Preventive Legislations ML/FT - Major Countries/Regions : UK
The United Kingdom faces significant money laundering threats from foreign criminal proceeds, owing to its status as a global financial center, but the authorities have a strong understanding of these risks. The authorities estimated the realistic possibility of hundreds of billions of pounds of illicit proceeds being laundered in their jurisdiction. The money laundering risks facing the United Kingdom include illicit proceeds from foreign crimes such as transnational organized crime, overseas corruption, and tax crimes. Financial services, trust, and company service providers (TCSPs), accountancy and legal sectors are high-risk for money laundering, with also significant emerging risks coming from cryptoassets. Some Crown Dependencies (CDs) and British Overseas Territories (BOTs) have featured in U.K. money laundering investigations. Brexit and COVID pandemic have an impact upon the money laundering risks in the United Kingdom. The authorities nevertheless have demonstrated a deep and robust experience in assessing and understanding their ML/TF risks. Leveraging technology tools such as big data and machine learning to analyze cross-border payments may add further dimension to their risk assessments.
The following forms the current legislative framework in the UK:
i.
Money Laundering Regulations 2003: These set out
the scope of the regulated sector and the preventive measures that they must
take and also the powers of the supervisor for money service businesses and
high value dealers;
ii.
The Proceeds of Crime Act 2002, as amended by
the Serious Organized Crime and Police Act 2005: This set out the principal
money laundering offences and reporting obligations; and
iii.
The Terrorism Act 2000 in
relation to terrorism financing
iv.
The Financial Services and Markets Act 2000 (FSMA)
Under FSMA, the financial conduct authority (FCA)
has the power to regulate financial institutions, including imposing AML
obligations.
v.
Money Laundering ,Terrorist financing and Transfer of
funds(Information on the Payees)Regulation Act 2017: Prosecute Money
Laundering
Sections 327 to 340 of the Proceeds of Crime
Act 2002, and all of the Money Laundering Regulations upto 2007, is
wide-ranging. Concealment encompasses mere concealment of criminal or terrorist
property as well as its disguising, converting, transfer and removal, and
includes concealing or disguising its nature, source, location, disposition,
movement or ownership or any rights with respect to it. A person may also be
punished for arrangement if he enters into or becomes concerned in an
arrangement which he knows or suspects facilitates (by whatever means) the
acquisition, retention, use or control of criminal property by or on behalf of
another person. This provision is a threat for lawyers and other professionals
who act for clients involved in money laundering. Even acquisition, use or mere
possession of criminal property is punishable, with some exceptions such as
acquisition for proper consideration, etc.
An important fact in the UK legislation was
that the lower limit of the value of a suspicious transaction was not provided,
making the law even more rigorous and a problem for the persons and
institutions who had to disclose. This provision was relaxed by the Amendment
of 2005 to allow banks and financial institutions to proceed with low value
transactions involving suspected criminal property without requiring specific
consent for every transaction. There were about 200,000 suspicious activity
reports made in the year 2006 and about ₤ 165m of assets were recovered in
2005. The large number of reports has been attributed to the wide range of the
Act. The UK is also under the obligation to update its laws with every EU
directive. The Money Laundering Regulations 2007 have been issued, implementing
the Directive on the Prevention of Money Laundering and Terrorist Financing
(2005/60/EC).
vi.
Sanctions and anti-Money laundering Act 2018 : Transition from
EU and compliance to FATF
Sanctions and Anti-Money Laundering Act 2018 (SAMLA), which ensures that the UK’s anti-money laundering (AML) and counter-terrorist financing (CTF) measures keep pace with the international standards and recommendations made by the Financial Action Task Force (FATF). SAMLA also enables the UK to create its own national sanctions framework for imposing sanctions.
Brexit (/ˈbrɛksɪt, ˈbrɛɡzɪt/; portmanteau
of "British exit") was the withdrawal of the United Kingdom (UK) from
the European Union (EU).
