Cash clean-up
1 Jul 08
Payroll professionals know startlingly little about new anti-money laundering legislation that came into force late last year. Tony Wilson suggests some first steps in keeping on the right side of the law
by Tony Wilson
Recent research found that an astonishing six out of 10 payroll providers were unaware of the penalties for non-compliance with UK anti-money laundering (AML) legislation.
The study, by my firm, Travelex Global Business Payments (GBP), in association with the Institute of Payroll Professionals (IPP) looked at understanding of new anti-money laundering (AML) legislation.
The survey was carried out jointly between the IPP and Travelex GBP in March among 88 payroll providers in the UK.
An obvious trend that emerged from our research is that the payroll provider community does not feel equipped with adequate information about new UK AML laws.
More startling is the fact that the legal consequences of non-compliance have not been made widely known.
In terms of having the infrastructure to deal with adhering to AML regulations, the survey also shows a lack of resources and confidence within organisations.
The key findings that transpired from the research expose a necessity for awareness-building and guidance from the leaders within the payroll industry.
The IPP is seeking answers on new AML legislation, but it has been a slow process.
It has been working with HM Revenue & Customs and the Treasury, yet there still seems to be confusion about who comes within the scope of the legislation and who does not in respect of payroll functions.
This highlights the need for not only payroll providers but other professionals affected by new AML legislation to seek up-to-date guidelines and advice.
We at Travelex GBP are aware of the significant role that the payroll provider community has to play in the movement of money within the economy, and therefore decided to team up with the IPP to help provide knowledge gained through our experience with the AML regulations.
The following aims to answer some common questions regarding AML in relation to the accountancy sector.
When did the new AML regulations come into force?
From 15 December 2007, AML legislation changed as a result of the UK’s implementation of the third EU Money Laundering Directive.
Approved by the European Parliament in October 2005, the directive was designed to further strengthen the AML legislation and that aimed at combating terrorist financing in the wake of continuing terrorist activity and an ever growing threat to the financial service sector from financial crime.
As a result of this change, EU member states were required to enshrine the directive into domestic legislation. The deadline for this to be done was set at December 2007.
The UK repealed the Money Laundering Regulations 2003 and replaced them with the Money Laundering Regulations 2007.
Why are new AML regulations needed?
The importance of the new regulations lies in how they take into account the increasing risk of the financial services sector being abused by criminals and terrorists to move assets around the globe with relative anonymity. It has been recognised that a tighter regulatory regime can dissuade such abuse at the same time as helping protect legitimate business.
The new AML regulations will not only affect auditors, accountants and tax advisors.
They cover the large number of businesses and individuals set forth below:
• Banks;
• Building societies;
• Money transmitters;
• Bureaux de change;
• Cheque-cashers;
• Savings and investment firms;
• Independent legal professionals
• Trust or company service providers;
• Insolvency practitioners;
• Estate agents;
• High-value dealers;
• Casinos.
How does new AML legislation compare with the regulations revoked from 2003?
Many of the requirements under the previous 2003 regulations have not been altered
significantly. New developments arising from the 2007 regulations are:
• The risk-based approach to the establishment and application of anti-money laundering policies and procedures;
• Identification of politically exposed persons (PEPs);
• Definition of beneficial owners;
• Formal requirement to carry out on-going monitoring;
• The ability to rely on certain third parties for evidence of customer due diligence measures taken.
Furthermore, many obligations imposed on practitioners have not been significantly altered by 2007 regulations. Examples of such obligations are:
• Customer identification and record-keeping procedures;
• Reporting of suspicious transactions;
• Appointment of a nominated officer to file reports.
The reporting obligations also extend to similar activities relating to terrorist funds, which include funds that are likely to be used for terrorism, as well as the proceeds of terrorism under the Terrorism Act, 2000 (as amended by the Anti-terrorism Crime and Security Act 2001).
How should the accountancy sector avoid the associated penalties that come as a consequence of non-compliance to the new AML legislation?
Most importantly, accountants should anticipate performing an enhanced level of customer due diligence. Specifically, this will focus on a client’s ownership structure, along with the identification of shareholders and key decision-makers of the organisation.
Moreover under the Money Laundering Regulations 2007, businesses within the accountancy sector are required to establish appropriate risk-sensitive policies and procedures to prevent activities related to money laundering and terrorist financing including those policies and procedures which provide for:
• Identification and scrutiny of complex or unusually large transactions, unusual patterns of transaction with no apparent economic or lawful purpose and other activities regarded by the regulated person as likely to be of the nature of money laundering or terrorist financing;
• Prevention of use of products favouring anonymity;
• Determination of whether a client is a PEP;
• Customer due diligence – that is, procedures designed to acquire knowledge about the firm’s clients and prospective clients and to verify their identity as well as monitor business relationships and transactions;
• Appointing a nominated officer (sometimes referred to as a money laundering reporting officer) to receive internal reports from the business regarding possible money laundering reports and to file suspicious activity reports with the government when warranted, as required under the Proceeds of
Crime Act 2002 and the Terrorism Act 2000;
• Record keeping, including details of customer due diligence and supporting evidence for business relationships, which need to be kept for five years after the end of relationship and records of transactions, which also need to be kept for five years;
• Internal control, risk assessment and management, compliance monitoring and management communication;
• Training employees about money laundering and terrorist finance laws and regulations and how to recognise and deal with transactions which may involve this type of activity.
It is also worth mentioning that in order to ensure compliance is appropriately managed, accountancy firms will need to ensure sufficient senior management oversight, appropriate analysis and assessment of the risks of clients and work/product types, systems for monitoring compliance with procedures and methods of communicating procedures, and other information to personnel.
In conclusion, we at Travelex GBP fully support the introduction of the Money Laundering Regulations 2007.
This legislation represents another positive move in the Government’s “deter, detect and disrupt” campaign against crime and terrorism and we were pleased to be part of the consultation process on implementation.
With money laundering estimated to cost Britain’s economy up to £20 billion a year, the increased focus brought by the new regulations will help minimise the risks associated with it and further enhance the UK financial sector’s global reputation.
• Source: Anti-Money Laundering Guidance for the Accountancy Sector from the Consultative Committee of Accountancy Bodies www.ccab.org.uk/documents.php
TONY WILSON is UK divisional director of Travelex Global Business Payments.a