In the UK, anti money laundering (AML) relates to a set of laws, regulations or procedures which have been developed to significantly reduce and where possible eliminate the practice of generating income through illegal activity. As a matter of course, businesses should implement robust policies and procedures in order to prevent money laundering. These could include the completion of identity checks on clients and/or not accepting cash payments over a certain amount.
In the majority of instances, someone who launders money will conceal their actions using a number of steps or strategies which make it appear that any money originating from an illegal or unethical source was earned legally.
The anti money laundering legislation will only apply to a very small number of transactions and behaviours but the implications of the law are far reaching. The regulations state that businesses or institutions who allow customers to open an account or obtain credit implement a range of due diligence practices to ensure that they are not facilitating money laundering. The onus to comply with these procedures rests with the institution or business.
Adverse Effects on Money Laundering
Dealing with Front Companies
One of the most significant effects of money laundering is found within the private sector. Those who carry out money laundering will often make use of what is known as a front company which combines legitimate funds with illicit activities in an attempt to conceal money obtained unlawfully. In some instances these companies will sell products below the manufacturer’s price and as a result they have a distinct competitive advantage. Consequently legitimate businesses find it increasingly difficult to compete against these ‘front companies’ which has the potential to flood the private sector with criminal organisations. Financial institutions also face problems when it comes to money laundering because it presents a number of challenges in relation to operations, liabilities and assets. The illegal practices of the companies then result in problems for the financial institution in terms of liquidity and runs on the bank. Criminal activity has been associated with a number of banking failures throughout the world.
Anti Money Laundering ‘at’ the Banks
Banks are particularly susceptible to the risks associated with money laundering. There is a very fine line between suspecting that the bank is being used for money laundering and the institution actually assisting the criminal activity. Banks who are discovered to be laundering money will not only face costs associated with loss of business but they will also incur legal costs and criminal proceedings. Not only this, but any business found to be promoting or participating in money laundering activities could lose trust from customers which can have long term implications on the business.
Damaging the National Economy
In general, money launderers are not overly interested in generating huge profits. Their focus is instead on protecting their proceeds. Funds are invested in activities which are not usually beneficial in economic terms in the country where the funds are held. Money laundering and related financial crimes can divert sound investments to poor investments which will hide the proceeds of crime and this can have a detrimental effect on economic growth. Money laundering also reduces tax revenue and makes tax collection much more problematic. It is not only a problem limited to the world’s major financial markets; it is also prevalent in emerging markets. As emerging markets launch themselves they become targets for money laundering and any activity in this market can be magnified considerably. The consequences of money laundering are serious and far reaching, affecting economies and financial practices on a national and international scale.
Money laundering activities are carried out with the intention of accruing income which is not regulated in order to optimise income. As money is a limited resource, any money which is obtained through illegal activity prevents capital to flow into industry. As a result this creates an imbalance which leads to further printing of money and a negative impact on the purchasing power of currency. If this is not carefully controlled, inflation could severely affect the country’s economy.
Preventing Anti Money Laundering is something which we are very passionate about, why not join us is preventing Money Laundering throughout the financial Industry.
Registering with a Professional Body
If you run a financial services business in the UK, you may need to sign up to an anti-money laundering scheme. In addition to this, some individuals and businesses in the UK must register with a relevant supervisory authority to ensure that they fully comply with the anti money laundering regulations. Regulations will apply to financial and credit based businesses, independent legal professionals, accountants, auditors, tax advisors and practitioners who specialise in insolvency, company and trust service providers, casinos and estate agents.
- Businesses in these categories will need to register with a supervisor who regulates their industry. The HMRC will oversee money service businesses, high value dealers, trust or company service providers, estate agency and accountancy service providers.
- A business must implement specific controls to ensure that they are not used for money laundering. These steps will include:
- Conducting assessments of your business to determine the risk of your business being used by criminals to launder money
- Conducting checks on your client’s identity
- Conducting checks to verify the identity of ‘beneficial owners’ of partnerships or corporate bodies
- Monitoring your customers business activities and reporting anything of concern to the National Crime Agency
- Ensuring that you have the necessary control systems in place
- Maintaining comprehensive business records that relate to financial transactions, the identity of your customers and business processes and procedures
- Ensuring that employees have the relevant training and they are aware of the regulations
Money Laundering in the News
Money laundering is taken very seriously and businesses who fail to sufficiently implement the relevant policies and procedures could find themselves in trouble. Standard Chartered was an example of this. In 2012 the company paid $340 million in fines to the DFS after it was accused of colluding with Iran to conceal billions of pounds in transactions. The case identified the bank’s failure to address issues with anti-money laundering compliance.
Another high profile case in the news was HSBC. In 2012, HSBC Holdings, a London based company were ordered to pay almost $2 billion in fines after it was discovered that the financial institution had laundered money for terrorists, drug traffickers and other organised crime groups in Iran. The money laundering activity was carried out for a number of years before it was detected and addressed.
Organisations, individuals or institutions can also run into trouble if they are not implementing the right processes and policies to prevent money laundering within their business.
Our Solution to Money Laundering
All those who work within the regulated financial services sector must put in place systems and controls to prevent financial crime, in particular that of money laundering. Our Anti Money Laundering course will help just do that. By taking our course you will be effectively helping the financial industry’s fight against fraudulent firms committing money laundering offences.