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How has the AML landscape changed this year?

2013 has been an extraordinary year for anti-money laundering compliance. The eye-watering fines imposed on banks for AML compliance failures imposed by US regulators, in particular, have led to acute reputational damage for these financial institutions and has been the catalyst for them to take AML compliance seriously.

Doubtless it is going to be a slow process for multinationals, and the cost of this compliance is going to be extraordinarily high. Hedge funds, for example, are spending on average between 5% and 10% of their operating costs on compliance, with the smaller hedge funds bearing a disproportionate burden. The banks are moving towards a more co-operative AML approach and are sharing common service platforms of intelligence etc in order to save costs.

Several of the multinational institutions have realised that a certain type of client base in certain jurisdictions (which are politically volatile, may be subject to sanctions, or are in emerging markets where there is lax AML compliance) are simply too high risk and too expensive to monitor, e.g. Barclays decided to pull out of the money transfers business, which attracted enormous publicity and has led to difficulties in Somalia.

In the UK the FCA highlighted AML in this year's annual report as being of primary importance and the Director of the SFO, David Green QC, has called for the equivalent of section 7 of the Bribery Act 2010 (i.e. the corporate strict liability offence of failing to prevent bribery) to be extended so that it could apply to other corporate offending, e.g. fraud and money laundering. This will require fresh legislation but is likely to have a sympathetic response in government circles. The defence to the corporate offence is that the company would have to prove on the balance of probabilities that they had adequate procedures in place.

The Fourth EU Money Laundering Directive emphasises the risk-based approached to AML compliance which will be nothing new to UK AML specialists. Under the Directive, politically exposed persons now include domestic PEPs, i.e. those who hold prominent public positions in the domestic country, which has been extended to include family and associates.

Another important aspect of the Directive focuses on the increased transparency of information concerning beneficial ownership of companies and trusts. The Directive will be implemented at some stage during 2015 in the UK.

Other developments on the AML landscape this year concern the abuse of digital currencies by money launderers and organised criminals; the application of FATCA; tax evasion/aggressive tax avoidance and the consequential undermining of the Swiss banking secrecy ethos; MTIC frauds (missing trader fraud), primarily fraud operating within the EU and arising because of the various VAT rates within the EU; renewed emphasis by the EU on gambling and the extension of additional money laundering checks in that sector; prepaid cash cards and mobile payments.

What regulations surround money laundering in the UK?

Essentially the primary regulations are found in the Money Laundering Regulations 2007 as amended by the Money Laundering (Amendment) Regulations 2011; principle 3 of the FCA Principles; Proceeds of Crime Act 2002 (as amended by SOPA 2005); the Terrorism Act 2000 (amended by ATCSA 2001); the Terrorism Act 2006; and the aforementioned EU Fourth Money Laundering Directive.

How can a business assess their risk of exposure to money laundering activities?

I would advise that any business assessing exposure to money laundering activities thinks laterally, flexibly, and moves away from the 'tick box' mentality, apply individually tailored systems and procedures which are reviewed regularly, be proactive, take nothing for granted or at face value, complete your customer due diligence (CDD), know your PEPs, know who are the true beneficial owners of the companies with which you are dealing, execute continued enhanced due diligence, and remember that this is an ongoing process throughout the relationship with your client/agent or business partner.

How should a business respond if they discover they have unwittingly become caught up in money laundering?

Immediately institute a full investigation bringing in an independent multidisciplinary team to assist. Note, this does not have to cost the earth. A good forensic accountant and specialist lawyer experienced in both criminal and regulatory work and dealing with the regulatory and prosecuting authorities should be sufficient. The important issues when dealing with the authorities is to report the breach to the regulators as soon as possible, simultaneously assess what remedies need to be applied to deal with that breach so that it does not reoccur, and remember that when considering self-reporting, real care must be taken. It is vital that you must come with 'clean hands' to the relevant authority, make no attempt to hide any information, documentation, or mislead them. We are fast approaching a new era of Deferred Prosecution Agreements which will be in force in February 2014 and will be applied initially by the SFO and the CPS. I fully expect DPAs will also be in the FCA armoury before long.

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