It was recently reported that Spanish police have searched the headquarters of Santander Bank, amid suspicions that the bank has been involved in money laundering and tax evasion on the part of some of its clients. This story stems from an ongoing investigation into the Falciani List of accounts from HSBC’s Swiss private bank in Geneva. The list included the names of over 100,000 suspected tax evaders, approximately 600 of whom were Spanish nationals.
The issues of tax evasion and money laundering are some of the most vexing for governments, and have been particularly topical issues in recent months. The rules governing money laundering have become particularly prominent, with reports in the UK suggesting that the regulatory framework is to be enhanced in the not-too-distant future.
The complexity of the Anti-Money Laundering (AML) framework and the difficulty in implementing it often calls for partnership with an experienced legal advisor in order to design a sophisticated plan in order to meet legal obligations. At Lewis Nedas, we are often sought out by clients to advise on the AML rules that apply in the UK. In this blog post, we review the established framework and provide an overview of the steps that need to be taken to comply with them.
How are we to understand the term ‘money laundering’?
Arguably one of the most important steps to be taken in attempting to understand a set of rules or laws, is to develop an appreciation for the behaviour that they are designed to regulate. The rules governing Money Laundering are designed to prevent businesses and individuals from using money that is the result of some kind of criminal act, in order to purchase legitimate or ‘clean’ assets. The difficulty for regulators, and often the reason why AML rules are so complex, is that it can be very difficult to identify illegitimate funds at the outset.
What is the law on money laundering?
The relevant rules governing money laundering in the UK are contained within the Money Laundering Regulations 2007 (the “2007 Regulations”). This set of rules applies to a variety of different businesses in the UK, ranging from financial service type operations through to those involved in the provision of accountancy services. It is vital that you find out whether or not these rules apply to your business. The different business sectors to which these rules apply will have their own regulator, which will in turn supervise compliance 2007 Regulations. The principal enforcing authorities for the 2007 Regulations in the UK are:
- The Financial Conduct Authority (FCA)
The FCA is charged with policing the activities of businesses providing ‘financial services’, which in turn will cover the provision of a number of different services - mortgage credit, factoring, financing of commercial deals, money broking and financial trading.
- Her Majesty’s Revenue & Customs (HMRC)
HMRC is responsible for regulating compliance with the 2007 Regulations by businesses that, amongst other things, accept cash of more than €15,000 in exchange for goods, provide any kind of accountancy type service, offer trust or company oriented services, or operate as an estate agency.
It is important to understand that the fact that a particular kind of business is not explicitly listed above does not mean that the Regulations will not apply. Other kinds of service providers including regulated professionals will be expected to observe the terms of the 2007 Regulations, and their regulator will be responsible for supervising compliance with the 2007 Regulations.
Another important point to note is that money laundering is something that many governments, including the UK’s, are anxious to end. Notwithstanding the sophisticated rules already in place in the UK, it has been recently suggested that businesses may soon face additional obligations under anti-money laundering legislation (see here). The team at Lewis Nedas will be watching developments on this point with great interest, and will be reporting on developments as and when they arise.
What steps do businesses need to take to meet their obligations?
The purpose of the 2007 Regulations is to prevent a business from becoming embroiled in money laundering. In order to achieve this, the 2007 Regulations place obligations on businesses to design their organisation in a way that reduces the risk of money laundering taking place. This can be particularly difficult, and is something that will need to be kept in mind as a business evolves. Some of the more important aspects of the 2007 Regulations that businesses should be aware of include:
- the need to assess the risk of the business becoming involved in money laundering
- reviewing the details of business customers and confirming their identity at regular intervals
- investigating the structure of corporate clients to establish where ownership lies
- maintaining an accurate record of all transactions and the parties involved
- training employees to identify and guard against potential risks for the business becoming involved in the commission of money laundering
What are the penalties for breaching the 2007 Regulations?
Regulators have significant powers to sanction organisations that violate the 2007 Regulations. The most popular tool used by regulators to penalise businesses that breach their obligations is a fine, which can in some instances be significant – depending on the level of breach. It is therefore vital that organisations not only design an AML framework to comply with the 2007 Regulations, but actively apply this in all of their dealings with clients and trading partners.
The AML obligations on businesses can be onerous, and can be very difficult to understand. If you are in any way concerned about the 2007 Regulations, or need assistance in ensuring compliance with them, then you should take specialist advice.
Lewis Nedas is a leading city law firm providing advice to clients of various sizes, operating across a range of sectors on their obligations under the 2007 Regulations. Our lawyers are among some of the leaders in their respective spheres, and they pride themselves on providing tailored, accessible advice to clients in order to comply with their obligations. Our history of working with clients who are facing investigations for compliance with the 2007 Regulations has gained us a reputation as trusted counsel who help to protect our clients’ business interests and commercial reputation. If you would like to know more about how the AML framework works, or to speak to one of our team on how we could help you, contact us today.