Following
a referendum on 23 June 2016, Brexit officially took place at 23:00 GMT on 31
January 2020 (00:00 1 February 2020 CET).
The
UK has implemented many of the provisions of the European Union’s two
Directives on the prevention of the use of the financial system for the purpose
of money laundering, and the Financial Action Task Force (FATF) Forty Plus Nine
Recommendations.
Banks
and non-bank financial institutions in the UK must report suspicious
transactions.
Regulatory Authorities in the UK
Financial Conduct
Authority (FCA)
a. A pivotal regulator within the UK's financial landscape. Tasked with the independent oversight of the financial services sector, the FCA plays a crucial role in ensuring the integrity and stability of financial markets. Its jurisdiction spans a wide array of financial entities, including banks, investment firms, stock exchanges, e-money organizations, payment institutions, credit companies, asset managers, and building societies.
b. A key figure in this framework is the Money Laundering Reporting Officer @ RE, who is tasked with overseeing AML efforts and ensuring adherence to AML UK requirements.
The National Crime
Agency (NCA)
a. A key player in the UK's fight against organized crime, focusing on combating money laundering, fraud, and terrorist financing. Through strategic partnerships at both local and international levels, the NCA effectively deters criminals from exploiting the UK's financial systems. Its success in detecting and apprehending money launderers makes the UK a formidable environment for illicit activities, showcasing the agency's critical role in national security and economic stability.
b. Furthermore, the NCA is dedicated to empowering financial professionals with the knowledge and tools to identify signs of money laundering. By providing specialized training and insights, it fosters a proactive approach to crime prevention
Her
Majesty's Revenue and Customs (HMRC)
a. Serves as the cornerstone of the UK's financial and tax system. As the government's tax authority, HMRC plays a pivotal role in collecting taxes, safeguarding the UK's borders from illegal activities, and ensuring that employers adhere to the minimum wage laws. Its responsibilities extend beyond tax collection, as HMRC collaborates closely with the FCA to tackle money laundering offenses and develops legislation aimed at combating financial crime.
b. A significant aspect of HMRC's operations involves rigorous identity verification of customers, detailed monitoring of transactions, and strict compliance with AML UK requirements. This includes the mandate for UK financial institutions to report any suspicious financial activities, underscoring HMRC's dedication to fostering a transparent and secure financial environment.
Office for Professional
Body Anti-Money Laundering Supervision (OPBAS)
OPBAS was established in 2017 and has made significant progress against its aim of ensuring high and consistent supervisory standards among the 25 Professional Body Supervisors (PBSs) which supervise the legal and accountancy sectors. Implemented a series of laws and regulations, including the money laundering, terrorist financing, and transfer of funds (information on the payer) regulations 2017. This framework aligns with international standards and is enforced by various regulatory bodies, including the Financial Conduct Authority (FCA). The regulations impose stringent requirements on financial institutions, such as banks, to monitor transactions, conduct customer due diligence, and report suspicious activities. PBAS is housed within the FCA and our key objectives are to reduce the harm of money laundering and terrorist financing by:
- ensuring a robust and consistently high standard of supervision by the PBSs overseeing the legal and accountancy sectors
- facilitating collaboration and
information and intelligence sharing between PBSs, statutory supervisors
and law enforcement agencies
The Gambling Commission is responsible for regulating and overseeing the gambling industry in the UK. It ensures that gambling operators, including casinos, online gambling platforms, and betting shops, adhere to anti-money laundering requirements.
The SRA is the regulatory body for solicitors and law firms in England and Wales. It sets standards and regulations for solicitors, including obligations related to preventing money laundering and terrorist financing.
The ICAEW is a professional accountancy body that regulates and sets standards for chartered accountants in England and Wales. It provides guidance and regulations related to anti-money laundering measures for its members.
The ACCA is a global professional accountancy body that sets AML regulations and guidelines for its members operating in the UK.
