Money Laundering

A. Money Laundering and its adverse financial implications
B. What are anti-money laundering controls?
C. What is Serious Organised Crime Agency (SOCA)
D. When do businesses have to put them in place?
E. How do businesses put anti-money laundering controls in place?
F. So businesses need controls and procedures, but what should they cover?
G. What is a risk-based approach?
H. What is customer due diligence?
I. Accountancy Service Provider (ASP)
J. Who is an Accountancy Service Provider (ASP)?

Money Laundering and its adverse financial implications

Money laundering is the practice of engaging in financial transactions in order to conceal the identity, source, and/or destination of money, and is a main operation of the underworld economy.
In the past, the term "money laundering" was applied only to financial transactions related to organized crime. Today its definition is often expanded by government regulators (such as the United States Office of the Comptroller of the Currency) to encompass any financial transaction which generates an asset or a value as the result of an illegal act, which may involve actions such as tax evasion or false accounting.

As a result, the illegal activity of money laundering is now recognized as potentially practiced by individuals, small and large businesses, corrupt officials, members of organized crime (such as drug dealers or the Mafia), and even corrupt states, through a complex network of shell companies and trusts based in offshore tax havens. A few examples of money laundering are smurfing or kiting.
The increasing complexity of financial crime, the increasing recognized value of so-called "financial intelligence" (FININT) in combating transnational crime and terrorism, and the speculated impact of capital extracted from the legitimate economy has led to an increased prominence of money laundering in political, economic, and legal debate.

Anti-money laundering controls?

Anti-money laundering controls are policies and procedures that you must put in place within your business in order to prevent activities related to money laundering and terrorist financing.
They include assessing the risks of your business being used by criminals to launder money; verifying customers’ identity; monitoring customers’ transactions and reporting suspicious activity to the Serious Organised Crime Agency (SOCA); keeping the right records; and ensuring you have appropriate internal management controls.

You will need to ensure your staff are aware of the Regulations and trained to carry out the necessary anti-money laundering controls.

What is Serious Organised Crime Agency (SOCA)

SOCA is responsible for dealing with financial information concerning suspected proceeds of crime in order to counter money laundering The Serious Organised Crime Agency (SOCA) is an Executive Non-Departmental Public Body sponsored by, but operationally independent from, the Home Office in the UK. SOCA is an intelligence-led agency with law enforcement powers and harm reduction responsibilities. Harm in this context is the damage caused to people and communities by serious organised crime.

The Proceeds of Crime Act 2002 expanded, reformed and consolidated the UK's criminal money laundering offences. Most of the offences under the Act apply to all individuals and businesses in the UK, however, some apply only to those doing business in the 'regulated sector'. A suspicious activity report (SAR) should be made as soon as the knowledge or suspicion that criminal proceeds exist has arisen, especially if consent may be required, or at the earliest opportunity thereafter. SOCA's preferred method for reporters to submit their suspicion is the SOCA Suspicious Activity Report Form on their web site.

When do businesses have to put them in place?

For existing businesses you need to have these procedures in place on 15 December 2007. If you are a new business you need to have anti money laundering controls in place and be registered with HMRC before you start trading.

How do businesses put anti-money laundering controls in place?

Systems of controls and procedures will defer according to the size and complexity of each business and the risks involved.

HMRC will not dictate what risk-based measures should be in place for your business, it is for you and your senior managers to decide on a reasonable approach which balances the costs to your business and your customers with a realistic assessment of the risks involved.
Businesses should keep relevant documents relating to the risk assessment and management procedures and processes. Remember you should write down your risk-based policy and procedures and keep these documents up to date. HMRC will ask for details of your policies and procedures.
So, businesses need controls and procedures, but what should they cover?

Businesses should establish and maintain appropriate and risk sensitive policies and procedures relating to:
  • Customer due diligence measures and ongoing monitoring
  • Reporting
  • Record keeping
  • Internal control
  • Risk assessment and management
  • The monitoring and management of compliance
  • The internal communication of such policies and procedures.

What is a risk-based approach?

A risk-based approach means directing resources in accordance with priorities so that the greatest risk receives the highest attention.

This has been introduced to:

  • allow public authorities and businesses to concentrate resources in the areas of greatest risk
  • to avoid a 'tick-box' approach which can focus on a rigid system of control rather than the actual risks, which are in practice different for each business.
By adopting a risk based approach businesses are able to ensure that measures to prevent money laundering and terrorist financing are appropriate to the level of risk identified.
If applied appropriately, this approach should allow businesses to be more efficient and effective in their use of resources, and minimise burdens on their customers.

What is customer due diligence?

Customer due diligence is the term used in the Regulations for the steps that businesses must take to:

  • Identify the customer and verify their identity using documents, data or information obtained from a reliable and independent source.
  • Identify any beneficial owner who is not the customer. This is the individual (or individuals) behind the customer who ultimately own or control the customer or on whose behalf a transaction or activity is being conducted.
  • Where a business relationship is established, you will need to understand the purpose and intended nature of the relationship, for example details of customer’s business or the source of the funds.
You must also conduct ongoing monitoring to identify large, unusual or suspicious transactions to prevent money laundering and terrorist financing.

Accountancy Service Provider (ASP)

As an ASP the Money Laundering Regulations 2007 apply to you.

Who is an Accountancy Service Provider (ASP)?

ASP is the term used by HM Revenue & Customs (HMRC) for an auditor, external accountant and tax adviser.

  • An auditor is any person who is a statutory auditor within the meaning of Part 42 of the Companies Act 2006, when carrying out statutory audit work.
  • An external accountant is any firm or sole practitioner who by way of business provides accountancy services to other persons.
  • A tax adviser is any firm or sole practitioner who by way of business provides advice about the tax affairs of another person.
Businesses covered include:
  1. Accountants
  2. Auditors
  3. Tax advisers
  4. Bookkeepers
  5. Payroll agents
  6. Tax consultants
  7. Customs practitioners, freight forwarders, Customs representatives and similar businesses
  8. Interim managers undertaking any of the activities of the businesses listed above
From 15 December 2007 ASPs must have anti-money laundering controls in place and register with HM Revenue & Customs (HMRC) unless they are already supervised for compliance with the Money Laundering Regulation