What is a Money Laundering Reporting Officer?
The Money Laundering Reporting Officer (MLRO) is the person in an organisation who is nominated to receive disclosures from employees within the firm regarding suspected money laundering.
Sometimes known as the ‘nominated officer’, the MLRO is then responsible for deciding whether to report these concerns to the National Crime Agency in accordance with Part 7 (money laundering) of the Proceeds of Crime Act 2002 and Part 3 (terrorist property) of the Terrorism Act 2000.
The requirement to have a nominated officer was first introduced in the 2003 Money Laundering Regulations. This requirement still stands, under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘the Regulations’).
However, the duties of businesses to comply with anti-money laundering legislation have increased considerably over the years. Businesses are now required to take a much more active role in looking out for money laundering and terrorist financing. Accordingly, in Regulation 21 of the Regulations, there is now a requirement for businesses to appoint an individual who has overall responsibility for ensuring that the business complies with the Regulations.
In larger organisations, it is envisaged that that individual will lead a team with responsibility for ensuring compliance with the Regulations across the business.
Depending on the size of your business, the Money Laundering Reporting Officer will have to ensure compliance with the Regulations and may or may not also hold the position of nominated officer. In many firms, a single individual will be both nominated officer and MLRO.
Does your organisation need a MLRO?
If your organisation carries out business in the private regulated sector then it is obliged to follow the money laundering regulations. Such businesses include:
- financial and credit organisations;
- bureaux de change, money transmission businesses and cheque cashers;
- law firms;
- estate agents, in relation to both property sales and high-value lettings;
- insurance companies;
- crypto-asset exchange providers, custodian wallet providers and crypto-asset automated teller machines;
- within the art market, dealers and operators of freeports;
- gambling providers; and
- dealers in precious metals and stones.
Even if you are a sole trader with no employees, you need to act as the nominated officer yourself.
Who can be appointed?
There are no specific qualifications that an MLRO must have. However, if your business is regulated by the Financial Conduct Authority (FCA) or, in the case of money service providers or a trust or company service provider, by HMRC, the nominated officer must pass the ‘fit and proper’ person test. This test takes into account any offences of dishonesty or fraud, or any other breaches of relevant laws or professional regulations.
Accordingly, it is clear that integrity is key when appointing to the role. In addition, as the position comes with significant personal responsibility it is wise to look for the following when appointing an MLRO in your organisation:
- senior management experience in the relevant field;
- potentially some professional qualification e.g. law or accountancy;
- sufficient expertise and standing to take on personal accountability; and
- independence of thought.
In addition, from the point of view of the appointee to the position of MLRO, that person needs to be sure that the organisation appointing them takes the role sufficiently seriously. For example, the MLRO must have full access to company files and financial records so that they can carry out their duties properly.
Regulation 21 of the Regulations states that, taking into account the size and nature of its business, in many organisations the MLRO will have to be on the board of directors. If there is no board, the equivalent management body. Businesses should also note that they have to appoint a deputy to act in the absence of the nominated officer and that they should not appoint an external consultant to the role.
In addition, an organisation hiring or appointing an MLRO should commit to providing the appointee with appropriate refresher training for the duration of their employment. The reason for this is that anti-money laundering legislation is updated every few years, and the methods by which criminals attempt to launder money also change as they adapt over time to new detection regimes.
It is vital to appoint the right person to the role of MLRO. The reason for this is that the risks for individual MLROs are high if they are found to have been in breach of the Regulations. In that case, they could face an unlimited fine and / or a prison sentence of up to two years. HMRC or the FCA can impose fines on businesses that fail to comply with the Regulations. Such fines can easily exceed £1,000,000 or be at least twice the amount of the benefit derived from the breach of the Regulations.
What are the MLRO duties
The duties of an MLRO include monitoring anti money laundering safeguards within their own organisation, organising training for employees in how to spot money laundering and reporting suspected money laundering to external agencies, principally the National Crime Agency.
