2 Prevention of money laundering / combating terrorist financing
3 What is Money Laundering How criminals conceal the connection between the crime and the proceedsThe world’s third largest businessBetween US$590 billion and US$1.5 trillion
4 What is Money Laundering Dangers of allowing Money LaunderingMonetary LossRegulatory fines and / or sanctionsUltimately loss of licenceImprisonment of employees/directorsCriminal prosecutionLoss of reputation
5 What is Money Laundering Terrorist FundingThis is often funded from legitimate sourcesThe monies involved are often small
6 Laws and Regulation in the UK and Offences PROCEEDS OF CRIME ACT 2002 (POCA)Defines money laundering offences and specifies the applicable penalties.TERRORISM ACT 2000 amended by the ANTI-TERRORISM CRIME & SECURITY ACT 2001Offences applicable to terrorist crime and fundingSERIOUS ORGANISED CRIME AND POLICE ACT 2005 (SOCPA)This act refined details of POCA and established the Serious Organised Crime Agency (SOCA)UK Implementation of 3rd EU Directive15th December 2007Placing legal obligations on businesses and professions to combat money laundering
7 Laws and Regulation in the UK and Offences 3rd EU Directive Main ProvisionsIdentity checks on customers opening accountsCustomer Due Diligence on a Risk ApproachEnhanced Due Diligence on Non Face to Face transactionsReporting, Recordkeeping and Training remain the same
8 Laws and Regulation in the UK and Offences Regulations apply to;Trust or company service providersEstate AgentsTax AdvisorsHigh value dealersCasinosFinancial AdvisersSmaller Credit institutionsFinancial institutionsIndependent legal professionalsExternal Accountants, Auditors and Insolvency practitioners
9 Laws and Regulation in the UK and Offences 1. Regulations BreachFailure to Comply with the Money Laundering Regulations - not complying with any of the requirements of the Money Laundering Regulations (even if no money laundering took place, including failure to have regular training).Maximum prison sentence of 2 years and/or fine.
10 Laws and Regulation in the UK and Offences 2. AssistanceAssisting someone to obtain, conceal, retain, or invest the proceeds of crime if you know or suspect (or, in some cases, should have known or suspected) the other person is engaged in or benefited from crime.Maximum prison sentence of 14 years and/or fine
11 Laws and Regulation in the UK and Offences 3. Failure to ReportFailing to report any knowledge or suspicion of money laundering acquired in the course of business, or employment, as soon as reasonably practical after the information comes to hand.Any suspicion must be reported to the Money Laundering Reporting Officer.Maximum prison sentence of 5 years and/or fine.
12 Laws and Regulation in the UK and Offences 4. Tipping OffInforming a person who is the subject of suspicion, or any third party, that a report to the Money Laundering Reporting Officer has been made or that the authorities are acting (or are proposing to act) in connection with an investigation into money laundering.You should assume that an internal suspicion report has been passed to National Criminal Agency.Maximum prison sentence of 5 years and/or fine.
13 Laws and Regulation in the UK and Offences 5. ConcealingThis offence will be committed where a person disguises or conceals any property, in whole or part directly or indirectly, proceeds of criminal activityMaximum prison sentence of 14 years and/or fine.
14 Laws and Regulation in the UK and Offences 6. AcquisitionThis offence is committed where a person who knows that any property is, or in whole or in part directly or indirectly represents another person’s proceeds of criminal activity, acquires or uses that property or has possession of it.Maximum prison sentence of 14 years and/or fine.
15 Laws and Regulation in the UK and Offences 7. Individual and entities subject to financial sanctionsIt is a criminal offence to make funds available to individuals or entities on the sanctions list maintained by HM Treasury.
16 Money Laundering Stages and Customer Due Diligence PlacementLayeringIntegration
17 Money Laundering Stages and Customer Due Diligence PlacementThis stage involves getting cash into the financial system.Make numerous payments into one or more accounts or policies, E.g. splitting a cash lump sum into smaller amounts to avoid suspicion and depositing these over the counter or through ATM’s.Mixing criminal payments with ‘legitimate’ funds, (cheques etc), and paying them into one or more policy or investment. An example of this would be:Buying travellers cheques with cash, then paying the cheques into other accounts.
18 Money Laundering Stages and Customer Due Diligence LayeringThis stage involves trying to disguise where the funds came from. Having paid cash into the financial system by moving the funds through a series of transactions. The criminals will try to cover any trail that leads back to the crime, Some examples of this are:1. Transferring the funds abroad.2. Purchase an asset i.e. property, luxury item, investment policy, etc.
19 Money Laundering Stages and Customer Due Diligence IntegrationThis stage involves trying to disguise where the funds came from. Having paid cash into the financial system by moving the funds through a series of transactions. The criminals will try to cover any trail that leads back to the crime, Some examples of this are:1. Buying shares. This will provide the criminal with the prospect of “clean” capital growth or “clean” income from dividends2. Buying property. Possibly for renting out, which gives the criminal “clean” looking income.
20 Money Laundering Stages and Customer Due Diligence The RequirementsCustomer due diligence measures and ongoing monitoringReportingRecord-keepingInternal controlsRisk assessment and managementMonitoring and management of compliance
21 Money Laundering Stages and Customer Due Diligence Customer Due Diligence & StagesStage 1 : Assessing the riskWhen approached by a potential client you need to decide the level of due diligence to applyStage 2 : Verifying identityIdentify the clients and the people in control of assetsStage 3 : Knowing your customer’s businessKnow the source of funds, size and frequency of transactions to expectStage 4: Ongoing monitoringCheck the client’s arrangements and transactions are consistent with the information you hold on file
22 Money Laundering Stages and Customer Due Diligence When does Customer Due Diligence applyWhen establishing a business relationshipCarrying out an occasional transaction
23 Money Laundering Stages and Customer Due Diligence What to do if unable to apply Customer Due Diligence measuresNot carry out the transactionTerminate any existing business relationship with the customer
24 Procedures MLRO obligation and duties Staff awareness training (all staff!)Adequate record keepingIdentify, assess, monitor & manage riskBe comprehensive & proportionate to the nature, scale & complexity of firms activitiesReporting suspicions
25 Procedures Face to face meeting One person verification One address verificationNon face to face meetingTwo address verifications
26 Procedures Evidence of Identity Individual ‘Standard’ verification of identity for personalcustomers includes obtainingthe following information:full name;residential address;date of birth;CorporateExamples include:‘Companies House’ Register number;Registered corporate name and any trading names used;Details of owners and shareholders (holding over 25%);Details of the nature of the company’s business.
27 ProceduresIt is good practice to check all new clients against the UK Consolidated Financial Sanctions List (HMT List)N.B. The above is reflected in Paradigm’s Anti-Money Laundering Guide which many firms have adoptedThis is maintained by HM TreasuryThis can be found at:
28 ProceduresPolitically Exposed Persons (PEPs)An individual who is or has at any time in the preceding year, been entrusted with prominent public functions and an immediate family member, or a known close associate, of such a person”PEPs only apply if they are holding this position in a state outside of the UKEnhanced due diligence should be carried out
29 How to report When in doubt report Failure to report is an offence Do not disclose to anyone else (Tipping off)Contact the Money Laundering Reporting OfficerOnce reported your obligations are fulfilledThe MLRO will decide whether to report to National Crime AgencyThe MLRO will be told whether to proceed
30 SummaryWe ask you now to complete a short test to confirm your knowledge of the Anti Money Laundering procedures.