What is Money Laundering?
Money Laundering is the process of hiding and disguising the true origin and ownership of the proceeds of crime. It is usually linked to criminal activities such as organised crime, corruption, drug related crime and terrorism.
Stages of money laundering
There are three stages of money laundering – Placing, Layering and Integration. Placement is the first stage and it involves the actual deposit of illegal cash into the financial system with the aim of distancing that cash from its original source.
Layering is the process of further disguising the origin of the illegal money by means of bogus transactions and/or a series of bank account transfers.
Integration is the final step when ‘clean’ money is reintroduced into the economy.
The methods of laundering money can be complex and not altogether visible. Companies have to continue to be aware of the identity of their customers and monitor and report unusual activities – re-examine their staff training and even consider an internal mystery-shopper attempt to circumnavigate the system.
Know your customers (KYC)
Companies would need to obtain information about the personal and financial circumstances of their customers. The details to obtain should include name, address, profession, nationality, source of income and whether the person is a Politically Exposed Person. If the customer is a company, partnership or trust, there is the need to find out the name of the entity, the trading and registered office, the business activities, the source of income, the main managers and the ultimate beneficial owner(s).
Identification of the customer
Companies would need to identify the person to whom they are delivering services or providing a product, by obtaining a copy of the person’s passport and bank statement/utility bill, certified by a solicitor etc. If the customer is a company, then there is the need to obtain a copy of the certificate of incorporation and other details showing the registered address and list of directors. Companies can use an established independent trusted public source of information e.g. company registry, any website printout should be properly annotated. There is also the need to find out who owns 25% of the company or partnership (check the partnership agreement), trust – (check the trust deed showing settlor/beneficiary).
Enhance checks for high risk customer
If the (Customer)company or person’s business activities is in arms dealing, gambling, casino, bureau de change, freight forwarding, real estate, or the entity operates in countries with weak or no money laundering legislation, such customers are to be regarded as high risk and an enhance identification process is usually carried out. This may involve conducting more thorough independent searches on the names of individual via various verification sources, newspapers, articles, Google search, World check searches etc to be satisfied that the potential customer is not an unscrupulous person.
Reporting knowledge and suspicion
Companies need to have an individual to whom knowledge and suspicion of money laundering can be reported and who can report onward to the relevant authorities. The test for reporting is to establish whether a reasonable person possessing the same information as that available to the person required to report would have known or suspected that a person was involved in money laundering.
Training of staff
Companies need to provide training and awareness to explain and demonstrate to all staff the anti-money laundering obligations. The training should be in phases, dealing with buy-in and launch. A dedicated hotline needs to be available to field the flood of questions and problems. File audit and review is also needed to monitor that staff are complying with requirement to identify and verify customers. Records should be kept in durable form and readily accessible to show compliance with the anti money laundering procedures.
Account Opening Checks
Before any business is carried out for a new client and before a business relationship is established the relevant parties to the business must be identified by using the Account Opening Checklists. Compliance approves all new clients.
Know your customers (KYC) Application form duly completed
Check that the individual client has sent us the application form, duly completed, signed and dated.
From the application form ensure that you have sufficient information about the nature of the business that the client expects to undertake. Understand the purpose of the proposed business and the anticipated level and nature of activity to be undertaken.
You should also check that the application form states the sources of funds to be used and contains information about the personal and financial circumstances of the client. Name, address, date of birth, profession, nationality, source of income and whether the person is a Politically Exposed Person.
For companies, partnerships or trusts, check that they have sent us the application form, duly completed, signed and dated with details of the name of the entity, the trading and registered office, the business activities, the source of income, the main managers and the ultimate beneficial owner(s).
If they intend to authorise a third party to place orders and trade the Company’s account, they have completed a Power of Attorney in favour of that third party.
Identification and verification of the client
You must identify the person to whom we are delivering services, by obtaining identification documentations as listed below.
UK RESIDENTS
If the individual is a UK resident, we will need to see one item from List A and one item from List B below.
List A:
Current signed passport
Current full UK driving licence
Inland Revenue tax notification
Firearms certificate
List B:
Recent utility bill
Local authority tax bill
Bank or building society statement or passbook
Mortgage statement
NON-UK RESIDENTS
If the individual is a non-UK resident, we will need to see one item from List C and one item from List D below.
