National trends in criminal money laundering schemes
In October 2017, the UK government released its second national risk assessment of money laundering and terrorism financing. This identified that financial and other professional services were at substantial risk of being exploited in relation to high-end money laundering, typically involving the laundering of frauds, corruption or tax evasion. A national strategic assessment produced by the NCA in 2017 commented there is clear progression by money launderers from cash-based techniques into such trade-based and high-end money laundering methodologies, controlled by individuals overseas.
The purchase of property in the UK through offshore companies (in particular within London) was highlighted as a significant risk, as well as corporate entities set up in a way to disguise beneficial ownership and opaque business structures with significant usage of third-party payments to businesses. Looking forward, the use of financial technology such as e-wallet technology and cryptocurrencies was also identified as an enabler for financial crime including money laundering.
On specific schemes, Cifas, a UK fraud prevention organisation, has highlighted increases in misuse of facility frauds, for instance, where individuals are targeted and recruited by organised criminals to access their bank account to be used to facilitate the movement of the proceeds of crime.
National trends in criminal enforcement efforts
Since the publication of its AML and counter-terrorism finance Action Plan 2016, the UK government has been putting in place a wealth of reforming measures to enhance criminal enforcement efforts. These measures have included the CFA, which has enhanced law enforcement powers to investigate and seize the proceeds of crime by introducing UWOs (see question 2), extending disclosure orders so that they cover money laundering investigations, and widening civil recovery powers. The NCA also has already begun to use its UWO powers and the first UWOs were granted in February 2018.
The money laundering reporting regime has also been amended by the CFA to provide a gateway for information sharing between regulated firms (see question 20), and to allow the NCA to make applications to extend the period of time it has to investigate a matter following a disclosure in situations where the NCA has refused consent for a transaction to proceed.
As mentioned in questions 3 and 25, the government has also recently supported the creation of the JMLIT (see question 3) and the IACCC (see question 25), both of which have been set up to improve enforcement efforts in relation to money laundering and other economic crimes.
Tackling complex money laundering has also been identified as one of the top six national priorities for agencies tackling serious and organised crime. The government currently considering whether to introduce criminal offences designed to prevent economic crimes such as money laundering, fraud and false accounting when committed on behalf of or in the name of corporates. Such an offence would make it easier to bring prosecutions against corporates and would accordingly have a far-reaching and substantial effect in the field of AML. The government undertook a consultation examining the case for reform on this topic last year, and is expected to publish its response to this call for evidence in early 2018.
There are also plans to publish an asset recovery action plan in 2018 to improve performance in the asset recovery regime, plans to introduce the world’s first public register listing the ultimate owners of foreign companies that own UK property, and is expected to produce draft laws in summer 2018 with the intention of the register coming into effect in early 2021.
National trends in AML enforcement
The government’s recent AML and counter-terrorism financing supervision report 2015-17 summarises recent supervisory activity, showing that across the regime there has been an increase in the use of most enforcement actions between 2014/15 and 2015/16, with a slight dip in 2016/17.
In particular, there has been a significant increase in FCA enforcement action in this area, and in January 2017 the FCA fined Deutsche Bank £163 million for serious failings in its AML controls, its largest-ever financial penalty for AML failings. HMRC has also taken on more enforcement action in recent years. The FCA’s emphasis on enforcement appears set to continue, and in its 2017/2018 Business Plan, it highlighted that although it will generally use its civil powers enforcement powers where firms have poor AML controls, if failings are particularly serious or repeated it may use its criminal powers to prosecute firms or individuals.
As mentioned at question 3, the government has recently introduced the watchdog OPBAS to improve supervision, which will, as a consequence, lead to effective and proportionate enforcement. OPBAS’s purpose is to work with the 22 professional body AML supervisors to ensure they are providing consistently high standards of supervision, to introduce consistent standards across the different supervisors and to facilitate information-sharing.
National trends in AML regulation
The introduction of the new regulations has led to a number of changes to AML regulation in line with the government’s AML and counter-terrorism finance Action Plan 2016. The new regulations have emphasised the risk-based approach to AML procedures and a move away from any ‘tick-box’ approaches to such exercises.
There is also a growing national concern on the use of cryptocurrency and e-wallet technology for uses involving money laundering and terrorism financing, and the UK government has recently been negotiating an amendment to the 4th Money Laundering Directive that will result in virtual currency exchange platforms and custodian wallet providers being brought into AML regimes and require supervision from the relevant national authority. The UK government has also announced that it has launched an enquiry into digital currencies and distributed ledger technology, including looking at the regulatory response to digital currencies from the government, FCA and the Bank of England and how to improve and enhance this.
A Sanctions and Anti-Money Laundering Bill is currently going through the House of Lords, which includes clauses enabling ministers to make regulations about money laundering and terrorism financing, to enable regulations to be made to implement international regulatory standards once the UK ceases to be a member of the EU.
Current best practice
Current best practice in the compliance arena for companies and financial institutions is guided by the prescriptive regulations, which now includes a requirement to conduct a risk assessment of money laundering and terrorism-financing risks to ensure that regulated firms are taking a risk-based approach to AML. With the increasing complexity of regulation, technology is becoming an important element setting up effective and efficient compliance processes and procedures. The FCA has recently produced a report highlighting the benefits of using new technologies in AML compliance, and also has a ‘regulatory sandbox’ where businesses can test innovative products, services, business models and delivery mechanisms, as well as considering creating a global sandbox.
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