Anti-Money Laundering Legislation PDF

This module will introduce key anti-money laundering legislation. You need to be clear about: what money laundering is what the potential offences and penalties are under anti-money laundering legislation how anti-money laundering legislation affects reporting suspicions...

This module will introduce key anti-money laundering legislation. You need to be clear about: what money laundering is what the potential offences and penalties are under anti-money laundering legislation how anti-money laundering legislation affects reporting suspicions of money laundering and confidentiality. First, let's cover some definitions and explanations of the rules in stages. There will be some quick tests of knowledge in each area. Money laundering occurs every time any transaction takes place or any relationship is formed that involves any form of property or benefit that has come from any crime i.e shares, cars, art etc. This includes turning money from the illegitimate economy into money in the legitimate economy. For instance, money that is dishonestly retained by your client or employer after an error or omission has been discovered on a tax return is criminal property – and keeping this money amounts to money laundering. Money laundering is criminalised by the Proceeds of Crime Act 2002 (POCA). Detailed anti-money laundering requirements are contained in the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLR). Money laundering also encompasses activities relating to terrorist financing, including handling or possessing funds to be used for terrorist purposes as well handling the proceeds of terrorism. Terrorist financing is regulated by the Terrorism Act 2000 (TA). Money Laundering can be split into 3 stages. Placement: which is when the criminal proceeds are deposited into the financial system. Layering: is where the money is moved and transferred in an attempt to hide the original source. Integration: is when the money is finally extracted via a legitmate looking business transaction. Money laundering (including terrorist financing) is a criminal offence regardless of how small the amount of money involved is – there is no de minimis exception. ‘de minimis' here means ‘small things': there is no exception from the law for even the smallest amounts if it is money laundering If you spot an error on your tax return, and realise that your income had been under declared to HMRC, and fail to pay the tax due, you have committed money laundering. True or false? Retaining the proceeds of tax evasion are criminal and therefore a professional accountant’s involvement with these funds could be a money laundering offence, as the money has become criminal property and you are in possession of it. What are the Proceeds of Crime Act (POCA) offences? There are four types of money laundering offences. Let's consider each of the different types: Money laundering itself is an offence that any person can commit. According to POCA, it means a person: concealing, disguising, converting or transferring criminal property, or removing criminal property from the UK entering into or becoming concerned in an arrangement which he/she knows or suspects facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person acquiring, using or possessing criminal property unless the person gave adequate consideration for it (he or she gave inadequate consideration if the value of the consideration is significantly less than the value of the property, for example, if £10 was given in exchange for a brand new car, this would not be enough to pay for a new car). That person does not commit a money laundering offence if they report the offence in an authorised disclosure. This may be done in two ways: directly to the National Crime Agency (NCA) in a Suspicious Activity Report (SAR) if they are a sole practitioner, an accountant in business, or anyone else reported to the Money Laundering Reporting Officer (MLRO) in an internal report, if they are an accountant working in an accounting firm (The MLRO then reports onto the NCA). The maximum penalty for money laundering is 14 years in prison and/or an unlimited fine. Prejudicing an investigation is also an offence under POCA that any person can commit. It means knowing about a money laundering investigation by NCA or the police and: disclosing information to someone which means that the investigation is likely to be prejudiced (for instance telling the suspect that the authorities know where assets are hidden, so the suspect has an opportunity to move them) falsifying, concealing or destroying documents relevant to the investigation. The maximum penalty for prejudicing an investigation is five years in prison and/or a fine Failure to disclose is an offence under POCA that can only be committed by professional people who have information that they obtained in the course of business in the ‘regulated sector'. This includes AAT licensed members. It means failing to disclose in an internal report, or a SAR to the NCA, that you have knowledge, or suspicion, or reasonable grounds for suspicion that money laundering is occurring. The maximum penalty for failure to disclose is five years in prison and/or a fine. Tipping off is an offence that again can only be committed by professional people who have information that they obtained in the course of a business in the ‘regulated sector'. This includes AAT licensed members. It means telling someone (for instance the suspected money launderer), in circumstances that are likely to prejudice any investigation, that a report has been made about knowledge or suspicion of money laundering, or an investigation into money laundering allegations is being contemplated or carried out. The penalty for this offence is a prison sentence and/or a fine. Acquiring, using or possessing criminal property is a money laundering offence unless adequate consideration (money or other assets that represent the value of the property) was given for the property. this case the member works for a large firm of accountants, so the authorised disclosure should be in an internal report to the MLRO rather than a SAR to NCA. Falsifying, concealing or destroying documents relevant to a money laundering investigation