Financial Reporting Council (FRC)
The FRC is responsible for setting auditing and ethical standards in the UK, including regulations related to AML compliance for auditors.
Customer
Due Diligence for occasional transactions:
When
a business carries out occasional transactions that are not carried out within an ongoing
business relationship where the value is:
·
€15,000
or more if the business is not a high value dealer (or the equivalent in other
currencies)
·
€10,000
or more if business is a high value dealer (or the equivalent in other currencies)
This
applies whether it’s a single transaction or linked transactions.
Linked
transactions are individual transactions of less than €15,000 (or €10,000 for
high value dealers) that have been deliberately broken down into separate,
smaller transactions to avoid customer due diligence checks. Your business must
have systems in place to detect potentially linked transactions.
Once
a potentially linked transaction has been identified, you need to decide if it
has been deliberately split. Some issues to consider are when:
A number of
payments have been made by the same customer in a short period of time
It’s possible that
a number of customers have carried out transactions on behalf of the same
person
An
‘Authorised disclosure’ Suspicious Activity Report (SAR) to National Crime
Agency (NCA) requesting consent to take up the transaction. SAR is your
defence against Money Laundering
Regulations
cover obligations under 4th, 5th EU Directives on AML
& Counter- Terrorist Financing; 6th Directive did n’t oblige as
UK came out of EU in September 2017.
Cases
led by the Financial Conduct Authority, or FCA, against NatWest Group PLC,
Credit Suisse AG and HSBC Holdings PLC helped to drive the value of U.K.
anti-money laundering fines to $672 million in 2021, more than tripling
from $206 million in 2020, according to research by regulatory technology
company Fenergo.
The consultation and potential reforms come against a backdrop of heightened focus on money laundering and financial misconduct – not just in the UK but globally. These concerns have been magnified in recent years amid significant growth in the FinTech space. Technological developments such as online banking, cryptocurrencies and non-fungible tokens (NFT) offer new channels for money laundering.
Illicit finance is a growing
problem. Around the world, the total annual amount laundered is estimated at
about 3 percent of global gross domestic product (GDP), or £1.8 trillion,
according to Credas.
When taking the GDP of each nation into account, the US comes first in the table of global money laundering hotspots. While its money laundering activity only accounts for 1.4 percent of the nation’s GDP, this total comes to £216.5bn annually. In second place is the UK. Its 4.3 percent of GDP equates to £87.9bn of money being laundered every year in the country.
The current UK anti-money laundering regulations are primarily set out in the Money Laundering Regulations 2017. These regulations aim to prevent the laundering of money obtained through illicit activities, such as drug trafficking, terrorism, and corruption, by requiring businesses to take specific measures to verify the identity of their customers and report any suspicious activity to the authorities.
The AML/CTF supervisory system is made up of three statutory supervisors - the Financial Conduct Authority, the Gambling Commission and HMRC - and 22 professional body supervisors (PBSs) who supervise the legal and accountancy sectors. These supervisors ensure firms and individuals comply with the Money Laundering Regulations (MLRs). They take enforcement actions if the MLRs are breached and ensure only fit and competent individuals hold management roles in regulated businesses.
In the United Kingdom, the enforcement of Anti-Money Laundering (AML) regulations is overseen by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), both operating under the Bank of England. The FCA plays a pivotal role in regulating and supervising financial firms, ensuring their compliance with AML standards by establishing rules and guidance. The PRA, on the other hand, focuses on the prudential aspects of major financial institutions, contributing to the stability of the economy. Together, these agencies collaborate to prevent money laundering activities, safeguard the integrity of the financial sector, and maintain the UK's commitment to robust AML rules and regulations. Moreover, the National Crime Agency (NCA) and Her Majesty's Revenue and Customs (HMRC) also play crucial roles in investigating and prosecuting money laundering offenses to enhance the overall effectiveness of AML enforcement in the country.
