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Blog / A new wave of anti-money laundering enforcement and regulation – brace yourselves!


30 October 2018

The past year has seen a palpable change in the air surrounding efforts to weed out global financial crime. Many governments and regulatory authorities have taken note, pointedly ramping up enforcement campaigns and rolling out new legal requirements in response to increased media scrutiny and growing public outrage. Our Lexology contributors have covered this new wave of enforcement and regulation with characteristic precision and insight, drawing out vital takeaways for companies and highlighting significant implications for compliance programmes.

Working smarter, together

As can be gleaned from Jones Day's tidy review of recent developments, perhaps nowhere has the new enforcement wave been more pronounced than in the United Kingdom – and the City of London in particular, often derided as the world's top laundry service for ill-gotten gains. Of particular note is the newfound focus on cooperation and intelligence sharing between agencies (both domestic and cross-border) to tackle economic crime more effectively, as well as the wider net cast by the regulators, with an expanded range of business sectors now falling within the ambit of anti-money laundering initiatives. One of the most prominent of these is the property sector, which under proposed new legislation will be subject to greater transparency through the introduction of a requirement for foreign entities owning or purchasing UK property to publicly disclose their beneficial ownership; Penningtons Manches provides a clear overview of the draft bill here, while White & Case's briefing also gives a good summary in addition to highlighting problems with an existing regime – namely, the suspicious activity report system and the compliance burden it foists onto businesses (although proposed reforms to the system will likely be adopted). 

Unexplained wealth orders

The High Court decision in National Crime Agency v Mrs A has grabbed many headlines in the mainstream press with its details of extravagant shopping sprees and property purchases by the London-based wife of an ex-Azerbaijani state banker ultimately convicted of fraud and embezzlement; but the case has turned heads in the legal world due to its upholding of the first unexplained wealth orders (UWOs) issued in the United Kingdom. UWOs are a new investigatory tool which compels respondents suspected of involvement in financial crime to disclose the nature of their interest in a particular asset and how it was paid for; failure to comply with an order can lead to recovery of the asset through civil proceedings. Teacher Stern cogently lays out the nuts and bolts of UWOs here, while CMS provides an incisive report on the case here, with special consideration given to the implications for high-end retailers who do business with those subject to UWOs. The National Crime Agency's (NCA) victory may well have opened the floodgates, with the authorities' use of UWOs likely to increase in future.

A changing of the guard at the SFO

The UK Serious Fraud Office (SFO) has experienced a remarkable reversal of fortune lately, as this piece from Squire Patton Boggs attests. Initially slated for the chopping block by the Conservative government (which wanted to subsume it into the NCA), the SFO is now enjoying increased and more streamlined funding following a ringing endorsement of its enforcement activities from the Organisation for Economic Cooperation and Development. The appointment of new director Lisa Osofsky also bodes well for the agency; among other things, the former FBI deputy general counsel has called for the SFO to embrace new technology – especially artificial intelligence – to better manage document-heavy cases (see here), while Latham & Watkins notes her focus on money laundering as a priority for the agency in its report card of her first 50 days in office. Financial institutions in particular should be mindful of this, it says, as they will likely be involved in more money laundering investigations going forward. 

FCA compliance guidance

The Financial Conduct Authority (FCA) recently published its review of anti-money laundering and counter-terrorist financing controls and policies under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 – Brodies has a good write-up here. While its primary target audience is electronic money institutions, the FCA’s helpful guidance regarding greater senior management involvement, staff training and increased client risk assessment has much wider application; many other enterprises would do well to heed it. 

European Union turns up the heat

Back in the summer the European Union adopted its fifth Anti-money Laundering Directive, which (among other things) extends the purview of anti-money laundering rules to operators in the cryptocurrency sector, increases due diligence requirements for payments originating in ‘high-risk’ countries and grants public access to the EU transparency register. Bird & Bird digests the major changes here, while hinting that firms may need a complete revamp of their compliance management programmes to account for the recent changes, hot on the heels of the fourth Anti-money Laundering Directive as they are.

More recently, the EU Council adopted the sixth Directive on Combating Money Laundering by Criminal Law in an attempt to seriously turn up the heat on money launderers. Vinson & Elkins provides a nifty overview of the directive here; highlights include greatly increased money laundering penalties and expanded company liability for offences committed by individuals. While the directive will not apply in the United Kingdom, Ireland and Denmark, this briefing from Macfarlanes nonetheless points positively to the prospect of increased cross-border enforcement cooperation under its auspices.

Keeping on top of the wave

Enterprises of all stripes should keep a close eye on these fast-moving enforcement and regulatory trends; failure to account for the spate of recent cases and statutory changes may lead not only to falling foul of the authorities, but also to a damning verdict in the court of public opinion – and all the attendant damage to reputation and business that this entails. Fortunately, you have the vast information resources of Lexology at your disposal. Keep up to date with our money laundering topic hub and white collar crime work area hub, as well as the anti-money laundering and fraud section of Lexology Navigator, which allows you to compare regulatory and enforcement regimes across jurisdictions.