Anti-money laundering (AML)
According to the UK’s Economic Crime plan 2019-22, the scale of money laundering is vast. The National Crime Agency (NCA)’s National Strategic Assessment 2019 estimates that serious and organised crime costs the UK economy at least £37billion a year and that there are 4,542 known organised crime groups operating in the UK.
As a public interest profession, IFA members must play their part in preventing economic crimes such as money laundering. As professional accountants, IFA members are gatekeepers and the first line of defence to prevent illicit funds finding their way into the UK economy.
The IFA Code of Ethics creates an ethical obligation for members to comply with relevant laws and regulations and to speak out if they become aware of, or suspect, non-compliance with laws and regulations, including money laundering.
What are the money laundering risks?
IFA members should be aware of the money laundering risks and ways to mitigate these risks by complying with anti-money laundering legislation and guidance. The money laundering risks members may encounter are:
- Being used to launder money, for example, by holding the proceeds of crime in bank accounts or arranging complex business structures to disguise beneficial ownership of the proceeds of crime.
- Being used to facilitate money laundering, for example, by introducing a money launderer to another professional adviser or creating legal entities to launder money.
- Reputational damage and loss of trust as a result of having knowledge or suspicions of money laundering and failing to report it to the proper authorities.
What is money laundering?
Money laundering is the process that turns dirty money into funds that appear lawful and can therefore be spent as if they were from legal sources. Money laundering legitimises the proceeds of crime and allows drug gangs, human traffickers and other criminals to expand and benefit from their operations. Examples of money laundering offences include tax evasion, theft, fraud, bribery, corruption, smuggling, modern slavery, human trafficking, drug trafficking and illegal arms sales.
The definition of money laundering is broad. Money laundering is a process whereby criminals:
- retain, disguise and conceal the proceeds of their crimes;
- raise, consolidate or retain funds for use in financing terrorism.
In UK law money laundering is defined in the Proceeds of Crimes Act 2002 (POCA) and includes all forms of handling or possessing criminal property, including possessing the proceeds of one's own crime, and facilitating any handling or possession of criminal property.
Criminal property (defined in POCA) constitutes or represents a person's benefit from criminal conduct where the alleged offender knows or suspects that the property in question represents such a benefit. Criminal property may take any form, including money or money's worth, securities, tangible property and intangible property.
Money laundering can be carried out in any part of the world and can range from a single act involving one person to complex set ups involving various individuals. There are no materiality or de-minis exceptions in relation to money laundering.
What are my obligations?
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (Money Laundering Regulations 2017) and the The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (Money Laundering Regulations 2019) applies to all individuals and businesses that provide accountancy services, trust and company services or related services such as tax advice, audit or insolvency by way of business. This includes IFA members engaged in public practice. See IFA AML supervision for further guidance on who needs AML supervision.
IFA members who are covered by the regulations will have to implement policies, procedures and controls to prevent money laundering and are required to be supervised for compliance with the Money Laundering Regulations 2017 and the Money Laundering Regulations 2019 . The key concepts underpinning these regulations are as follows:
Responsibility and oversight including responsibilities of senior management, the Money Laundering Reporting Officer and, if appropriate, Money Laundering Compliance Officer.
Risk-based approach to mitigate their money laundering risks. It means that members must identify, assess and understand the money laundering risks to which they are exposed, and effectively mitigate them. It’s about understanding the client, services, jurisdictions and any other factors which may affect money laundering risks.
Customer or client due diligence to understand client’s identity and business activities, when engaging a new client and as part of ongoing monitoring, in order to mitigate money laundering risks.
Suspicious activity reporting of knowledge or suspicion of money laundering and terrorist financing, both within the organisation and externally to the National Crime Agency.
Record keeping and record retention policies which consider suspicious activities reports, consent request, personal data, third-party arrangements and training records.
Training and awareness of money laundering and terrorist financing risks by relevant staff and agents to recognise and deal with activities, transactions or situations which may be related to money laundering and terrorist financing as well as making reports on the grounds of knowledge or suspicions of money laundering or terrorist financing.
Guidance and support
Members may find the following guidance and support of help for complying with responsibilities.
Draft Anti-Money Laundering Guidance for the Accountancy Sector to help accountants comply with their obligations under the UK legislation.
The IFA anti-money laundering checklist which provides an aid memoire to the requirements relating to policies, controls and procedures, awareness and training, record keeping, firm’s risk assessment of money laundering or terrorist financing risks, client due diligence, reporting, supervision and monitoring requirements under UK legislation.
Professional bodies also report annually to HM Treasury in order to improve the transparency and accountability of supervision and encourage good practice,
IFAC and ICAEW basic AML guidance: Introduction to Anti-Money Laundering for Professional Accountants.
Failure to comply with UK legislation
Failure to meet legal and regulatory obligations could have serious consequences. It is a criminal offence under the UK and Ireland regimes to fail to comply with obligations under the UK legislation to prevent, recognise and report money laundering. In addition, failure to comply with UK legislation will lead to disciplinary action by the IFA.