With money laundering
coming under ever-closer scrutiny, Aziz Rahman explains why you need to make
sure your preventative measures are good enough.
The legislation relating to money laundering has become
tighter over the years as the authorities seem increasingly determined to
tackle the problem.
A number of incidents in recent months that we detail here have
illustrated the need for those in business to have anti-money laundering
procedures in place. But they also indicate that those introducing and
maintaining procedures must make sure they are fit for purpose. If they don’t
do what they are supposed to – prevent money laundering – they are worthless.
Recently, Deutsche Bank, the Bank of Ireland and BNP Paribas
were all punished for failing to do everything possible to prevent money
The US Federal Reserve fined Deutsche Bank $41 million and criticised its “unsafe and unsound
practices’’ for failing to maintain money laundering controls – just months
after the bank was fined $629 million for failings that allowed wealthy
Russians to allegedly launder $10
Bank of Ireland was fined 3.15 million euros by the
country's central bank for “significant failures” in its anti-money laundering
controls; including 12 breaches of Irish anti-money laundering laws, not
reporting six suspicious transactions and failing to carry out sufficient
checks on a politically exposed person.
Similarly, French authorities fined BNP Paribas 10 million
euros for inadequate anti-money laundering controls, after a 2015 inspection
showed shortcomings in the bank’s prevention procedures.
It is worth noting that all three banks had anti-money laundering
procedures: they were punished because those measures were not good enough.
It is an outcome that everyone in business can learn from.
If your preventative measures are not adequate they will provide no protection
against the money launderers – or the investigating authorities.
Foreign authorities are making more money laundering enquiries
in the UK than ever before. The National Crime Agency (NCA) believes that more than
£90 billion is laundered each year through the UK and European Union ministers are
improving cooperation between its countries to boost the prosecution of money
Such factors prove that money laundering is coming under
greater scrutiny. Those found to have inadequate anti-money laundering
procedures will find little scope for escaping punishment.
The Fourth EU Money Laundering
Directive (4MLD) came into force in June 26, 2015 and places more obligations
on banks and other financial institutions. It removes the automatic right to
exempt certain customers or investors from due diligence checks, demands more
transparency on beneficial ownership and imposes an obligation to carry out risk
assessment and monitoring on customers. It also requires more due diligence on
people or organisations from what are deemed to be high-risk countries and on
politically exposed persons (PEP’s), their relatives and close associates.
So what needs to be done to ensure your procedures are fit
The quick answer is be alert, aware and proactive regarding
prevention. If you take the right steps to prevent money laundering, it almost
goes without saying that your business is unlikely to be affected by it.
Money laundering is the disguising of the origins of money
that is the proceeds of crime. A person can launder their own criminal proceeds
or have it done for them by another person. Both of these are offences under
the Proceeds of Crime Act 2002 (POCA).
If you implement adequate procedures that deny the
opportunity for a person to launder money, you will not face problems in the
future. And even if you do, you have a valid defence if you can demonstrate
that you had taken all possible precautions to prevent it.
Let’s make this clear. This does not mean setting up a
review of working procedures, drafting some rules on preventing money
laundering and telling staff about them. That is simply not enough. If you
don’t believe this, ask the three banks I mentioned earlier: they had all done
that and yet paid the penalty for not doing enough.
We do not know exactly how or why those banks got it so
wrong. But preventing money laundering means scrutinising a would-be client or
trading partner’s identity and background, as well as that of anyone else who
wants to move money in or out of a business. It means checks on who exactly
benefits from a transaction and the relationships between everyone involved.
Indicators of money laundering can include a vagueness or
reluctance to talk about the people and amounts involved in a transaction,
strange conditions being insisted upon (especially regarding the movement of
money) and a company being asked to be party to a deal “out of the blue’’, with
no clear reason given for this.
Your procedures have to recognise and be a response to all
Specialist legal help is available for those requiring
assistance when devising and introducing anti-money laundering procedures.
Limits on the size of cash-only deals, appointing certain staff to examine
transactions and restrictions on access to company accounts can all reduce the
potential for laundering.
Yet such procedures need to be monitored and tested
regularly and, if necessary, revised. A failure to ensure your procedures are
at their maximum effectiveness means a greater risk of money laundering. Again,
specialist help can be hired to assess the ongoing strength of compliance procedures
and make the necessary changes.
Random sampling of firms covered by the Money Laundering
Regulations was announced last year by the Financial Conduct Authority (FCA).
While such a measure is limited to firms considered to be high risk, such an
approach could bring extra security to any company looking to design out the
risk of laundering.
Regular and intensive auditing, both by staff and external
bodies, will also go a long way to identifying a firm’s weaknesses to money
laundering. But this is only if they are conducted with an awareness of the
potential risks associated with that company’s size, type of business and the
trade sector and geographical area it works in.
Just as poorly-devised and badly-run prevention procedures
will do little to stop money laundering, weak or non-existent checks on any procedures
introduced will not ensure those measures are doing what they are supposed to.
Creating the procedures is only the first part of a
commitment to preventing money laundering. Making sure they are doing what they
are supposed to do is an ongoing commitment.