Frequently Asked Questions Regarding Anti-Money Laundering (AML)
1) What is Money Laundering?
Money Laundering is the process by which, criminals attempt to make the proceeds of crime appear legitimate with no obvious links to their criminal origins. This is achieved by three processes:
1. Placement – Placing of the proceeds of crime
2. Layering – Hiding of the proceeds from their criminal origin by ‘layers’ of transactions
3. Integration – Creating a legitimate explanation for the proceeds
2) Who needs to perform Anti-Money Laundering checks?
Solicitors, accountants, tax advisors, insolvency practitioners, financial institutions, credit institutions, estate agents, chartered surveyors, trust/service providers, gaming companies and high value dealers with the potential for a business relationship worth over 15,000 Euros, such as automotive dealers and jewellers.
3) Why do I need to perform Anti-Money Laundering checks?
The Anti-Money Laundering regulations are governed by 4 Acts: The Proceeds of Crime Act, The Serious Organised Crime and Police Act, The Terrorist Act and the Money Laundering Regulations. . Failure to report suspicious activity can carry a criminal sentence and lead to substantial fines from the relevant regulatory body.
4) I have dealt with my clients for many years , do I still need to carry out Customer Due Diligence?
You need to keep CDD up-to-date for all your clients. You may have sufficient documentary ID details on your files but if there has been any subsequent change to their circumstances or risk profile, you should update your CDD. It is advised to review clients’ CDD on a regular basis.
5) Who enforces the Anti-Money Laundering regulations?
The AML regulations are enforced by a range of regulatory bodies. Guidelines are set by the JMLSG (Joint Money Laundering Steering Group) and enforced by the FCA/PRA (Financial Conduct Authority/ Prudential Regulation Authority), the SRA (Solicitors Regulation Authority in England), OFT (Office of Fair Trading), HMRC (HM Revenue & Customs), ICAEW (Institute of Chartered Accountants in England & Wales, plus other Accountancy bodies), RICS (Royal Institute of Chartered Surveyors) and more.
6) What is Electronic Verification?
In order to prevent fraud and money laundering it is important to verify individuals carrying out financial transactions. Previously documentary evidence was relied on to verify an individual. These may not always be available and they can also be easily forged or altered therefore electronic verification provides extra security and reduces risk against money laundering and fraud.
Electronic verification removes the need for the customer to be present, this saves time and helps support customer relationship building. The risk of money laundering is reduced as several data sources are called upon to verify the customer rather than just relying on documentary evidence.
7) If I collect Passports and Driving Licences, why do I need to check anything else?
EV can check a wider range of information, thus providing a more thorough knowledge of your client (KYC – Know Your Customer). In addition, it can also enable you to check other data sets such as PEPS and Sanctions lists, which is advisable and specified by the 3rd European Money Laundering Directive.
With fraudulent documentation on the rise, there is a need to refocus efforts on identifying them. Electronic verification is designed to remove the risk of receiving potentially fraudulent documents; therefore you can have a greater level of confidence in their authenticity. Various checks are carried out on the documents to confirm as much as possible, therefore reducing the risk of ID fraud.
8) Online systems are too expensive, what if I cannot afford it?
There are often hidden costs associated with taking paper documents, which are not always immediately recognisable. For example, if dealing with a client at distance, the posting through of important documents by recorded delivery in order to ensure they do not get lost carries a charge, which is often more than the cost of an electronic search. If the documents are then lost, there is then the cost of replacing the documents for your potential client. This may also be more time-consuming as a process, but by performing a quick electronic search, could this then allow for more searches to be performed and in turn, increase the number of clients taken onboard?
9) Why are you allowing me to see sensitive information?
The information held in electronic systems is consented for use in these systems. For an AML check, the Full Electoral Roll is allowed for this purpose and this is covered in the Representation of the People Act (2002). When a Credit Reference Agency (CRA) utilises financial records in an AML check, it does not show any financial details, apart from the information necessary to ID someone.
10) What are Politically Exposed Persons, Specially Designated Nationals and Financial Sanctions and why do I need to check them?
It is recommended by the 3rd European Money Laundering Directive to have a procedure in place to check PEPs, SDNs and the HMT Financial Sanctions. A PEP is a Politically Exposed Person, and is someone who holds a prominent public position, or an individual linked to them. An SDN is a Specially Designated National , on a list which specifies that US Citizens are not permitted to conduct business with them. The HM Treasury Financial Sanctions list specifies individuals with whom it is prohibited to transfer or make funds available to.