24 Jan 2020
The government recently published new anti-money laundering (AML) regulations, which took effect on 10 January 2020. Here, we consider the changes to the regulations.
Tackling money laundering
Money laundering has long been a problematic issue. According to data from software company Encompass Corporation, AML penalties reached a record high of £6.2 billion worldwide during 2019. Globally, regulators handed out 58 AML penalties, which is double the 29 issued during 2018, and reaching a significantly higher volume than the £3.2 billion imposed that year.
Regulators in the USA were the most active, handing out 25 penalties totalling £1.7 billion. The UK was next with 12 fines totalling £292 million. The largest single fine was £3.9 billion, which was imposed by French authorities, while the average penalty rate for 2019 was £110.9 million. Under half of penalties given out in 2019 were to banks, compared to two-thirds in 2018.
AML regulations: what's new?
The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 were laid before Parliament on 20 December 2019, and subsequently came into force on 10 January 2020. The changes of relevance to accountancy firms are:
- The definition of 'tax adviser' has been extended from simply providing advice about the tax affairs of other persons to include material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party. This will impact firms that work closely with a third party such as a solicitor or the Institute of Financial Accountants (IFA).
- A firm's policies, controls and procedures must include the measures taken to address the impact of new products and new business practices (including new delivery mechanisms) as well as the current requirement to address new technology.
- The requirement to ensure relevant employees are trained properly is extended to any agents (such as sub-contractors) used by the firm.
- Customer due diligence (CDD) must be updated where the firm has a legal duty to contact a client for the purpose of reviving information relevant to the risk assessment or that relates to beneficial ownership or control.
- There is now an explicit requirement to understand the ownership and control structure where the client is an entity. Please note that this is not new, it is just now stated explicitly as a requirement.
- There are more rigorous checking and documentation requirements where a firm is unable to identify the beneficial owners and has treated the senior person in an entity as the beneficial owner.
- Electronic identification is explicitly stated as being a reliable source of evidence provided certain conditions are met. Note that this does not mean that electronic identification is required.
- For entities required to maintain a People with Significant Control (PSC) register, there is a requirement to review that register and report any discrepancies to the registry. So, in the case of a company or LLP, any discrepancies would have to be reported to Companies House.
- The requirement to apply enhanced due diligence now applies where a transaction is complex or unusually large; there is an unusual pattern of transactions; or they have no apparent economic or legal purpose. The change is to amend the 'ands' in the previous version to 'ors', meaning that any one of the above factors can trigger enhanced due diligence rather than needing a combination.
- The approach to high risk countries is more specific and the enhanced due diligence required set out in more detail.
- The registration requirements for trusts without tax consequences will be set out in separate regulations.
The regulations can be viewed in full here.
Protecting your business
Criminals are constantly searching for new contacts to help them with their money laundering or terrorist financing. Certain types of business are more vulnerable than others. For example, any business that uses or receives significant amounts of cash can be particularly attractive.
In order to protect themselves, accountancy firms should refrain from sharing financial information with individuals or organisations they are unfamiliar with. Businesses are also advised to invest in watertight software programs.
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