Money laundering is concealing the proceeds of crime by using them to acquire assets or property that is not linked to the criminal activity, which has the effect of ‘cleaning’ the money. Money that funds terrorism, regardless of its source or the way it has been obtained, is also covered by the Money Laundering Regulations 2007.
There are certain types of businesses that are governed by the Regulations and these must put in place controlsto monitor transactions and report those that are suspicious.
The Regulations apply to estate agents, accountants and financial businesses amongst others. Businesses that fall under the Regulations must be supervised by an appropriate authority: this may be a professional body or, for example, the Financial Services Authority. Businesses that do not fall under the regulation of such an authority will be supervised by HM Revenue and Customs. These are ‘high value dealers’, accountancy service providers, money service businesses, such as bureaux de change, and trust or company service providers.
If your business is subject to the Money Laundering Regulations, you must put a number of controls in place to stop the business being used for the purposes of laundering money. Failure to do so carries hefty penalties: those responsible in your business could be sentenced to five years’ imprisonment or an unlimited fine, or both. Duties include carrying out a risk assessment in relation to your specific business, so as to identify the areas that will need monitoring. To do this effectively, you will need to consider the overall nature of your business in order to work out which areas require the most attention. Essentially, this means considering who your customers are and the way they interact with your business. You can then identify areas in which your business is most vulnerable to money laundering or terrorist activity and devise a system by which you can ensure that the business is not misused in this way.
You will also have to carry out checks on your customers to verify their identity. If you are unsure about the identity of a potential customer, you must not deal with them until such time as you are sure that they are who they say they are. When you are starting a new business relationship with a customer, the necessary ‘due diligence’ checks are not limited to verification of identity but also extend to the nature of your customer’s business and/or employment, the source of the funds they are using and, where the signatory parties are different from the ‘beneficial owners’, details of those relationships.
Aside from those necessary when starting a business relationship, checks must also be carried out before an ‘occasional transaction’ of a value of 15,000 Euros or more. You must have systems in place to be able to detect when a customer is deliberately splitting transactions in order to make them come under this threshold and when existing customers’ circumstances change, such as a large increase in their business activity. Extra checks are needed for higher risk situations, for example when a customer isn’t present when you check their identification or when they are a ‘politically exposed person’, such as a foreign government minister or foreign head of state.
One person in your business should be nominated as the officer with responsibility for reporting suspicious activity to the Serious Organised Crime Agency. If you are a sole trader, this will be your responsibility. In the event that someone in your business either knows of or suspects money laundering or terrorist activity, he or she has a duty to inform the nominated officer as early as possible. It is not acceptable to wait until the end of the transaction before reporting the suspicious activity.
If you have concerns about money laundering and the risks posed to your business, contact us for advice.