The UK’s anti-money laundering regime places extensive AML compliance duties on businesses.
The following guide examines the meaning of AML and the rules relating to AML compliance across relevant businesses, including offences for AML non-compliance and associated penalties.
What is money laundering?
Money laundering refers to how criminals change, or ‘clean’ their assets and money to as to remove any obvious link to their criminal origins. There are many different forms of money laundering involving many different types of business.
By way of example, in the property sector, money laundering could include buying a property using the proceeds of crime, and letting it or selling it on, giving the criminal an apparently legitimate source of funds.
Alternatively, in money service businesses, currency exchange outlets may be exploited to change small denomination notes into large denominations in another currency. This not only enables easier and cheaper handling of large quantities of illegal cash, once exchanged this money becomes difficult to trace.
Money laundering can also refer to money that is used to finance terrorism and terrorist activities, regardless of whether these were obtained from legitimate or criminal sources. This would include dealing with or handling assets, money or property that a business has reasonable cause to suspect may be used for terrorism or terrorist-related purposes. The funds and property
What is anti money laundering (AML)?
Anti money laundering (AML) refers to the set of laws, regulations and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income.
Though anti money laundering laws in the UK cover a relatively limited range of transactions and criminal behaviours, their implications can be far-reaching, not least in relation to counter financing of terrorism. In particular, AML legislation requires that businesses adhere to strict rules to ensure they are not aiding their customers in money laundering, including the funding of terrorist activities.
The main AML provisions can be found the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, which amended the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
What type of business must be AML compliant?
The Money Laundering Regulations, in broad terms, apply to those acting in the course of business carried on by them in the UK falling into any one the following categories:
- credit institutions
- financial institutions
- auditors, insolvency practitioners, external accountants and tax advisers
- independent legal professionals
- trust or company service providers
- estate agents
- high value dealers
Where the Money Laundering Regulations apply to a particular business type, in many cases that business will be automatically monitored by a supervisory authority, for example, where the business is authorised by the Financial Conduct Authority or belongs to a professional body such as the Law Society.
In other cases, the business will be required to register with HMRC for what’s known as money laundering supervision. HMRC is the supervisory authority for the following seven business sectors:
- Money service businesses not supervised by the FCA
- Estate agency businesses
- High value dealers
- Trust or company service providers not supervised by the FCA or a professional body
- Accountancy service providers not supervised by a professional body
- Bill payment service providers not supervised by the FCA
- Telecommunications, digital and IT payment service providers not supervised by the FCA.
Where required under the regulations, a business must not trade without registering with HMRC. Trading while not registered is a criminal offence and may result in a penalty or prosecution.
What are the requirements for AML compliance?
Under the Money Laundering Regulations, where your business is covered, you must meet certain day-to-day responsibilities. These are referred to in the regulations as relevant requirements.
These requirements include carrying out customer due diligence measures to check that your customers are who they say they are, keeping a record of all customer due diligence measures that you carry out and reporting any suspicious activity.
To satisfy AML compliance requirements you will also need to ensure that your business has in place adequate internal controls and monitoring systems. These should alert you and other relevant people in your business if criminals try to use your business for money laundering.
The nature of these controls will depend on the size and complexity of your business, including the number of customers you have, as well as the number and type of products and services that you provide.
In broad terms these controls should include risk assessing your business for areas that could be used for money laundering, including terrorist financing; appointing a nominated officer to make sure that employees know to report any suspicious activity to them, or a compliance officer where your business is larger or more complex; as well as training relevant employees on their AML responsibilities.
What are the offences for AML non-compliance?
It is a criminal offence under the Money Laundering Regulations to breach one of the relevant requirements, including but not limited to the application of customer due diligence measures, carrying out a risk assessment, as well as the monitoring and record keeping requirements.
It is also an offence to prejudice an investigation into a potential contravention of a relevant requirement, or to provide false or misleading information.
Furthermore, any failure to comply with your AML obligations puts you at risk of committing a primary offence relating to money laundering as set out under the Proceeds of Crime Act 2002. This includes:
- concealing, disguising, converting, transferring or removing criminal property from the UK
- entering into or becoming involved in an arrangement which facilitates the acquisition,
- retention, use or control of criminal property by or on behalf of another person
- the acquisition, use and/or possession of criminal property.
These offences apply to everyone, whereby you commit an offence if you know or suspect that the property is criminal property.
Under the Proceeds of Crime Act it is also an offence to fail to report suspicious activity, or tipping off any person that you’ve made or intend to make such a report. This applies to nominated officers and employees of businesses falling within a regulated sector.
Additional primary offences relating to terrorist funding are set out under the Terrorism Act 2000. As such, regulated businesses must also report a belief or suspicion of offences related to terrorist financing, such as:
- fund-raising for the purposes of terrorism
- using or possessing money for the purposes of terrorism
- involvement in funding arrangements
- money laundering, ie; facilitating the retention or control of money that’s destined for, or is the proceeds of, terrorism.
What are the penalties for AML non-compliance?
Meeting your legal obligations under the Money Laundering Regulations is important because it contributes to tackling the serious economic and social harm from organised crime. It also helps to reduce the threat from terrorism in the UK and around the globe.
As such, those who facilitate money laundering, whether deliberately or unknowingly, can face extremely serious consequences, including criminal prosecution resulting in a substantial fine and/or a lengthy custodial sentence.
Further, significant regulatory sanctions can be imposed by a designated supervisory authority for any failure of an individual or business to comply with the relevant requirements under the regulations. The action taken by a supervisory authority will depend on the seriousness and potential impact of the failures identified, but can include the imposition of a civil penalty.
The amount of any financial penalty will take account of the reason for non-compliance, the seriousness of the offence, the compliance history of the business, the relative size of the business, the benefits received and the amount exposed to money laundering activities.
Where can I find additional AML compliance guidance?
Please note, further AML compliance guidance can be found online at gov.uk for a number of businesses including money service businesses, estate agency businesses, high value dealers, trust or company service providers and the accountancy sector.
This additional more detailed guidance will help these businesses meet their sector-specific AML compliance requirements, including customer due diligence, risk assessment, record keeping and reporting suspicious activity.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or tax advice, nor is it a complete or authoritative statement of the law and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.
Before acting on any of the information contained herein, expert legal advice should be sought.