Anti-money laundering and financial crime prevention

Requirements

What are the main anti-money laundering and financial crime prevention requirements for private banking and wealth management in your jurisdiction?

Private banks are required to establish and maintain effective systems and controls for the prevention of money laundering and financial crime. The Criminal Finances Act 2017 introduced a new corporate offence of failure to prevent the criminal facilitation of tax evasion, which potentially carries unlimited financial penalties. Private banks and wealth managers must put in place reasonable procedures to prevent their associated persons from committing tax-evasion facilitation offences in order to have a defence where criminal facilitation by an associated person occurs.

In the United Kingdom, the relevant primary legislation can be found in the Terrorism Act 2000 and the Proceeds of Crime Act 2002 (POCA 2002). These are supported by the anti-money laundering and financial crime requirements as set out in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The Fifth Money Laundering Directive was adopted on 30 May 2018, with EU member states (including, subject to Brexit, the United Kingdom) being obliged to implement it by 10 January 2020.

Under the MLRs, private banks and wealth managers are required to undertake customer due diligence (CDD, formerly known as know-your-customer (KYC)) before establishing a business relationship with a customer, including undertaking occasional transactions for customers, and at other times where the firm becomes aware of changed circumstances in relation to an existing customer or wherever money laundering or terrorist financing (including where documentation provided is inadequate or dubious) is suspected. The UK regime requires firms to take a risk-based approach to CDD. Industry guidance designed to assist private banks and other firms to interpret and implement the relevant anti-money laundering and terrorist financing requirements has been published by the Joint Money Laundering Steering Group. This includes specific guidance in relation to CDD.

Politically exposed persons

What is the definition of a politically exposed person (PEP) in local law? Are there increased due diligence requirements for establishing a private banking relationship for a PEP?

A PEP is defined in Regulation 35 of the MLRs as ‘an individual who is entrusted with prominent public functions’, but does not include a ‘middle-ranking or more junior official’. Private banks are also required to determine whether an individual, even if not a PEP themselves, is a family member or known close associate of a PEP. Private banks are required to undertake enhanced CDD on PEPs, their family members and known close associates. This includes seeking additional information in relation to the source of their wealth and funds. Senior management should be involved when establishing a business relationship with a PEP, their family member or a known close associate, and this should be documented.

Documentation requirements

What is the minimum identification documentation required for account opening? Describe the customary level of due diligence and information required to establish a private banking relationship in your jurisdiction.

Private banks and wealth managers should, at a minimum, obtain the following information when opening a new account for an individual: full name, residential address and date of birth. This information must be verified via reliable and independent sources. Identities should be verified based on either:

  • a government-issued document that incorporates the customer’s full name and photograph and either his or her residential address or date of birth; or
  • a government- (or court or local authority) issued document without a photograph that incorporates the customer’s full name supported by a second document, either government-issued or issued by a public-sector body or authority, a utility company or an FCA-regulated firm, which incorporates the customer’s full name and either his or her residential address or date of birth.

Firms may use external third parties for electronic verification purposes, although private banks should satisfy themselves that the information supplied by such third parties is reliable and accurate and is independent of the subject of the CDD.

Tax offence

Are tax offences predicate offences for money laundering? What is the definition and scope of the main predicate offences?

A tax offence can be a predicate offence for money laundering purposes. Money laundering offences assume that the proceeds of crime are being laundered. A person can still be found guilty of a money laundering offence even where they have not been convicted of the predicate offence.

Compliance verification

What is the minimum compliance verification required from financial intermediaries in connection to tax compliance of their clients?

The International Tax Compliance Regulations 2015 (as amended in 2016 and 2017) (Tax Regulations 2015) require private banks to establish which accounts are held for individuals who are tax-resident in certain other jurisdictions with which the United Kingdom has entered into an agreement to automatically exchange tax information, collect that information and then report it to Her Majesty’s Revenue and Customs (HMRC). Private banks can outsource this due diligence to a third-party provider, although ultimate responsibility for the due diligence rests with the private bank and relevant accountable senior manager.

Liability

What is the liability for failing to comply with money laundering or financial crime rules?

Broadly, there are three categories of money laundering offences under POCA 2002. These are where persons:

  • knowingly:
    • conceal;
    • convert or transfer criminal property;
    • are involved in an arrangement which facilitates the acquisition or use of criminal property; or
    • acquire, use or possess criminal property (acquisition, use and possession);
  • fail to report knowledge or suspicion of money laundering (including where there were reasonable grounds for knowing or suspecting); and
  • tipping someone off that an investigation is contemplated or under way or prejudicing an investigation.

To the extent that an employee at a private bank promptly raises concerns with the firm’s money laundering reporting officer (MLRO) they will not have committed the failing to report offence. The MLRO can be guilty of an offence if he or she fails to communicate concerns to the National Crime Agency without a reasonable excuse.

Private banks are required under the MLR and the FCA Handbook to establish adequate and appropriate systems and controls as well as policies and procedures to prevent money laundering. Both the firms, their officers and any individual controllers of the firm can incur liability in relation to the commission of money laundering offences by the firm. Failing to comply with these requirements is a criminal offence and as such can result in imprisonment, a fine or both.