Responsibility for preventing the movement of money resulting from criminal activities isn’t just limited to large financial institutions. Anti-Money Laundering rules, or AML for short, mean that businesses must also make sure they understand and comply with anti-money laundering regulations.
Most have heard of it, but few of us probably understand the scope of what authorities consider to be money laundering, particularly in the UK. Money laundering is any activity carried out to disguise the proceeds of crime.
The term “proceeds of crime” doesn’t just refer to cash from drug dealing or theft.
It also encompasses funds or assets which are acquired as the result of fraud, bribery, corruption, or tax evasion by individuals, organisations, or states.
Money laundering can come in several forms, such as using illegally-earned funds to purchase goods or services, or finding ways to move them into the financial system so they appear legitimate.
How does it affect my business?
When law enforcement agencies discover money laundering activities there is a “cascade effect”. This means that they will follow the funds, and any business that processed those funds, at any stage, could potentially be held accountable.
These transactions aren’t always easy to spot, and money launderers are extremely sophisticated in their methods. They will often disguise their activities under layers of transactions, with each layer designed to distance the eventual “legitimate” funds from the original source.
As a business owner it’s useful to understand what is considered to be money laundering so you can be alert to suspicious activity. Some types of businesses are also legally required to have anti-money laundering procedures in place. You might sometimes see these referred to as anti-money laundering checks, or AML for short.
What are anti-money laundering regulations?
Anti-money laundering regulations were put in place to prevent money from illegal activities entering the financial system, or being used to fund terrorist organisations and serious organised crime.
As a business owner you can be held responsible if you fall foul of any of the legislation, even if it was inadvertently. The agencies that deal with anti-money laundering and the proceeds of crime have wide-ranging powers, and the legislation has some serious ‘teeth’.
Which businesses are most affected by anti-money laundering rules?
Some types of business come under Money Laundering Regulations (MLR), and are required to implement anti-money laundering procedures. There’s guidance on the HMRC website which explains which businesses are affected by MLR.
Essentially, any business regulated by the Financial Conduct Authority (FCA) is already subject to Money Laundering Regulations (MLR), but there is also a list of other regulatory bodies who require their members to be supervised under MLR too. The main types of business that have strict responsibilities are:
Financial sector businesses
Property sector, such as estate or letting agents
Trust or company service providers
Bill payment service providers
Art market participants – Any business dealing in works of art, or offering storage facilities (such as freeports), must check whether they are subject to MLR.
High Value Dealers – Businesses dealing with transactions of €10,000 or more need to consider whether they are subject to MLR. There are a few exceptions such as businesses which only take payments by debit card, credit card or cheque.
Many of these businesses will already be supervised for MLR purposes by their regulatory body, but if they aren’t part of a body recognised by HMRC they may need to register directly with HMRC.
Dealing with MLR supervised businesses
For most businesses, the most noticeable effect of anti-money laundering rules will be having to meet extra requirements when dealing with banks or other businesses that do fall into the regulated group.
A limited company opening a new bank account will be asked to provide details about the business and its directors, along with evidence that they are who they claim to be. There are usually additional compliance requirements if any of the directors are non-resident in the UK.
A business dealing with another business which is regulated under Money Laundering Regulations (MLR) might find they’re asked to prove the source of their funds.
This information will also be required whenever a business appoints an accountancy or law firm to act for them, or when they get involved in property transactions.
It’s worth shopping around to see which bank will accommodate your needs the best. For example, if a non-resident director has an existing account with a bank that also operates in the UK, the process can be a bit simpler.
Carrying out a money-laundering risk assessment
A risk assessment will help you identify potential money-laundering threats to your business, so you can take early action to protect it. Warning signs might include:
High levels of cash transactions
Dealing in high value assets, such as vehicles, artwork, or luxury items
Direct transfers to your bank
Poor record keeping by employees
High staff turnover
The list is far from exhaustive, so look at your business activities as an outsider looking in to get a clearer view of any weaknesses. Any risks you identify should be addressed and documented!
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The importance of due diligence
Being aware of what is going on in your business will go a long way towards protecting it from money laundering activity. Good record keeping and regular monitoring will help, but make sure you document absolutely everything. It will help you demonstrate that all reasonable steps are being taken to ensure your business isn’t exploited by money launderers.
Be particularly careful when you appoint new directors or senior managers
It’s always a good idea to carry out checks on potential new directors or senior employees through one of the business search agencies. This will verify that they are not disqualified from being a director, and will also show any other directorships they hold, and whether any of these companies have become insolvent.
You’re also protecting your business from people whose motives might not be in its best interests!
Carrying out the proper due diligence on any individual or organisation expressing an interest in investing in your business is crucial, no matter how tempting the offer seems. Investing the proceeds of crime into otherwise legitimate businesses is one of the most common money-laundering techniques.
Any business accepting cash payments is likely to be more vulnerable to money laundering activity. Ensure all transactions can be accounted for and keep meticulous records of what is taken and what’s banked.
Money launderers are also known to “persuade” employees handling cash to bank extra amounts which, once in the banking system, can be transferred as apparently legitimate funds. These amounts are often relatively small, but regular. Be suspicious of any increase or change in cash activity in your business.
Larger-scale cash transactions are an even bigger risk, so monitor these even more closely. If this is a concern, it’s well worth considering only allowing non-cash methods of payment which leave an appropriate audit trail.