FINANCIAL CRIME IN FOCUS – Edition 6
Published Date: 17th May 2019
If I had £1 for every time I have heard the phrase 'We are a low risk business and know our customers well' I could make a significant contribution to charity! Firms with such a mindset apply what I call assumptive due diligence when onboarding clients. Having largely ignored compliance with AML regulations, they rely solely on their instincts and subjective judgement to assess a would-be client, firmly proclaiming they '…would spot one if they saw one.’
Too many financial relationships operated this way for a long time and statistically with limited risk because the vast majority of people are honest. But AML controls aren’t in place to catch honest, genuine customers, and this approach comes with two significant concerns:
1. Money Launderers and financiers of terrorism are sophisticated, smart, look just like their honest counterparts and easily exploit these weaknesses.
2. It allows the ‘insiders' to act with impunity. Every financial criminal needs their accomplices to place, layer or integrate dirty money into the system.
Unfortunately, such approaches to compliance likely still exist and, if we know one thing, we know that criminals will always gravitate to the weakest links.
The recent OPBAS report clearly exposed the lack of supervision and inadequate AML controls in two of the designated professional non-financial services sectors. The legal and accountancy industries both came under fire.
The Solicitors Regulatory Authority (SRA) has continued its squeeze on Law Firms to ensure that they are taking their obligations seriously under the Money Laundering Regulations. 59 firms specialising in Trust and Company Services have recently been scrutinised, with almost a quarter found to have inadequate controls when dealing with Politically Exposed Persons.
A further 400 legal firms are to be reviewed as part of this ongoing crackdown on the legal sector. The full review is available on the SRA website.
Following a series of unannounced reviews, which saw 50 estate agents receive surprise visits from HMRC earlier this year, the regulator has sought to raise the bar of money laundering controls in the sector by providing clear guidance.
In a recent interview our new managing director, Steve Elliot, considered the updated AML guidance issued by HMRC, and what it means for Estate Agents.
I’m proud to be part of a business that not only helps to combat the spectre of financial crime, but actively participates in industry discussion and debate, in order to drive a better response.
We regularly conduct independent research to get under the skin of some of the biggest challenges and our most recent piece, which was researched and written by the Economist Intelligence Unit, was released yesterday.
‘On the Frontline: The UK’s Fight Against Money Laundering’ provides a detailed view of the UK’s AML regime, providing insight from across regulated industries including banks, fintechs, gaming operators, estate agents and solicitors.
Highlighting the challenges, risks and opportunities we all face in combatting financial crime, we surveyed over 200 professionals responsible for AML. How effective do they think we are in managing financial crime? What are the real challenges? Where are the weaknesses in practice and most importantly what needs to be done better?
There is no better way of learning than from our peers so do download a copy to find out what they have to say – some of you may even have participated (many thanks if you did!).
And what else has happened in the financial crime world this week? Well the big news in the UK is an announced shake up of Companies House. Long overdue, the reform will see improvements made to the governance of information provided in new company formation.
Transparency around the beneficial owners of registered businesses has been an area of continued weakness in the UK. This was illustrated again by a Global Witness study on Companies House also released last week. The report revealed that some 300,000 companies have legally declared they have no beneficial owner. This is possible because the rules state only those with a shareholding of 25 per cent or more in the company must be named.
Despite being one of the most transparent corporate registries in the world, numerous loopholes have been exploited by financial criminals due to the ease and low cost of setting up a corporate entity. The reforms will aim to tackle this and create a greater level of transparency and higher standard of corporate governance.
And money launderers never cease to amaze with their determination to create wealth illegally and hide it from the authorities. Amanda Nuttall, £2.5m Lottery winner has had assets seized by the NCA after an investigation into her husband, Jonathan Nuttall, found a string of high value assets in her name including a pub, a restaurant and a Bentley. Mr Nuttall, who the NCA state had gained his wealth unlawfully, had structured his assets in his wife’s and other associates’ names.
The NCA said Mr Nuttall's alleged illegal activities first came to light during another investigation involving convicted drug smuggler Amir Azam, from whom £4m of assets were recovered.
Author: Michael Harris
Director, Financial Crime Compliance and Reputational Risk
LexisNexis® Risk Solutions