The review of status of AML/CFT in the UK of June 2022 has focused on: improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), ensuring the application of effective risk-based controls across the regulated sector and developing a world-class AML supervisory regime. This recognises the unique threats facing the UK from illicit finance and reiterates the government’s desire to protect the economy and ensure the UK remains a safe and prosperous place to do business. The review is structured around three key themes.
• Systemic Effectiveness: ensuring that as the government works to reform and improve the UK’s regime we have an agreed definition of what effectiveness looks like and some proposals on how we can start to measure this with more precision.
• Regulatory Effectiveness: ensuring that those firms and individuals on the front line of the UK’s fight against illicit finance are well-equipped, with a strong risk understanding and capability to implement effective risk-based controls within their business, as well as the scope to target that activity at areas of highest risk.
• Supervisory Effectiveness: continuing reform of the supervision regime, building on the improvements made in recent years while assessing the rationale for further structural change to the regime.
The 2022 Review of the UK’s AML/CTF regulatory and supervisory regime concluded that while there had been continued improvement to the regime, some weaknesses in supervision may need to be addressed through structural reform. The Review set out four possible models for a future AML/ CTF supervisory system. This consultation further develops these four models, assessing them against three consultation objectives. The consultation does not include a policy preference and invites respondents’ views regarding the potential benefits and disbenefits of each potential reform model.
The four different Models of framework
The first model, OPBAS+, would provide increased powers to the Office for Professional Body Anti-Money Laundering Supervision (OPBAS). OPBAS was established in 2017 and has made significant progress against its aim of ensuring high and consistent supervisory standards among the 22 Professional Body Supervisors (PBSs) which supervise the legal and accountancy sectors.
The second model would consolidate PBSs so that between two and six PBSs would retain responsibility for AML/CTF supervision.
The third model would see the creation of new public body. This could take over the AML/CTF supervision of the supervisory populations of PBSs, and potentially some additional sectors currently supervised by HMRC. Alternatively, it could be given responsibility for the AML/CTF supervision of all populations currently supervised by a PBS or by HMRC. This would create a system whereby either three or four public bodies carry out all AML/CTF supervision.
Finally, the fourth model would place the AML/CTF supervision of all sectors regulated under the Money Laundering Regulations under the remit of a single public body.
These four models represent a commitment to strengthen the UK’s defences against economic crime, responding to calls to address weaknesses in the current system made by stakeholders such as the international AML/CTF standard-setter, the Financial Action Taskforce. The consultation also seeks views on whether there is a case to increase requirements on supervisors and their regulated populations to further support compliance with sanctions.
The consultation will be open for three months, closing on the 30 September 2023. After this, the Government will make a policy decision by the end of Q1 2024 on the model which best achieves the reform objectives. Strengthening the effectiveness of the UK’s AML/CTF regime will also support wider public and private sector priorities set out in the Economic Crime Plan 2023-6, such as the reforms of Companies House legislated for through the Economic Crime and Corporate Transparency Bill. Taken together, these reforms will help to cut crime, protect our national security, and support the UK’s legitimate economic growth and competitiveness.
The Economic Crime and Corporate Transparency Act 2023 (ECCT Act):
The ECCT Act has been introduced to combat economic crime and promote transparency in corporate entities. The act included reforms such as a new failure to prevent fraud offense, a beneficial ownership registry, improved transparency, and enhanced intelligence-gathering powers for law enforcement. De-banking also became a significant regulatory obstacle in the UK after allegations of unfair treatment.
One of the key features of this act is the reform of the UK companies registry, Companies House. The ECCT Act also includes provisions to hold organizations accountable if they profit from fraud committed by their employees, through the creation of a new failure to prevent fraud offense. Additionally, it reforms the corporate criminal liability laws for economic crimes, making corporations liable for their own economic crimes. The implementation of the provisions in the ECCT Act will be in stages since many of them will require systems development and secondary legislation before they can be implemented. However, as of January 2024, the Companies House Registrar has confirmed that initial changes will be introduced from March 2024.