is the offence of prejudicing an investigation, not money laundering. Failure by an AAT licensed member to disclose knowledge or suspicion of money laundering is an offence punishable by up to five years in prison and/or a fine. It is important for you to understand that the AAT member should not wait to have actual knowledge, including evidence, of money laundering before he/she makes a report. If he/she has reasonably well-founded suspicions of money laundering then he/she should disclose this in a report. As an AAT licensed member working within the regulated sector revealing the existence of a law enforcement investigation can amount to an offence of tipping off under (POCA 333A). Such conduct is likely to prejudice that investigation. We have seen that anyone who makes a report as an authorised disclosure about his or her own money laundering may have a defence against a charge of actual money laundering. Failing to report knowledge or suspicion of money laundering by another person is in itself an offence for an AAT licensed member. So clearly reporting in the right way is very important. Both an internal report to an MLRO, and a SAR to the NCA, should contain the required disclosure. The identity of the suspect (if known). Information or other matters on which the knowledge or suspicion of money laundering (or reasonable grounds for such) is based. The whereabouts of the laundered property (if known). A SAR should be filed within 30 days of the determination of the activity. This can be extended to 60 days should you require extra time to identify the suspect. When a licensed member wishes to submit a SAR if the member is a sole practitioner they may submit the SAR directly to the NCA. However, where the licensed member is working in a firm they should refer all unusual activity to the nominated officer/MLRO by filing an internal SAR to assess whether the activity should be reported to the NCA. It is the whereabouts of the laundered property that must be disclosed if known, not necessarily the whereabouts of the suspect. The suspect’s identity must be disclosed, however, if known. A required disclosure about money laundering made by an AAT licensed member, in the correct form is a protected disclosure. This means that the member is protected from allegations of breach of confidentiality, as the disclosure is required by law. An AAT licenced member whose client, after having had notice of it and a reasonable time to reflect, refuses to disclose an error or omission to HMRC must: report the client's refusal and the facts surrounding it to the MLRO or NCA (not to HMRC, because of confidentiality) cease to act for the client in connection with that matter. An AAT member in business whose employer refuses to disclose an error or omission to HMRC does not have to send a report to NCA as he/she is not working in practice and therefore cannot commit the offence of failure to disclose. However, he/she should report it as an authorised disclosure to NCA if he/she has acted in relation to the error or omission, as this may provide a defence to the charge of money laundering itself. If the AAT member in business did not act in relation to the error or omission, he/she does not have to report the matter to the authorities – although it will be a protected disclosure if such a report is made. An AAT licensed member working as a sole practitioner sent a correctly completed SAR to NCA about a client, detailing his suspicions of money laundering. These suspicions later proved to be unfounded. The client can now sue the AAT member for breach of client confidentiality. This was a required disclosure and therefore is a protected disclosure required by law. In these circumstances the AAT member is protected from any action by the client for breach of confidentiality. An AAT member in business has realised that an error in the company's tax return to HMRC made by one of her colleagues means that the company has underpaid tax and is now in possession of criminal property. The member must make a required disclosure to NCA about this. Because she works in business rather than an accounting practice the offence of failure to disclose does not apply, and because she was not involved in preparing the tax return she does not need to be protected from a money laundering charge by making an authorised disclosure. Both these points mean that the member is not obliged to disclose. Jenny Goldwyn has recently joined Unsworth LLP who are a small firm of accountants which provide a range of professional services to its business clients. Jenny’s first assignment is to work on the preparation of financial statements for a long-standing client, Howe & Smith Ltd. Jenny cannot find any information relating to onboarding or client identification in the permanent file so contacts her manager. Due diligence checks should be documented, reviewed, and updated regularly. How frequently this is done should be on a risk basis and should include both periodic reviews and reviews based upon specific events. Even though Howe & Smith Ltd have been a client for a long time, Unsworth LLP should still be undertaking due diligence checks as clients circumstances regularly change. If you identify an accountancy firm that is supervised by AAT and appears to be failing to adhere to The Money Laundering Regulations , you can report it confidentially to AAT via our Anti-money laundering whistleblowing helpline. Information on how to make a report in confidence can be found here(opens in a new tab). The following list is essential to professional ethics for accountants: what money laundering is what the potential offences and penalties are for AAT licensed member and for other AAT members an authorised disclosure by someone involved in money laundering may protect him/her from a charge of money laundering the disclosure or reporting rules for AAT members in practice; in particular the fact that a sole practitioner should make the required disclosure in a SAR to NCA, while other AAT members in practice should make it in an internal report to their firm's MLRO a required disclosure made in the proper form is a protected disclosure, so the AAT member is protected from an action for breach of confidentiality.