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Money Laundering – it’s a gas

Richard Simms talks you through the revised Anti-Money Laundering Guidance for the Accountancy Sector – known as AMLGAS.

January 2020 saw the enactment of the updated UK Anti-Money Laundering Regulations (The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017).

The Anti-Money Laundering Guidance for the Accountancy Sector (AMLGAS) was therefore due for an update following the amendments to the AML regulations; driven by what’s known as the 5th EU Money Laundering Directive (5MLD). September 2020 saw the issue of the draft AMLGAS update pending final HM Treasury Approval.

Also included in AMLGAS are the changes brought in by The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 (‘Exit Regs’). These were laid before Parliament on 15 September 2020 through Statutory Instrument No. 991. This comes into force in stages.

I am not aiming to dissect AMLGAS line by line, but to pick up on a few key parts that bring more clarification to the AML Regs.

I will separately update my April 2018 article on AMLGAS that includes an explanation of its background and relevance. If you search online for AMLGAS you will see that article and one on the supplementary guidance for tax practitioners.

Definition of a Tax Adviser

Tax Adviser was extended by the AML Regs to include those who provide material aid or assistance and to include provision of services through a third party, regarding the tax affairs of other persons.

AMLGAS clarifies the following for Tax Advisers:

  • Payroll agents that provide accountancy services and/or tax advice are included as regulated for AML.
  • Tax services remain within the scope of the AML Regs even if provided virtually or through an automated service.
  • Offering software or hardware for the accountancy sector are outside of the AML Regs provided the providers don’t prepare or analyse financial information themselves for their clients.

For those of you that have relevant clients, the Exit Regs have extended the date for Art Market Participants and Lettings agents to register by 10th June 2021.

Discrepancy Reporting to Companies House

A key change in the AML Regs is the duty to report discrepancies in the Person of Significant Control register at Companies House, to Companies House. The reporting system is in place and can be found at https://tinyurl.com/uqdrmyn.

There is an equivalent requirement in place for unregistered companies, limited liability partnerships and Scottish partnerships. Reports should be made before taking a client on and during the course of ongoing AML compliance.

However, the Exit Regs clarify that discrepancy reporting is only required “when establishing a business relationship with the customer”. This is good news and important to assist with understanding the discrepancy reporting obligations. This point is included in AMLGAS.

Electronic identification verification

There is clarification about using an electronic identification process, what most of us would call an online identity verification report.

The AML Regs confirm that using an Electronic Identification Process (‘EIP’) can be treated as being independent of the client being verified; however, an EIP has in practice been treated as independent for some time. It is also clear that for an EIP to be a full replacement for hard copy documents it needs to provide “an appropriate level of assurance that the person claiming a particular identity is in fact the person with that identity”.

This means that the problem remains that without an effective biometric system we can’t rely solely on EIPs to verify the identity of clients and their owners.

However, the Exit Regs add some further insight. Considering the question of an EIP being able to assure that a person claiming an ID is that person, the Exit Regs add, “to a degree that is necessary for effectively managing and mitigating any risks of money laundering and terrorist financing”.

This suggests an acceptance that biometric ID evidencing techniques are not yet sufficiently advanced to provide the assurance required by the AML Regs as they were drafted. Hopefully, the lower level of assurance provided by many EID providers, would be sufficient to not need documentary evidence alongside an EIP report for a normal risk client.

It will be important to ask EIP providers what they do to evidence that someone is who they claim to be. Be sure to document the reply you get. Then you can assess whether for any particular client the risk of someone not being who they claim to be is being managed sufficiently.

Before you stop obtaining certified copies of client ID please keep this in context. The level of the Customer Due Diligence (‘CDD’) required is determined by a number of factors. Make sure you have a documented risk assessment for all clients to demonstrate whether you need to undertake Enhanced Due Diligence (‘EDD’) for any of them. AMLCC provides a structure to determine when EDD is required over and above CDD and what additional measures to apply to when EDD is required.

I will be doing some ongoing investigation into this point and will update as I discover more.

Expansion to ‘agents’ of a firm

Your firm’s obligations to train its staff on AML matters is extended to include those who are your agents. Any third parties who undertake work that is relevant to your firm’s AML compliance must be trained. This may flag an issue for those of you who outsource work to firms who are not UK AML supervised. Please check what their training and supervision status is!

AMLGAS refers to “relevant employees (including partners and any other individuals involved in the provision of defined services, referred to as ‘others’)”….

For me this includes any third party provider that undertakes work that is part of the regulated services that you provide to your clients. So, I would include in that contractors and outsourced bookkeeping and accounts preparation.

For firms that are not already on top of their AML, the gap between being compliant or not has grown even further. Increasing pressure on the AML supervisors will mean more action is required by them. As more resources are pumped into their supervisory role; it means more chance of a visit from your supervisor.

There is not expected to be much change to the revised AMLGAS, so please take the time to have a read through. We will be updating AMLCC. Don’t forget that your ICPA practicing certificate gives you access to AMLCC included within it.

• Richard Simms is MD of the Anti Money Laundering Compliance Company (AMLCC), BusinessSupport.co.uk and FA Simms.

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