NatWest recently pleaded guilty to three counts of failing to monitor £365 million from being deposited into a Bradford jeweller's account between 2013 and 2016. It is the first time that a large financial UK institution has faced a criminal investigation and consequent prosecution because it failed to adhere to Regulations 8(1), 8(3) and 14(1) of the Money Laundering Regulations 2007 (MLR 2007).
In this article, we look at what it means to effectively monitor client transactions, how to perform customer due diligence and report suspicious activity. If you have any questions regarding how your business complies with anti-money laundering (AML) legislation, please get in touch now.
Ongoing monitoring and the importance of customer due diligence
Certain institutions are responsible for ongoing monitoring of customer’s accounts to prevent money laundering. This can be conducted through automated customer screening, monitoring transactions, and carrying out customer due diligence (CDD).
What is customer due diligence?
CDD enables financial companies to perform checks that confirm a client is who they say they are. This helps institutions identify money laundering behaviour by understanding the reasons behind client decision-making and actions.
Under regulation 27 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), companies must carry out due diligence when:
- They establish a business relationship with a client,
- A large transaction amounting to £15,000 or more takes place,
- Money laundering, suspicious financial activity or terrorist financing is expected, or
- The validity or accuracy of documents is questioned.
If CDD is required, the client's identity must be verified through a reliable source such as a passport or driver's licence. The structure and ownership of any companies, trusts or foundations related to that person must also be understood, as well as transaction history. If a client is a corporate body, its registration details, company number, name and address of head office must be sought and verified.
What qualifies as suspicious activity?
To prevent and try to identify possible money laundering, banks and financial institutions will usually investigate any suspicious transactions over £5,000 in value. Examples of suspicious activities may include:
- The opening of multiple bank accounts in quick succession
- A client swiftly taking out large sums of money that they have just placed into a bank account, (which they then use to purchase property)
- Taking out credit cards in another person's name
- An account receiving a large international payment that doesn't match up with client/customer details
- A personal account being used to evade business tax
Suspicious Activity Reports
Suspicious Activity Reports (SARs) are made when suspicious activity is believed to have taken place. Companies working within regulated sectors must submit a SAR under Section 7 of the Proceeds of Crime Act 2002 (POCA) if they suspect, or have reasonable grounds to believe, that money laundering or terrorist financing is taking place or being attempted. The SAR must detail the information that has come to light in respect of their business.
What organisations need to comply with AML regulations?
Companies in the UK need to be aware of AML legislation, be regulated by the appropriate financial authorities where necessary, and have their own AML policies and systems of compliance and reporting.
The Financial Conduct Authority (FCA) regulates the UK's financial services sector, and is responsible for regulating and/or monitoring or imposing sanctions on building societies, banks, credit unions and so on. All financial institutions within the UK have to be registered with the FCA.
The FCA also has the power to investigate any institutions it believes are involved in or assisting in money laundering offences, including lack of reporting. The FCA can work with law enforcement and the Crown Prosecution Service as part of its investigations, as well as HMRC.
HMRC issues guidance to all companies on AML compliance regulations in the UK, offering advice to companies on how they can monitor transactions and CDD. Sectors that are supervised by HMRC include estate agency businesses, letting agency businesses, and high value dealers.
The Serious Fraud Office (SFO), can arrange court orders, arrest warrants and can also freeze assets if it suspects that company funds are involved in money laundering or terrorist financing. As a result, a deferred prosecution agreement may be reached.
What is a deferred prosecution agreement?
Deferred prosecution agreements (DPAs) are agreements made between a prosecutor investigating financial crimes, and the organisation being investigated/prosecuted. The agreement is made under the supervision of a judge, and enables the suspension of prosecution for a period of time stated in the agreement, with the understanding that the organisation must meet certain conditions.
DPAs always involve companies, never individual persons. There are many positives to DPAs, in that they enable a corporation to make amends and pay fines without the reputational damage of conviction, which could put the company out of business and innocent staff out of work.
DPAs also avoid the need for a lengthy and costly trial, but the company involved must cooperate at every stage of the investigative process. This may include co-operating by handing over any individuals involved or who had knowledge of money laundering, while upholding the terms of the agreement.
Contact our Professional Financial Crime Solicitors in Central London
If you or your business is being investigated for suspected money laundering or failure to adhere to AML regulations, get in touch with our experienced financial crime solicitors at Lewis Nedas Law. Our team has successfully defended even the most challenging of cases and fraud investigations. Get in touch with one of our experienced solicitors by contacting us on 020 7387 2032 for 24/7 legal support, or complete our online enquiry form.
