Prevention of money laundering / combating terrorist financing

What is Money Laundering

• How criminals conceal the connection between the crime and the proceeds

• The world’s third largest business• Between US$590 billion and US$1.5 trillion

What is Money Laundering

Dangers of allowing Money Laundering

• Monetary Loss• Regulatory fines and / or sanctions• Ultimately loss of licence• Imprisonment of employees/directors• Criminal prosecution• Loss of reputation

What is Money Laundering

Terrorist Funding

• This is often funded from legitimate sources• The monies involved are often small

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 2001– Offences applicable to terrorist crime and funding

• SERIOUS 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 2007– Placing legal obligations on businesses and professions to

combat money laundering

Laws and Regulation in the UK and Offences

3rd EU Directive Main Provisions

• Identity checks on customers opening accounts• Customer Due Diligence on a Risk Approach• Enhanced Due Diligence on Non Face to Face

transactions• Reporting, Recordkeeping and Training remain the

same

Laws and Regulation in the UK and Offences

• Smaller Credit institutions

• Financial institutions• Independent legal

professionals• External Accountants,

Auditors and Insolvency practitioners

• Trust or company service providers

• Estate Agents• Tax Advisors• High value dealers• Casinos• Financial Advisers

Regulations apply to;

Laws and Regulation in the UK and Offences

Offences

• 1. Regulations Breach • Failure 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.

Laws and Regulation in the UK and Offences

Offences

• 2. Assistance• Assisting 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

Laws and Regulation in the UK and Offences

Offences

• 3. Failure to Report • Failing 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.

Laws and Regulation in the UK and Offences

Offences

• 4. Tipping Off • Informing 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.

Laws and Regulation in the UK and Offences

Offences

• 5. Concealing• This offence will be committed where a person disguises

or conceals any property, in whole or part directly or indirectly, proceeds of criminal activity

• Maximum prison sentence of 14 years and/or fine.

Laws and Regulation in the UK and Offences

Offences

• 6. Acquisition• This 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.

Laws and Regulation in the UK and Offences

Offences

• 7. Individual and entities subject to financial sanctions– It is a criminal offence to make funds available to individuals or entities on the sanctions

list maintained by HM Treasury

• .

Money Laundering Stages and Customer Due Diligence• Placement • Layering• Integration

Money Laundering Stages and Customer Due DiligencePlacement• This 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.

Money Laundering Stages and Customer Due Diligence

Layering

• This 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.

Money Laundering Stages and Customer Due DiligenceIntegration• This 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 dividends

2. Buying property. Possibly for renting out, which gives the criminal “clean” looking income.

Money Laundering Stages and Customer Due DiligenceThe Requirements

a) Customer due diligence measures and ongoing monitoring

b) Reportingc) Record-keepingd) Internal controlse) Risk assessment and managementf) Monitoring and management of compliance

Money Laundering Stages and Customer Due DiligenceCustomer Due Diligence & Stages

• Stage 1 : Assessing the risk– When approached by a potential client you need to decide

the level of due diligence to apply• Stage 2 : Verifying identity

– Identify the clients and the people in control of assets• Stage 3 : Knowing your customer’s business

– Know the source of funds, size and frequency of transactions to expect

• Stage 4: Ongoing monitoring– Check the client’s arrangements and transactions are

consistent with the information you hold on file

Money Laundering Stages and Customer Due DiligenceWhen does Customer Due Diligence apply

• When establishing a business relationship

• Carrying out an occasional transaction

Money Laundering Stages and Customer Due Diligence

What to do if unable to apply Customer Due Diligence measures

• Not carry out the transaction

• Terminate any existing business relationship with the customer

Procedures MLRO obligation and duties

• Staff awareness training (all staff!)• Adequate record keeping• Identify, assess, monitor & manage risk• Be comprehensive & proportionate to the nature, scale

& complexity of firms activities • Reporting suspicions

Procedures

• Face to face meeting– One person verification – One address verification

• Non face to face meeting– One person verification– Two address verifications

Procedures

Evidence of IdentityIndividual‘Standard’ verification of identity for personal customers includes

obtaining the 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.

Procedures

• It 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 adopted

• This is maintained by HM Treasury• This can be found at: http://www.hm-treasury.gov.uk/financialsanctions

Procedures

Politically 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 UK

• Enhanced due diligence should be carried out

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 Officer• Once reported your obligations are fulfilled• The MLRO will decide whether to report to National Crime

Agency• The MLRO will be told whether to proceed

Summary

We ask you now to complete a short test to confirm your knowledge of

the Anti Money Laundering procedures.