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AML: Carry on Regardless

Election fever means AML panic, but should that bother you? Richard Simms explores the landscape


Times are changing and 8 June is the next step in the UK’s escape from the EU. Escape? Well, that might depend on your standpoint! Whatever you think, exiting the EU looks inevitable now.

You are likely to have heard of the 4th EU Money Laundering Directive (4MLD); it came into force on 25 June 2015 and must be in law in EU member states by 26 June 2017. So, you’re wondering if the EU bit of the EU 4MLD means that we can switch off to its requirements, you can stop wondering and start preparing. The UK is committed to following EU guidance right up to the point that it leaves.

Once the UK leaves the path is less clear, but it would be a surprise to see us drifting very far away from future EU guidance in the Anti-Money Laundering (AML) or Counter Terrorist Financing (CTF) arena. Why? Because the guidance is global and is led by the Financial Action Task Force (FATF), of which the UK has been a member since 1990. The 4MLD follows the FATF recommendations back from 2012.

It makes interesting reading that the FATF 2012 recommendations have taken until 2017 to reach UK law. It may be that skipping the EU bit might mean that we’re a bit quicker to follow the next set of recommendations.

The final UK consultation on the 4MLD was issued on 15 March 2017 and closed on 12 April 2017. As parliament is closed until after the general election it’s fair to say that things will have to move at a pace to be integrated before 26 June. Will there by an EU penalty if they are enacted in the UK after the 25 June?

Can I address the minority for a moment please? Looking directly at you, the reader, the Money Laundering Regulations 2007 (MLR 2007} came in to force on 15 December 2007. So you have been expected to be compliant – actually you have been legally required to be compliant – with the law and guidance since then. If you have not yet acknowledged that the MLR 2007 applies to you and you are an accountant in practice then you are taking a substantial risk if you continue not to pay due respect to the law.

To start with, be absolutely clear that both the ICPA and AMLCC are not supervisory bodies for AML. Being a member or subscriber to either does not satisfy your requirement to be supervised by a relevant AML supervisory body. Please check that you are correctly supervised! If you are a member of an accountancy or bookkeeping regulatory body speak to them and make sure that you are supervised; if not, then HMRC is the supervisor to apply to and you must register with them.


What is ML in the real world?

OK, back to the bigger picture. What is money laundering? We’ve all seen the films and read the articles about the elaborate schemes used to try to legitimise the proceeds of crime. However, money laundering has a far wider application than just complex schemes.

The Proceeds of Crime Act 2002 (POCA) is a very powerful piece of legislation in the hands of law enforcement. One of the key areas of POCA is the recognition of an ‘all crimes’ approach to money laundering. The focus is the proceeds of crime – forget the picture of the washing machine full of cash or the notes hanging on the washing line, we may be exposed to money laundering in a less obvious way.

Proceeds of crime includes both a deliberate over claim of a refund from HMRC and proceeds from the sale of illegal drugs. Possessing or using criminal property are money laundering offences under POCA. If there’s proceeds of crime then there’s a money laundering offence, whatever the crime.


So what’s new?

Back to the 4MLD. There’s some great news here in my view – you will have heard it before, but AML compliance is easy! Yes really! You may not realise that you do a lot more AML work than you realise. It’s recording your work that may be your biggest failing.

I’ve also said before that the 4MLD changes will not greatly affect you if you are already compliant with the MLR 2007.

So here’s a whistle stop tour of the proposed changes. I can’t be definite about changes as the final version isn’t out yet and the Accountancy Affinity Group (AAG – the accountancy and bookkeeping AML supervisors’ group) had put forward a number of requests for consideration before the legislation is finalised.

Criminality testing: Criminals convicted in the relevant areas should not hold management functions or be beneficial owners of firms who are auditors, external accountants and tax advisors. The AAG is arguing that this is unnecessary but the requirement for AML supervisors to undertake criminal checks on those that they regulate is currently in the draft regulations.

Body corporate information: Additional identification and verification of a body corporate’s registration number is required. The AAG has queried this as being excessively prescriptive.

Trust register – Express Trusts: In addition to the planned revisions to the PSC register generally, there will be new requirements for Express Trusts (ET). The trustees of an ET will need to hold adequate, accurate and up-to-date information on the beneficial owner of the ET. This information must be available to law enforcement and the UK Financial Intelligence Unit (UKFIU), which is housed within the National Crime Agency. They must also disclose their status as a trustee if operating in that capacity when entering a business relationship or conducting a transaction.

There is also a requirement for the establishment of a central register of ET with tax consequences. Such register is planned to be launched by HMRC in the summer of this year. The details required to be registered will be wide. One key outcome for HMRC is that the right amount of tax is paid at the right stage of the process. There is a feel from the AAG that some of these requirements go beyond those required by the 4MLD and that the extra detail required to be reported could put an additional burden and cost on trustees.

Trust or Company Service Providers (TCSP): If your firm currently undertakes any TCSP work and is not separately registered with HMRC, you may soon have to under the draft money laundering regulations 2017 – even if TCSP is ancillary to the accountancy services being provided. The detailed process is not clear as yet, but Professional Body AML Supervisors will need to provide a list of their members that undertake TCSP work so that they can be registered with HMRC. HMRC is scheduled to take on this new responsibility from 26 June this year, but any transitional arrangements have not been laid out yet.

The AAG’s view is that AML supervision with a professional body should be sufficient without the need for a register.

Politically Exposed Persons (PEP): The previous EU directive referred to non-domestic PEPs, meaning outside of the UK. The incoming directive and consequently the new UK Money Laundering Regulations loses this distinction and will cover all PEPs, so wherever situated all PEPS are now within the scope of the regulations.

Independent audit function and employee screening: Both ate included in the draft regulations; for the audit function regard must be given to the size and nature of the business. Relevant employees will be those relevant to the regulated entities’ compliance with the regulations or otherwise capable of contributing to the regulated entities identification and mitigation of money laundering and terrorist financing risk and its prevent and detection.

Beneficial ownership: Following the implementation of the PSC register last year it is evident that amendments to the PSC register will be required to comply with the 4MLD. It seems from the consultation that the PSC register will need to have an element of periodic (we assume annual) confirmation, along with a requirement to update the register for changes sooner.

Administrative sanctions: Effective, proportionate and dissuasive sanctions are what is required and this refers to the powers and actions of AML supervisory bodies. Where appropriate, members of the management body and other relevant persons could be held responsible.

Supervisors must have a minimum level of sanctions in place. The fines to be levied have a maximum of at least twice the amount of the benefit derived from the breach and or €1,000,000.

The Office of Professional Body Anti-Money Laundering Supervisors (OPBAS):

By January 2018, the supervisors’ supervisor should be in place. Housed within the FCA and funded by the professional bodies that it supervises, it is there to address the perceived failings within the professional body AML supervisory body system.

A disappointment to the supervisors, let’s hope for a positive and valuable impact that will reduce the burden on all of us.

Risk assessments: 4MLD re-enforces the need for a document risk assessment for every client that you have.

Perhaps, even without realising, you are very close to being compliant with the anti-money laundering law and guidance, but you must record and document the steps that you have taken. Please understand that the accountancy and bookkeeping sector is the subject of criticism for its perceived failings. Don’t let yourself, your practice and your industry down.

As an ICPA practising member you have access to AMLCC. It may not be perfect, but it will guide, structure and record your AML work to help you demonstrate your compliance to your AML supervisor and law enforcement.

  • Richard Simms is Managing Director of the Anti-Money Laundering Compliance Company and FA Simms. For more go to www.amlcc.co.uk

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