List C:
Current signed passport
National identity card
List D:
Current driving licence
Bank or building society statement
Recent utility bill
Certified copies of documents are acceptable. However, these must be certified with the words “Original seen – certified true copy of the original” .
In the case of UK resident companies or individuals, documents must be certified by any of the following: a doctor, teacher, accountant, UK lawyer, banker, Commissioner of Oaths, Notary Public, Justice of the Peace, Minister of Religion or Postmaster.
In the case of non UK resident companies or individuals, documents must be certified by a lawyer, an embassy official consulate or high commissioner of the country of issue, or by a senior official (e.g. branch manager) of the bank or financial institution where you have an account.
Certification must include the certifier’s name, certifying capacity, contact details, date of certification and be independent of the party concerned.
For corporate entities, obtain documentations that will show the registered address and list of directors.
There is also the need to find out who owns 25% of the company or partnership (check the partnership agreement), trust – (check the trust deed showing settlor/beneficiary), Ultimate beneficial ownership.
Check that they have supplied :
a certified copy of the Company’s Memorandum and Articles of Association and its Certificate of Incorporation or similar government registration document.
Board Resolution (either an original or a certified copy) authorising the opening of an account on behalf of the Company and containing the names and specimen signatures of those individuals who will be authorised to operate the account
a copy of the Company’s latest audited financial statements.
a list of the Company’s directors and its shareholders / beneficial owners evidence of the identity and address of each individual who is or will be an authorised signatory on the Company’s account.
· You can get additional verification by using an established independent trusted public source of information e.g. Complinet global screening, company registry. Any website printout should be properly annotated.
AML Risk assessment
You must conduct and initial risk assessment of the client, based on the information received. The ratings would be:
“Low”, “Medium” “High”
The Senior Management may refuse to have a business relationship with a customer risk-rated as High. The risk matrix is based on Country risk Customer risk or Service risk as below:
Country Risk: Whether the person or entity is resident, operates in or has funds sourced from countries identified by the UK government, UN, FATF as non cooperative jurisdictions or as having significant levels of corruption, or other criminal activity.
Customer Risk: Whether the client’s source of wealth emanates from activities known to be susceptible to money laundering or the person engages in any activity deemed to be of money laundering concern, or the person is a Politically Exposed Persons or “PEPs” , employment or business type e.g. gambling. Bureau de change, casino, arms trade.
· Service Risk: Whether the services we are providing will involve services identified as being potentially high risk for money laundering.
In deciding what rating to set a client to, the following will also be considered: Whether the entity is a listed company in the UK or in a comparable jurisdiction. Whether the entity is regulated by the FSA or a comparable regulator. Whether the client is using complex corporate vehicles that have no clear commercial rationale or result in a lack of transparency. Whether we are familiar with the jurisdiction of origin Whether we have a long standing relationship with the client. Whether we are dealing with the client face-to-face.
Enhanced due diligence Measures and Controls for High/Medium rated clients
· Increased levels of KYC or enhanced due diligence; Google search, search or independent public trusted source e.g. Companies House and other companies registries.
· Escalation for approval of the establishment of an account or relationship; to senior management, identification of the identity of each individual directors or beneficiaries.
· Increased monitoring of transactions; and increased levels of ongoing controls and reviews of relationships.
Origin of Funds
You should verify the source of funds (i.e. where the money came from) and the source of wealth (i.e. how the money has been amassed).
The Application Forms contains a separate section requesting details of the origin of funds from prospective clients.
Generic statements such as ‘earned income’ ‘sale of fixed property’, ‘inheritance’ etc should be supported by details and evidenced. Ideally documentary evidence should be provided to support the source of wealth. The documentation should clearly outline the date and amount.
Description of Source of Wealth Documentation Required
Sale of Property: Copy of sale documentation, Letter from solicitor
Inheritance: Copy of grant of probate, Documentation from executors or lawyers handling deceased estate, Letter from solicitor or accountant
Gift: Copy of documentation to support gift (e.g. gift tax), Letter from solicitor or accountant.