Under the Regulations, the MLRO is responsible for carrying out a risk assessment “to identify and assess the risks of money laundering and terrorist financing to which its business is subject.” The Regulations go on to state that when preparing the risk assessment the MLRO should take into account the following risk factors of the business:
(i) its customers;
(ii) the countries or geographic areas in which it operates;
(iii) its products or services;
(iv) its transactions; and
(v) its delivery channels.
The MLRO must keep an up to date record in writing of all the steps it has taken to produce the risk assessment.
Maintaining appropriate policies
Having identified the risks as outlined above, the MLRO is then responsible for drawing up the company’s policies and procedures on anti-money laundering. These should set out how the company is managing and mitigating the risks and in particular, its risk management practices, internal controls, customer due diligence, record-keeping and how the policies and procedures are communicated to the employees in the business.
In addition, the MLRO must ensure compliance with the provisions of the Regulations relating to customer due diligence, and be aware when to apply enhance customer due diligence measures. Enhanced checks are required where there is to be a transaction with a person in designated high risk countries, or with a politically exposed person (PEP), or a connection of a PEP.
Organising and delivering appropriate training to all employees in the busies is a crucial part of the MLRO role. Written records should be kept of when the employees receive their training and they should be encouraged to sign a form at the end of the training confirming that they have received the training and understood their obligations. Employees need to be trained to spot suspicious activity and to know where they can access more information within the firm. They also need to be made aware of the identity of people within the firm to whom they can go for help, and the identity of the nominated officer.
Obligations as a nominated officer
Where the MLRO is also the nominated officer, they will:
- receive reports from employees relating to suspicious activity;
- evaluate those reports to see if there is or appears to be evidence of money laundering or terrorist activity;
- make a report of suspicious activity to the National Crime Agency;
- liaise with the NCA over the possible defences to money laundering offences committed by employees of the business; and
- liaise with the NCA over what information to share with clients or third parties and how to ensure there is no ongoing illegality in the conduct of the business.
The MLRO could be found guilty of a criminal offence if they do not make a report to the NCA where the disclosure “gives rise to knowledge or suspicion or reasonable grounds for knowledge or suspicion that a person is engaged in money laundering or terrorist financing,” (Regulation 21(5) of the Regulations). This is an objective test, i.e. it takes into account not only the actual knowledge of the MLRO, but also whether, in the circumstances, they should have known. In other words, it is designed to prevent the MLRO from wilfully shutting their eyes to what is going on.
It is not only the MLRO who may commit a money laundering offence. Another key part of the MLRO’s role is to understand the defences available to employees of the business who may have committed a money laundering offence. The defences are that there was a ‘reasonable excuse’ not to disclose, that the information was received in legally privileged circumstances, or that the employee did not have sufficient training to recognise the suspicious activity. In the latter case, an employer could then be prosecuted for its failure to train its staff. In relation to the other two defences, the MLRO would have to understand the somewhat complex position regarding legal professional privilege and privileged circumstances. That is outside the scope of this article, but suffice to say that the MLRO can have a key part to play in protecting the interests of the organisation and its employees.
Who needs a money laundering reporting officer?
Any business (including a sole trader, who must take on the role themselves) that operates in the private regulated sector is required to have a ‘nominated officer’, sometimes known as a money laundering reporting officer. Such businesses include any involved in the financial or credit sector, law and accountancy firms, estate agents, larger dealers in the art market, gambling institutions and bureaux de change and cheque cashers.
What does a money laundering officer do?
A money laundering officer has a responsibility under the Proceeds of Crime Act 2002 and the Terrorism Act 2000 to report disclosures made to them regarding potential money laundering or the funding of terrorist activity. The officer also has a duty to carry out an assessment of the risk of money laundering in their organisation and to put in place policies and procedures to identify and mitigate that risk. Finally, the money laundering officer must ensure that all employees in the organisation receive training on how to spot money laundering and how to report it.
What are the 3 stages of money laundering?
The three stages of money laundering are placement, layering and integration. Placement refers to ‘placing’ the money into legitimate legal or financial systems. Layering refers to moving the money around within that system so as to hide from where it originated. Integration refers to the settling of the money into the economy and its use to buy assets such as property.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial 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 or other advice should be sought.