29. Enforcement and compliance
Describe any national trends in criminal money laundering schemes and enforcement efforts. Describe any national trends in AML enforcement and regulation. Describe current best practices in the compliance arena for companies and financial institutions.
The chapter highlights many of the past year’s statutory and regulatory developments and trends relating to AML supervision and enforcement. The following highlights a few of these.
Anti-money laundering supervision and enforcement reform
In January 2019, the NCA confirmed that over 460,000 SARs were submitted in its 2017/18 reporting year, of which around 23,000 requested a defence against money laundering. These led to 52 arrests and nearly £58 million being denied to criminals. With UK banks said to be spending over £5 million per annum on financial crime compliance, however, some commentators have questioned whether the current anti-money laundering supervision and enforcement framework is working.
The UK Parliament’s House of Commons Treasury Select Committee (TSC) indicated that significant reform is required in its March 2019 report ‘Economic Crime - Anti-money laundering supervision and sanctions implementations’. In total, the TSC made 36 recommendations to improve the UK’s response to the threat of economic crime. These included the need to reform the SAR regime, improving the quality and volume of SARs submitted to the NCA and minimising complications caused by delays in the NCA granting consent to financial transactions.
The TSC’s report also acknowledged the FATF updated mutual evaluation review of the UK’s AML controls, published in December 2018. In summary, the FATF found that UK had a robust understanding of its money laundering and terrorist financing risks, with the JMLIT enhancing public or private information sharing and the OPBAS designed to ensure high standards of AML supervision across the 22 bodies for which it is responsible. However, the FATF also found that AML cases tended to be of the simpler variety, the vast majority of SARs came from a small number of financial institutions, and the data received by the NCA (as the UK’s FIU) was not being used to the fullest extent possible.
OPBAS also reported in its March 2019 report ‘Themes from the 2018 OPBAS anti-money laundering supervisory assessments’ that it had found that 91 per cent of relevant professional body supervisors (PBS) were not fully applying a risk-based approach to supervising members (a requirement under the Regulations); and had varying levels of understanding of risks in their sector. OPBAS has asked all PBSs to develop a suitable strategy to address its findings, and will be monitoring how those strategies are implemented.
Criminal enforcement tools
Recent law reforms have added to the powers available to agencies tasked with criminal investigations and prosecutions involving money laundering offences. Two of the more significant developments are:
- UWOs, which the court may grant on application by an authority and which requires the subject to explain how they lawfully obtained their assets (if they fail to do so, the assets are presumed to be recoverable under civil recovery proceedings); and
- AFOs, which extend existing POCA cash forfeiture powers to bank account balances exceeding £1,000 where there are reasonable rounds for suspecting that the money held in the account (in whole or part) is property obtained through, or intended for use in, unlawful conduct.
On 28 February 2018, the NCA announced that it had secured its first UWOs in relation to £22 million of assets that it believed were ultimately owned by a PEP. The court also granted interim freezing orders to restrain the assets. One of the UWOs was directed at Zamira Hajiyeva, wife of the former chairman of the state-owned International Bank of Azerbaijan (who was jailed for 15 years for fraud and embezzlement). Although Ms Hajiyeva challenged the UWO, on 3 October 2018 the High Court ultimately found that the statutory criteria for making the order had been met and dismissed her action (see National Crime Agency v Hajiyeva  EWHC 2534 (Admin)).
Given the NCA’s success, and Director Donald Toon’s statement last year that UWOs were being considered in ‘100s of cases’, there is every chance that we will see more UWOs over the coming year.
AFOs also provide a simpler means for authorities to freeze and ultimately forfeit credit balances in bank accounts. These instruments have been well used over the past 12 months, with the most recent announcements in March 2019 confirming that the NCA had managed to freeze 95 accounts totalling £3.6 million amid suspicions they were being used by third parties to launder proceeds of crime, and the UK SFO had also managed to freeze and forfeit around £1.5 million from a convicted fraudster. These tools are also likely to see continued use over the coming 12 months.
In April 2018, the FCA published its Business Plan for 2018/19, setting out its key priorities for the coming year. The Business Plan identified fraud, scams and AML among its cross-sector priorities. Among the measures taken by the FCA are: regular inspections of the largest financial services firms, as well as other firms that the regulator believes present high money laundering risk; interviewing key personnel in the context of authorisation applications; consumer alerts; and enforcement tools such as business restrictions and regulatory and criminal investigations (see below).
The FCA’s Annual Report and Anti-Money Laundering Report for 2017/18, published in July 2018, confirmed these cross-sector priorities and detailed the results of the FCA’s Systematic AML Programme (a series of deep-dive inquiries into 14 major retail and investments banks in the UK). In summary, the FCA found a general improvement in firms’ AML compliance programmes, but identified a number of key weaknesses; chief among which were insufficiently detailed AML risk assessments and a failure to apply enhanced due diligence for high risk customers (including PEPs).
As indicated at question 3, OPBAS was also created in January 2018 to supervise the UK’s 22 professional body AML supervisors and ensure that they provide consistently high standards of AML supervision.
Following the enforcement action against Deutsche Bank in 2017, where the FCA levied a £163 million financial penalty for serious shortcomings in the bank’s AML control framework, Canara Bank was fined £896,100 in June 2018 for similarly failing to maintain adequate AML systems. Canara Bank also failed to take sufficient steps to remedy weaknesses identified by the FCA some five years previously.
Senior FCA executives have also indicated in a number of speeches that the regulator has a large number of enforcement cases in the pipeline, including a number of serious AML systems and controls breaches. Although the FCA has acknowledged that the exercise of criminal powers will remain relatively exceptional, with civil or regulatory powers continuing to be the norm, it has indicated that it will not shy from employing the full suite of enforcement remedies available to it.
Current best practice
Current best practice in the compliance arena for companies and financial institutions within the regulated sector is guided by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which now includes a requirement to conduct a risk assessment of money laundering and terrorism-financing risks to ensure that they are taking a risk-based approach to AML. With the increasing complexity of regulation, technology is becoming an important element in setting up effective and efficient compliance processes and procedures. The FCA, for example, has highlighted 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.
Trends towards ever deeper information sharing between financial crime agencies on an international basis reflect an emphasis on combatting the flow of criminal proceeds across borders. A recent example of such initiatives is the establishment of the International Anti-Corruption Coordination Centre (IACCC), including agencies from Australia, Canada, New Zealand, Singapore, the UK and the USA, which has a rotating secretariat and will be hosted by the UK until 2021.
Similarly, the development of structures in the UK and internationally (such as JMLIT), fostering public-private sharing of intelligence on AML threats, underscores that the best compliance programmes adopt a risk-based approach, and continually evolve and improve to combat new challenges posed for anti-money laundering professionals, law enforcement agencies, and others in the legal and compliance community (both in the regulated and non-regulated sectors).
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