Accumulated Savings: Copy of recent pay slip, Confirmation from employer of income, Copy of recent accounts, Copy of bank statements showing accumulation and growth of funds
Investment: fits with the client profile (i.e. occupation, age and amount etc.)
Other Investment: Copy of contract note, Copy of statement, Letter from financial institution confirming details of investment/sale. Copy of tax return.
Where the investment was not held by an authorised institution in the UK or a FATF member country or within the EEA additional details may be required.
Wire Transfer
In the case of wire transfer transactions, we should ensure that when we
are sending client transfer messages, for example, SWIFT MT 100 messages, the fields for the ordering and beneficiary client should be completed including the names and addresses of each. This should be completed for all messages, both domestic and international, regardless of the payment or message system used. In the case where this information is not contained in the message, full records of the name and address of both the ordering and beneficiary client should be retained by the firm. These records must be treated in the same way as any other records in support of entries in an account and kept for a period of at least five years.
Financial Sanctions/ Counter terrorist financing
All new clients are checked against financial sanctions list before they are approved for KYC. This is to counter terrorist financing. You should do this by using the Complinet Global screening. If there is a match we must freeze any assets and this will have to be reported to HM Treasury as soon as possible.
Third party payment
Once the account is opened, we cannot accept money or funds from third parties in any circumstances irrespective of whether the third party is a spouse or parent of the client. Any payments to The firm must be made by the Client from an account of the Client and not by any third party from the account of any third party.
Verification of the client’s identity before dealing over the phone
Before you deal with the client over the phone, you must take steps to verify their identify by asking them to confirm their date of birth, address or any memorable word they may have previously provided.
Reporting knowledge and suspicion.
The MLRO is the person to whom knowledge and suspicion of money laundering can be reported and who can report onward to the relevant authorities.( SOCA) The test for reporting is to establish whether a reasonable person possessing the same information as that available to the person required to report would have known or suspected that a person was involved in money laundering.
Staff Training
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All staff of the firm must take the online AML training and test. This provides them with knowledge of their obligations.
Monitoring & Review
The Compliance and Risk management section is available to give guidance on any AML issues. The section will also conduct periodic file audit to monitor whether staff are complying with requirement to identify and verify clients. Periodic review of clients is also conducted to ensure KYC is up to date.
Record keeping
Records should be kept in durable form and accessible readily to show compliance with AML procedures.
Third party completing KYC
We can provide our Certificate of incorporation, FSA website print out, last audited account, list of directors, list of authorised signatories as KYC on us. We do not accept KYC approvals of a client done by a third party; we must conduct our own independently. We will not provide KYC introduction to a third party.
Annual MLRO report to the Board.
The report provides the following:
1. Change in legislation and regulation
2. Recent FSA enforcement action against firms
3. Number of Suspicious report received.
4. Number of investigations undertaken
5. AML training provided and number of staff yet to be trained.
6. Result of KYC reviews
7. Result of monitoring
8. Key risk to the firm.
LIST OF COUNTRIES
All EEA countries have undertaken to implement the money laundering directive, and some are also FATF member countries.
EU members of FATF: Other EU member states:
Austria Ireland Bulgaria Lithuania
Belgium Italy Cyprus Malta
Denmark Luxembourg Czech Republic Poland
Finland Netherlands Estonia Romania
France Portugal Hungary Slovakia
Germany Spain Latvia Slovenia
Greece Sweden
EEA states:
Iceland – Member of FATF
Liechtenstein
Norway – Member of FATF
FATF members
All FATF members (those which are not EU/EEA member states/countries are listed below) undertake to implement the FATF anti-money laundering and counter-terrorism
Recommendations as part of their membership obligations.
Argentina New Zealand
Australia Russian Federation
Brazil Singapore
Canada South Africa
China Switzerland
Hong Kong Turkey
Japan United States of America
Mexico
Regulatory fines
A major bank in 2003 was fined £2m for failure to ensure that suspicious activities reports were promptly considered and reported to the relevant authorities.
In 2004 another big bank was fined £1.2m for failure to keep proper records of customer identification and failure to retain evidence of KYC checks.
In 2004 another major entity was fined for failure to act promptly to update its anti-money laundering procedures to reflect changes in legislation and failure to training staff to enable them comply with the identification requirements.
