Money laundering - understanding your responsibilities!

Julia Penny looks at the new regulations and some useful websites

Now that the new UK money laundering regulations have been published, the firms and companies affected are getting round to the nitty gritty of how to ensure that they fully comply by the implementation date. This can be rather daunting and so this article will look at two of the areas most likely to be causing concern in practice:

• identification of clients, and
• reporting suspicious transactions.

If you are not sure whether you are covered by the regulations you can check the detailed wording of the regulations, which are available at www.legislation.hmso.gov.uk/si/si2003/20033075.htm.

Identification

The regulations require that where a business relationship is being formed, or there is a one-off transaction (or linked transactions) expected to be 15,000 euros or over, the client must present satisfactory evidence of their identity as soon as is practicable after contact is first made. For most accountants this means that we will expect to see a passport and one or two recent utility bills confirming address. We need to check the details are as expected - for example, that the photo looks like the client and the name and address on the bill belong to the client - and retain copies of the evidence.

If the client is acting on behalf of someone else we need to identify him or her too. If the client is a company we should identify the company's:

• registered number
• registered corporate name and any trading names used
• registered address and any separate principal trading addresses
• directors
• owners and shareholders (significant), and
• nature of business.

Acting for trusts requires some care and the identity of the main parties involved will need to be checked, for example:

• the trustees
• anyone with the power to remove the trustees
• the settlor, and
• the beneficiaries where these are identified.

The nature of the regulations is not to specify exactly what must be done to check identity, but merely to require satisfactory evidence. In practice it will often be guidance notes that are used to establish appropriate forms of evidence. The main guidance notes currently in issue are the JMLSG notes, available for a payment via their website at www.jmlsg.org.uk.

These guidance notes take a risk based approach to checking identity, i.e. the more risk that money laundering could be an issue, the more evidence of identity is needed. For example, if it is not possible to see a client face-to-face, identity checks using a passport are very much weakened. Extra evidence will be required - for example, a certified copy of the passport prepared by someone local to the client who is covered by similar money laundering regulations, or perhaps otherwise known and trusted.

Deciding whether there is a suspicion to report

The Proceeds of Crime Act requires that a disclosure is made if there is:

• knowledge or suspicion of money laundering, or
• reasonable grounds for knowledge or suspicion.

In practice this means that the accountant must be careful to consider not only if he or she is suspicious, but also if another person in a similar scenario would be suspicious.

Remember that what constitutes money laundering is set out in the Proceeds of Crime Act (Part 7). It is widely defined and includes:

• concealing the proceeds of crime
• facilitating an arrangement to conceal or retain the proceeds of crime, and
• acquiring or having possession of the proceeds of crime.

Anybody who has proceeds of crime will therefore end up laundering money, whether it's small scale tax evasion or a drugs cartel!

Deciding whether a situation causes suspicion, however, is necessarily a judgemental process. Two quotes from judges in court cases help to explain the level at which suspicion arises:

• 'A degree of satisfaction not necessarily amounting to belief but at least extending beyond speculation as to whether an event has occurred or not'
• 'Although the creation of a suspicion requires a lesser factual basis than the creation of a belief, it nonetheless must be built upon some foundation'.

Another factor that must be taken into account in deciding if we are suspicious is whether the transaction or activity that we have seen is connected to a person or entity in a non-cooperative country or territory (NCCT). A list of such countries is published by the Financial Action Task Force (FATF) and is available on their website at www.fatf-gafi.org.uk.

Whenever one of these jurisdictions is involved we must become suspicious much sooner. The reason for this is that NCCTs have weak or no anti-money laundering legislation, or do not assist in international investigations. As such they are havens for money launderers and so very risky from our point of view.

Practicalities of reporting a suspicion

Each organisation covered by the regulations must appoint a money laundering reporting officer or MLRO. This is the person to whom other partners and members of staff should report any suspicion. The main points that should be remembered when making reports of suspicions are as follows:

• discussions, for example between members of an audit team, should not delay a report being made to the MLRO
• clients can be questioned about transactions or events that the accountant doesn't understand, but as soon as the accountant is suspicious questioning should stop, as there is a risk of tipping off, which is a criminal offence
• everyone must know who the MLRO is and how they can be contacted, and cover is needed for absence
• only the MLRO can decide that a report need not be made to NCIS if there is already a suspicion
• once a member of staff has reported a suspicion to the MLRO they have fulfilled their responsibility. The MLRO should issue written acknowledgement of reports received
• everyone must receive training in money laundering.

The MLRO must complete a form to report suspicions to NCIS. There will be two types of form available, one for more minor matters and one for more serious ones. No details are as yet available on the split between the two as it has only recently been agreed with the Treasury that different levels of reporting will be available. Forms are on the NCIS website at www.ncis.gov.uk.

Conclusion This article only deals with some of the aspects covered in the regulations, but much more information can be found on various websites, as previously listed, and also on www.accaglobal.com.

Make sure you understand your responsibilities fully because failure can lead to a jail sentence!

Julia Penny is director of technical training at Chantrey Vellacott DFK.