the steep fine that might be imposed by their competent authority”.
So there is clearly much for all counter-fraud professionals still to do to maintain and improve the defences against those who are out to steal money and data from all of us.
KNOW THE SIGNS, REPORT THE CRIME
- Are transactions unusual because of their size, frequency or the manner of their execution, in relation to the client’s known business type?
- Do activities involve complex or illogical business structures that make it unclear who is conducting a transaction or purchase?
- Does it appear that a client’s assets are inconsistent with their known legitimate income?
- Has a client taken steps to hide their identity, or is the beneficial owner difficult to identify?
- Is the client unusually anxious to complete a transaction or are they unable to justify why they need completion to be undertaken quickly
THE RISE OF THE YOUNG MONEY MULE
New figures from Cifas show a sharp increase in the number of under-21s acting as money mules in the past year (up by 26%).
Cash-strapped students are targeted by criminals using social media sites such as Facebook and Instagram, lured by the prospect of earning some quick cash. According to the City of London Police fee-paying public school and foreign students are at particular risk.
A person becomes a money mule when they let their bank account be used by someone else to receive and transfer money. The problem is so great that Lloyds Banking Group has set up a dedicated ‘mule-hunting team’ to tackle it.
For more information and advice, visit moneymules.co.uk
EVALUATING THE UK’S CONTROLS AGAINST MONEY LAUNDERING
The FATF’s latest mutual evaluation report, published on 7 December, revealed that the UK has a well-developed and robust regime to effectively combat money laundering and terrorist financing. However, it needs to strengthen its supervision, and increase the resources of its financial intelligence unit.
Earlier last year the NCA published its latest assessment of serious and organised crime. Notably, the criminal exploitation of accounting and legal professionals involved with trust and company provision was identified as a significant threat.
ANTI-MONEY LAUNDERING COMPLIANCE CHECKLIST FOR PRACTICES
- Firm risk assessment - Maintain a documented risk assessment to identify and assess the risks of money laundering and terrorist financing faced by your firm.
- Policies, controls and procedures - Have written and up-to-date policies, controls and procedures on risk assessments, client due diligence, training, record keeping, reporting and ongoing monitoring.
- Client due diligence - Identify and verify the client (and beneficial owners) and obtain information on the purpose and nature of the business relationship or occasional transaction.
- Simplified and enhanced due diligence - Determine the degree of client due diligence measures to apply by considering the firm’s risk assessment and risks associated with particular clients.
- Ongoing monitoring - Conduct ongoing monitoring of the business relationship.
- Supervision - Take reasonable steps to ensure no-one is appointed or continues to act as a beneficial owner, officer or manager (BOOM) if they have an unspent Schedule 3 Money Laundering Regulations 2017 criminal conviction.