Look at the most commonly asked questions in relation to Anti-Money Laundering to understand why and how you can strengthen your compliance processes.
What is Money Laundering?
Money laundering is the conversion of the proceeds of criminal activity into apparently clean funds by disguising the sources of the money, changing its form, or moving the funds to a place where they are less likely to attract attention.
What is the current legal framework?
The 6th Anti-Money Laundering Directive (AML6) is Directive 2018/1673 of the European Union, which came into effect on 3 December 2020. It further develops what was established in the 5th Money Laundering Directive (5MLD) and in the 4th Anti-Money Laundering Directive (4MLD), and was published in the Official Journal of the European Union on 19 June 2018. The 5th Anti-Money Laundering Directive provided a reference framework for KYC (Know Your Customer) processes in Europe and was scheduled to be implemented by Member States by 10 January 2020, aimed at tackling emerging issues and the funding of criminal activities. The UK has opted out of complying with the new 6th Anti-Money Laundering Directive as the UK Government considers that domestic legislation is already largely compliant with the Directive's measures. However, the new 6th Anti-Money Laundering Directive will still be relevant to those UK businesses operating in the EU.
The 4th, 5th and 6th Anti-Money Laundering Directives aim to integrate the existing rules and address the fight against money laundering and terrorism financing in a more effective way. They have also improved transparency in identifying the real beneficial owner [BO] of companies to prevent the misuse of legal entities for money laundering as well as increasing collaboration and information-sharing between anti-money laundering supervisors and the European Central Bank [ECB]. The Financial Conduct Authority [FCA] estimates that up to £57 billion is laundered through the UK every year. The watchdog for the UK is expected to be the Financial Action Task Force [FATF], an inter-governmental body created to investigate financial crime.
Who needs to perform Anti-Money Laundering (AML) checks?
The Directive applies to banks and the whole of the financial sector as well as to lawyers, notaries, accountants, real estate agents, casinos and company service providers. Its scope also encompasses all dealers in goods (such as dealers in precious metals and stones), when payments are made in cash in excess of €10,000. In addition, amendments have been introduced related to electronic money. This means that firms can only forego customer due diligence measures in situations where:
• the maximum amount which can be stored electronically is €150 (previously €250)
• the payment instrument used in connection with the electronic money is:
- not reloadable, or
- is subject to a maximum limit on monthly payment transactions of €150, which can only be used in the UK (previously €250)
• the relevant payment instrument is used exclusively to purchase goods or services
• anonymous electronic money cannot be used to fund the relevant payment instrument.
The Financial Action Task Force has identified the key ways that criminals launder money through law firms as:
• misuse of client accounts;
• property purchases;
• creation and management of companies and trusts;
• management of client affairs and making introductions;
What am I required to do?
• Identify and verify the identity of your customers and of their beneficial owners, and monitor the transactions of and the business relationship with customers;
• Report suspected money laundering or terrorism financing to the public authorities and take supporting measures, such as ensuring the proper training of personnel and the establishment of appropriate internal preventive policies and procedures.
Why do I need to perform Anti-Money Laundering checks?
The Anti-Money Laundering regulations oblige you to carry out customer due diligence for new clients, but also update all existing clients by assessing their identity. Moreover, the 5MLD expands on definitions of BO and Politically Exposed Persons [PEP].
In previous definitions of a BO, 25% plus one share was sufficient to prove ownership or control – this threshold is now seen as merely an indication and must be considered among other factors. Prior to the 4MLD, enhanced customer due diligence was only required with foreign PEPs, but this has been extended to domestic PEPs, their close associates and family members. With the FATF increasing its monitoring of the systems and controls that law firms and financial institutions have in place to ensure 4MLD compliance, the quality and consistency of customer due diligence to verify the identity of clients, the source of funds, beneficial owners and the nature of business transactions will be paramount.
Who are the Anti-Money Laundering regulatory bodies?
- Office for Professional Body Anti-Money Laundering Supervision (OPBAS). The OPBAS is a new regulator set up by the government to strengthen the UK’s Anti-Money Laundering (AML) supervisory regime and ensure that the professional body AML supervisors provide consistently high standards of AML supervision.
- Financial Conduct Authority (FCA)
- Financial Action Task Force (FATF)
- ICAEW (Institute of Chartered Accountants in England & Wales, plus other Accountancy bodies).
How can you get practical assistance in interpreting UK Money Laundering Regulations?
In the UK, the Joint Money Laundering Steering Group (JMLSG) which consists of leading Trade Associations in the UK Financial Services industry, promotes good practice in countering money laundering activities and gives practical assistance in interpreting UK Money Laundering Regulations, which transpose the 4th & 5th EU Money Laundering Directives (MLD4/MLD5) into UK law. JMLSG assists organisations in financial industry sectors to comply with their obligations in terms of UK anti money laundering (AML) and counter terrorist financing (CTF). This is primarily achieved by the publication of industry Guidance and the JMLSG provide the only guidelines approved by HM Treasury.
What is Electronic Identity Verification?
Electronic Identity Verification (eIDV) helps you prevent fraud and money laundering by verifying individuals and quickly conducting due diligence by accessing several data sources. ID verification checks and tools simplify the identification process since there is no need for the customer to be present, allowing you to save time as well as improving the onboarding stage.
What is CDD?
CDD (Customer Due Diligence) is the process of gathering facts about a customer then checking the details obtained. These measures must involve identifying the customer as well as verifying the identity. The Customer Due Diligence process meets identity verification requirements and further checks can be added to the process to support AML regulatory obligations.
Thanks to due diligence checks you can quickly identify gaps in Know Your Customer (KYC) data and confirm identities as well as re-verify customer portfolios.
What are the benefits of Identity and AML check tools?
CRIF’s premium identity verification service provides users with far more than confirmation of identity. It builds a profile and framework surrounding the subject in question including an anti-money laundering check, credit bureau profiles, previous linked addresses and identities, together with previous personal lines claims history, incorporating behaviour and historic insurer relationships. This wealth of information is invaluable when conducting customer due diligence and risk assessment of individual transactions and can assist in the identification of organised fraud rings which can be linked to money laundering and serious and organised crime.