Anti-money laundering
01 April 2019
This article was featured in the April 2019 issue of the magazine.
Richard Simms, managing director for F A Simms & Partners Limited, discusses scope, implications and practical steps
The Proceeds of Crime Act 2002 (POCA) defines money laundering, at its simplest, as ‘doing stuff’ in relation to proceeds of crime. Criminal activity creates criminal property – both defined by POCA – so doing anything connected to this is highly likely to be money laundering.
‘Criminal property’ doesn’t just mean physical property, as it could also be, for example, the reduction in a liability. The proceeds of any criminal activity will be criminal property and pretty much anything in connection with this criminal property will be money laundering.
Here is a summary of the three key money laundering offences set out in sections 327, 328, 329 of POCA:
concealing, disguising, converting, transferring or removing criminal property from the jurisdiction
entering into or becoming concerned in an arrangement, knowing or suspecting that it facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person
acquisition (without adequate consideration), use or possession of criminal property.
(Counter terrorist financing follows along with anti-money laundering (AML).)
...anything in connection with this criminal property will be money laundering
Services regulated for AML
A ‘relevant person’ is the terminology used by the Money Laundering Regulations 2017 (‘the Regulations’) for someone subject to AML regulation. A relevant person includes someone providing accountancy services by way of business whilst undertaking that business; it’s only when you are providing those services to a third party – an ‘external accountant’ – and not when you are an employee.
Accountancy service providers include accountancy and bookkeeping, tax advice, insolvency and auditing. The sector’s AML guidance (‘the Guidance’; http://bit.ly/2ESjhPH) – which is the only HM Treasury approved guidance for the sector – adds further detail to the Regulations’ definition of an ‘external accountant’.
At para 1.2.2, the Guidance says “Regulation 11(c) of the Regulations defines an ‘external accountant’ as someone who provides accountancy services to other persons by way of business. There is no definition given for the term ‘accountancy services’, however for the purposes of this guidance it includes any service which involves the recording, review, analysis, calculation or reporting of financial information, and which is provided under arrangements other than a contract of employment.”
The term ‘tax adviser’ is defined in the Regulations as “A firm or sole practitioner who, by way of business, provides advice about the tax affairs of other persons, when providing such services”.
Application
Where does payroll fit in to the Regulations and the Guidance? If you’re providing external accounting services, you’ll be regulated straight away. Though ‘payroll’ is not mentioned in either the Regulations or the Guidance, does that mean that operating payroll, without being the client’s accountant or bookkeeper as well, is not regulated for AML?
For me, the calculation of tax due on payroll is performing the role as a tax adviser. I would say that payroll also falls within recording and calculation of financial information. This then means that a payroll provider can’t allow themselves to focus only on the risks associated with the payroll and so should take a step back and overview the client’s business and its environment. The obligation is to risk assess the business as a whole and not just the aspect that you are dealing with.
But why as a payroll provider would I need to undertake a risk assessment of my exposure to money laundering that covers the client as a whole? Well, I’d certainly feel a bit silly if I’d run the payroll for a company that turned out be a complete sham. But feeling a bit silly would be the least of my worries as I may just have been party to money laundering, which carries a potential jail term. So, yes, I do need to carry out a client wide risk assessment to protect myself.
As regards the generally recognised risks of running a payroll, most offences constitute a crime. The proceeds of such crime will be evident and, matched with intention rather than error, are likely to be money laundering.
Suspicion or knowledge of money laundering is reportable to the National Crime Agency (NCA).
The question that will need some further thought is what scope is there for a practice operating as a payroll bureau without accountancy and bookkeeping services to rely upon work undertaken by the client’s accountants or bookkeepers? The first thing to note is that whatever you may choose to rely on, the responsibility for compliance will still rest with the payroll bureau and not the third party sharing the information. Be sure that relying on a third-party doesn’t create, rather than prevent, a risk.
This extract of the Guidance, at para 6.1.15, should be etched in your mind: “An innocent error or mistake would not normally give rise to criminal proceeds (unless a strict liability offence). If a client is known or believed to have acted in error, they should have the situation explained to them. They must then promptly bring their conduct within the law to avoid committing a money laundering offence. Where there is uncertainty because certain legal issues lie outside the competence of the practitioner, the client should be referred to an appropriate specialist or legal professional.”
I would certainly recommend reading the Guidance; you may then see that AML is not that bad.
...a mindset, an approach to how you operate your business...
Compliance and risk management
Achieving AML success is well within your reach. Simply put, it’s a mindset, an approach to how you operate your business and a desire not to keep having to look over your shoulder. AML will protect your firm.
The real cost of AML is time and resource. If you want to stay in practice and out of jail, it’s essential to get it right.
The essential questions are: Do you know right from wrong? Can you identify a risk?
There’s no presumption of amazing legal knowledge or that you’re a police detective, just that you have a willingness not to turn a blind eye to the obvious.
When you’re considering any AML situation, there’s an imaginary person reviewing your actions and casting an independent eye over your decision making. If you’re questioning your own decision making, ask yourself what would the independent person say?
There’s also an assumption that you have an awareness of the state of the world. Would you choose to relocate yourself and your family to any particular country? That’s a pretty good indication of a country’s state of law and general stability and hence it’s money laundering risk. Ask yourself what factors would influence such a decision?
WE LOVE AMLCC
The following steps to AML success are a part of our training routine.
Write it down – AML is not the only part of our work where we find ourselves keeping notes of calls, meetings and decisions. For AML, if it’s not written down it didn’t happen. Remember you’ll need a firm policy, firm risk assessment and a risk assessment for all clients, which must be documented.
Educate and train – Training every member of your team is essential; why take the risk that something is missed? You’ll be responsible for what they miss. Training should be technical, practical and cover your processes, policies and controls.
Look out for a visit – You must have an AML supervisor who will monitor your AML compliance. Don’t forget that the police, trading standards and HM Revenue & Customs are amongst the bodies that could request evidence of your AML compliance.
Operational and organisational – AML is part of virtually everything that happens within a professional practice. The ‘stick-of-rock’ approach (the words run through it) is the simplest way to consider it, forming part of your firm’s ethos and how it interacts with clients. Many aspects of your existing processes and procedures will require only slight amendments to be fully AML compliant.
Verify and identify – You need to know and verify who your clients are and where they live. (How can you make a report to the NCA without knowing these details?)
Evaluate risk – Essentially, this is the actual risk to you of being exposed to money laundering. Demonstrating how you reached that conclusion is where the work comes in. Yes, there will be clients that will require more research and more work to understand and evidence but that’s quite normal.
Allocate resources – There’s no denying that there is a time and effort requirement to achieve compliance. The biggest step will be to get everything in place in the first instance; but once it’s done it will fall as part of your routine procedures and will place less of a burden.
Monitor and update – As your clients change, your firm changes and recognised sector risks change, so must your AML approach. Your control checks will help you to refine your procedures.
Law enforcement need to know – Reporting to the NCA is the end result of effective AML procedures. If you are asking yourself, is there a crime and are there proceeds, then it’s time to consider if a report should be made. Remember it includes suspicion and grounds for suspicion; what would someone looking over your shoulder think about what you’re faced with?
Counter terrorist financing (CTF) – AML and CTF compliance generally overlap, so don’t forget this important area.
Choose your clients to match your risk appetite – From discussions with accountants and bookkeepers in practice, it seems that most firms have at least one client that makes them feel slightly worried about what the client is up to. Either get the client to fall in with what you want or move them on.