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Introduction to Money Laundering Regulations

Money laundering can be harmful on many varying levels, affecting businesses, economies and entire countries. It can include things such as money, or assets, that have been obtained criminally, funding for terrorism, or other assets that are "clean", meaning there is no obvious link to criminal activity.

Surrounding this, the UK has Money Laundering Regulations (MLR) which apply to a number of different business sectors to help reduce the amount of money laundering throughout the UK. Those included are financial and credit businesses, accountants and estate agents, amongst others.

Is money laundering really a problem?

According to the National Crime Agency (NCA), it's predicted that the amount of money laundering is equivalent to some 2.7% of global GDP or US$1.6 trillion in 2009. It's estimated to cost the UK an estimated £24 billion a year.

Criminals can use a variety of methods in order to launder money, however, these usually fall into one of two categories:

  1. Cash-based money laundering - this involves the physical movement of currency over national borders. It often includes larger sums being broken down into small amounts to try and avoid detection.
  2. High-end money laundering - this usually involves transactions of larger values and includes the abuse of the financial sector. However, this is a specialist type of money laundering.

A case full of money

How do I meet the requirements of the regulations?

There are a number of different ways your business can meet the requirements of the regulations; this can mean having controls in place to prevent your business from being used for money laundering. These controls include:

  • Assessing the risk of your business being used for money laundering by criminals
  • Checking and confirming the identity of your customers
  • Checking and confirming the identity of beneficial owners of corporate bodies and partnerships
  • Monitoring the activity of your customers' business and reporting suspicious activity to the NCA
  • Having all the necessary management control systems in place
  • Keeping all documents relating to financial transactions, risk assessments, management procedures and processes and the identity of your customers
  • Ensuring your employees are aware of the regulations and have been trained to a required standard

If your business has employees, you will need to appoint an Officer, known as a "Money Laundering Reporting Officer" or "Nominated Officer", who must be informed about any suspicions of money laundering or financing of terrorism by another person or organisation. The Officer may need to report this to the NCA.

What if I don't have employees?

As the only person in the business, you would also be the Nominated Officer and therefore responsible for their role too.

Monitoring by a Supervisory Authority

Every business that falls into the scope of the MLR needs to register with a supervisory authority. However, depending on how you operate, you may already be registered without realising it. For example, those registered with the Financial Conduct Authority (FCA) or are part of a professional body like the Gambling Commission are already registered.

HMRC can be the supervisory authority for certain industries, which include:

  • Money service businesses (who are not supervised by the FCA)
  • High value dealers
  • Trust or company service providers (who are not supervised by the FCA or another professional body)
  • Estate agency businesses (including those who operate solely online)
  • Accountancy service providers (who are not supervised by a professional body)
  • Bill payment service providers (not supervised by the FCA)
  • Telecom, Digital and IT payment service providers (not supervised by the FCA)

If your business carries out activities that are typically associated with any of the above, you will need to register with HMRC. If you fail to do so and carry on with business activity, it could result in a penalty or prosecution.

Know Your Customer (KYC)

Part of the process of ensuring your customer's activities are above board, is by performing what they call, KYC checks. This includes a range of activities such as asking for copies of documents (like certificates of incorporation, passports etc.) or asking simple questions (such as business activity, funding and others).

If you've opened a bank account for example, it's likely that you've gone through these checks yourselves. Banks are one of the main parties subject to MLR and carry out checks on new customers as one of the main defences against money laundering.

Continue Reading

You can read more about the money laundering regulations on the Gov.UK website.

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