The FCA’s review of PEPs: In July 2023, the UK government asked the FCA to review its guidance on risk management for PEPs. In September 2023, the FCA announced it would examine how firms apply the definition of PEPs, conduct risk assessments, implement EDD and ongoing monitoring procedures, decide on account closures, communicate with customers, and review PEP controls. Although not a confirmation of new or updated PEP regulations, corrective measures may be taken based on the FCA’s findings – which will be presented by June 30, 2024.
The key obligations under the AML/CTF laws in the United Kingdom include: Customer Due Diligence (CDD) - covered entities, including banks, financial institutions, money remitters, lawyers, accountants, estate agents, and other relevant businesses, are required to establish and implement risk-based CDD measures.
UK AML Reports and System
- Suspicious Activity Report (SAR): Financial
institutions must file SARs electronically through the BSA E-Filing System
when they think a suspicious transaction or activity may be linked to
money laundering or terrorist financing.
- Currency Transaction Report (CTR): Financial
institutions must file CTRs electronically through the BSA E-Filing System
for transactions involving currency over a certain threshold to track
large cash transactions and detect potential money laundering activities.
- Report of Foreign Bank and Financial Accounts
(FBAR) (FinCEN 114): Individuals
with foreign bank accounts exceeding a certain threshold must file an FBAR
electronically through the BSA E-Filing System to report foreign financial
accounts and comply with reporting requirements.
- Report of International Transportation of Currency
or Monetary Instruments (CMIR): Individuals transporting currency or monetary instruments in or
out of the UK exceeding a certain threshold must file a CMIR to report the
international transportation of funds.
- Section 314(a) Secure Information Sharing System: Financial
institutions can access and share information about potential money
laundering or terrorist financing activities through the Section 314(a)
Secure Information Sharing System, which allows for collaboration and
information-sharing among institutions and government agencies.
- OFAC Reporting System for Blocked and Rejected
Transactions: Financial institutions must report transactions blocked or
rejected due to sanctions compliance issues to the Office of Foreign
Assets Control (OFAC) through their reporting system to ensure compliance
with sanctions regulations.
As a member of the Financial Action Task Force (FATF),
the UK aligns its AML obligations with the FATF's recommendations.
On January
10, 2024, the Money
Laundering and Terrorist Financing (Amendment)
Regulations 2023, take effect. The updated regulations mark a slight shift in
the regulatory landscape in the United Kingdom. These regulations introduce
modifications to the Money Laundering, Terrorist Financing, and Transfer of
Funds (Information on the Payer) Regulations (MLRs). The impetus behind these
changes' stems from the Financial Services and Markets Act 2023, which
empowered HM Treasury to leverage its authority to amend the customer due
diligence measures applicable to domestic (U.K.) politically exposed persons
(PEPs).
In 2024, UK AML/CFT developments included enhanced due
diligence for Politically Exposed Persons (PEPs), the implementation of
Economic Crime Plan 2 (ECP2) with increased funding, and focus on beneficial
ownership transparency through regulations and international collaborations,
especially with the FATF
Economic Crime Plan 2 (UK)
The UK published an Economic Crime
Plan 2 (ECP2) in 2023. It commits the government to
decreasing money laundering and increasing asset recovery, tackling kleptocracy
and combatting sanctions evasion, reducing fraud, and lowering the threat of
international illicit finance to the UK and its interests. The ECP2 indicated
it would increase resources for law enforcement, expand the National Crime
Agency (NCA)’s capacity to fight corruption through its Combatting Klpetocracy
Cell (CKC) and support the Crown Dependencies and British Overseas Territories
in introducing beneficial ownership registries. It also detailed “cross-cutting
system reforms” with a focus on information sharing, data, and technology,
boosting law enforcement capacity via a public-private workforce strategy,
reforming the criminal justice system, and providing additional funding to the
tune of £400 million until the end of the 2025 financial year.
Happy Reading
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