Last month the European Banking Authority launched a public consultation on two guidelines concerning anti-money laundering and countering the financing of terrorism (the Guidelines), These Guidelines seek to promote a common understanding of the risk-based approach to anti-money laundering and countering the financing of terrorism.
Issued in conjunction with the European Securities and Markets Authorities (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA) – known as the Joint Supervisory Committee – the consultation is addressed to competent authorities responsible for supervising credit and financial institutions’ compliance with anti-money laundering and counter terrorist financing obligations.
The Guidelines set out how a risk-based approach should be applied by credit and financial institutions across the EU. They underline what competent authorities should do to ensure that their allocation of supervisory resources is commensurate to the level of money laundering and terrorist financing risk in this sector. Guidance is set down on the factors credit and financial institutions should consider when assessing the risk associated with individual business relationships, and on how customer due diligence measures should be adjusted as a result of that risk assessment.
The consultation closes on 22 January 2016.
National Risk Assessment
Meanwhile HM Treasury and the Home Office have recently published the UK’s first money laundering and terrorist financing national risk assessment (NRA). The report finds that the City is highly exposed to the risk of money laundering. The report concludes that the size and complexity of the UK’s financial sector is such that it is “more exposed to criminality” than in many other jurisdictions. The NRA finds however that the UK’s money laundering supervision regime is inconsistent with the size of the risk.
The scale of the problem
The National Crime Agency (NCA) estimates that billions of pounds arising from the proceeds of crime are laundered through the City each year. The NRA states that:
“The same factors that make the UK an attractive place for legitimate financial activity–its political stability, advanced professional services sector, and widely understood language and legal system–also make it an attractive place through which to launder the proceeds of crime”.
Where are the problems?
The NRA finds that UK law enforcement bodies are relatively well equipped to deal with “cash-based” money laundering. This might involve, for example, drug business related money laundering. However, there are, apparently, significant intelligence gaps in relation to “high end” money laundering. This is where the City comes into focus. According to the NRA, there are “known professional enablers” who are facilitating money laundering through UK City-based financial services organisations. The risks are particularly acute in respect of criminal property being channelled through bank accounts, real estate and investments. For example, the NRA notes that many regulated financial institutions are not adopting appropriate identification measures in relation to “politically exposed persons” (aka PEPs)
The NRA singles out legal services as being particularly attractive to criminals seeking to launder money. The report states categorically that “[t]here are known professional enablers within the legal sector who are facilitating money laundering through the purchase of property with criminal proceeds, and the creation of complex corporate structures and offshore vehicles to conceal the ownership and facilitate the movement of criminal assets”. The NRA also notes that a small minority of law firms are non-compliant or negligent in respect of their money laundering duties.
In some respects, the NRA is interesting for what is not mentioned. For example, the report does not address which law enforcement agency should take the lead for City-based money laundering activity. There are currently a plethora of bodies, such as the National Crime Agency, the UK Financial Intelligence Unit, the Serious Fraud Office, the Financial Conduct Authority etc., which enjoy jurisdiction to investigate money laundering.
The NRA does not deal with that problem affecting all of the public sector: how, at a time of “austerity”, the UK’s anti-money laundering law enforcement agencies are going to be adequately resourced to police the City.
We also await the outcome of the Treasury’s consultation, expected early next year, on the implementing rules for the Fourth Money Laundering Directive (2015/589) and whether this takes account of the Better Regulation Executive’s “red-tape review” into the UK’s money laundering regime. Will the new rules heed the call for a regime that does not impose disproportionate burdens on business?