Managing Money Laundering Regulations

Managing Money Laundering Regulations

A number of correspondents are concerned with regard to the possibility (or more likely probability)
of an inspection by their supervisor so I thought it would be useful to provide a supervisor’s approach
to the process.

Initially you should be assured that I will not usually call unannounced but will make contact with
you to arrange a suitable time and date for the inspection. In that call I will answer any questions
you may have about the process including the documents that I will need to see during the visit.
When I arrive at the registered premises I will ask to meet with the principal(s) of the firm. This will
be a relatively short time and the purpose is to establish that the firm has discharged its
responsibilities under the Money Laundering Regulations. The principle issue is the appointment and
experience of the Money Laundering Officer but there may well be other issues to discuss, probably
at the end of the visit, including those matters such as the firm’s accounts and banking
arrangements that may not be appropriately discussed with staff.
The majority of firms supervised are in the SME category often a sole trader or small partnership in
which case the principal or partner will be the self-appointed MLRO with whom the remainder of the
time will be spent.
I will want to see the firm’s manual and most MLROs have found it practical to include the firm’s
Policy Statement with the manual. What are known as HIGH RISK clients must be maintained in a list
which is likely to be kept with the manual as these three elements must all be available to staff at
any time.

The manner in which new clients are assessed is a key element for successful compliance. The MLRO
should be able to explain the procedure that the firm has arranged which should include matching
the client’s requirements to the firms offered service provision as well as a complete Due Diligence
process for all new clients.

Depending on the size of the practice I will want to see all the files for HIGH RISK clients and will ask
to see a random selection of files for NORMAL RISK clients – in all files I will be looking for notes of
the Due Diligence process completed and the resultant conclusion for rating the risk. As you will
know, Due Diligence includes confirmation of the client’s identity (normally obtained electronically
these days) together with the assessment of risk that the client may be involved in any form of
Money Laundering (which as you know includes fraud – false accounts, incorrect tax returns – and
any cash businesses). Whilst looking at client management I will also want to see every internal report and the complete file for any client referred to SOCA.

I will then turn to training and I will be seeking some evidence of the MLRO’s knowledge including
details of how that knowledge has been gained – for example attending specific ML courses and
seminars or online training as the case may be.
As the MLRO is responsible for training all the client facing staff (or at least arranging for their
training) I will want to see the training records for staff. Again depending on the size of the firm and
the arrangements for dealing with clients, I may request a short time with individual members of
staff including for example the person answering incoming telephone calls.
Hopefully there will be a training record detailing all the training undertaken including the periodic
updating (recommended annually).

The final part of the meeting will be to look at the risk that the firm could – doubtless unwittingly –
present opportunities for money laundering that have not been previously discovered. I have
already referred to looking at the bank accounts and will also need to see the firm’s annual accounts
as well as employment contracts.

In conclusion may I stress that the visit is not intended to ‘catch you out’ but rather to be a resource
for assistance and we will finish the interview with an opportunity for you to ask any questions
about MLR that have not been dealt with earlier in the day.
I will be making notes during the visit and will prepare a formal report for your firm. Hopefully this
will be positive in general terms and it will include any recommendations for issues that present an
opportunity for incomplete compliance. In a minority of cases it may be necessary to detail more
serious matters and to arrange for a return visit to ensure that any recommendation has been
applied and the risk of non-compliance reduced or completely eliminated.
It goes without saying that the AMLCC ‘Complete Guide for Professionals’ will go a long way to assist
firms with complete compliance. It is worth noting that every one of AMLCC subscribers who have
reported having had an inspection, have been congratulated by their supervisor on their thorough
arrangements for compliance which have been accepted as fully compliant.

DISCLAIMER
AMLCC, authors, consultants and editors expressly disclaim all and any liability and responsibility to any member or reader in respect of anything,
and the consequences of anything, done or omitted to be done by any such person reliant wholly or partly upon the whole or any part of this article
© P T Harmsworth and AMLCC Ltd 2009
anti Money Laundering Compliance Company Limited
39 Station Road LUTTERWORTH Leicestershire LE17 4AP
Tel: 01455 555 468 Fax: 01455 555 572
email: info@amlcc.co.uk website: www.amlcc.co.uk

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AMLCC – What to expect during an Inspection

Managing Money Laundering Regulations
In previous articles I have explained the various requirements for compliance with
Money Laundering Regulations (MLR2007) and the additional responsibilities associated
with Customer Due Diligence compared with the replaced ‘Know your Customer’ regime.
HMRC and the various member organisations are now moving to the next stage and to
arrange inspections for supervised firms so I think it is appropriate to concentrate in this
article in helping ICPA member firms to prepare for the inevitable inspection.
I suggest ‘inevitable’ as the supervisor’s role is to make sure that all firms comply with
MLR2007 and to do this they must complete visits to between 5% and 10% of the total
firms being supervised. Some supervisors may conduct an initial interview on the
telephone or require a declaration of conformity.

However, as firms are required to assess the risk of clients being involved in suspicious
activities, so too will supervisors adopt a risk-based approach to the firms being
supervised and will consider whether the firm is at risk of not complying with MLR2007.
Importantly this includes not simply the risk of actual money laundering, terrorist
financing or fraud but failure to train staff, maintain records and establish a reporting
procedure (a summary of the 8 key areas for compliance was included in a previous
article).
In addition, firms that were late registering, provided insufficient information at
registration and firms involved in the provision of company formation or company
secretarial services will inevitably rise to the top of the list for those at risk of noncompliance and therefore qualify for an early visit.

Initially supervisors will select between 5% and 10% of the firms they supervise for an
inspection this year. It is expected, once the regime has been fully implemented, that
every supervised firm could expect an inspection as frequently as every five years.
The majority of ICPA members are likely to be supervised by HMRC, so I feel it is
relevant to provide a brief summary of HMRC’s leaflet COP28 (downloadable from
http://www.hmrc.gov.uk/leaflets/cop28.pdf). This document sets out clearly what the
HMRC Inspector will want to see so that the firm is prepared thereby reducing the time
involved. It is also an indication of the depth of the inspection which can take up to a
complete day to complete.

THE OWNER:

The inspector will want to meet the owner of the business in the first instance and will
cover the following:
• Details on the appointment of the MLRO – including employment contract which
must include authority to perform the duties of the MLRO for the practice
• Details of all persons who have completed a ‘Fit and Proper’ test (relevant for
company service providers)
• Staff list • List of services provided
• Bank statements for the practice
Often of course MLRO will be the owner.
THE MLRO
The MLRO will be required to provide:
• Details of the actions taken to prevent the firm being involved with money
laundering, specifically:
o Money Laundering compliance manual – including the practice’s Policy
Statement
o List of clients consider to be at risk of money laundering (which you will
now know includes any fraud)
• Client records – selecting some High and Low Risk clients which must include
details of the Due Diligence completed within the previous period, usually 12
months.
• MLRO & staff records – including training and reports submitted to MLRO

REPORTS
• Internal staff reports:
o Confidentiality
o Speed of report
o Response from MLRO
• MLRO reports:
o Registered with SOCA?
o Acknowledgement of staff reports
o Preparation for report to SOCA
o SOCA Reports
o SOCA responses and compliance
Now the bad and the good news…..
Most if not all supervisors, including HMRC, will be adopting an advisory role in the first
instance as it is in everyone’s interest to achieve compliance throughout the profession.
Obviously no practice will relish the thought of a visit from their supervisor and may be
concerned to see the extent of administration and records that have to be produced.
That is the bad news.
The good news however is that AMLCC has heard from two subscribers who have
recently been telephoned by ICAEW and HMRC prior to arranging an inspection. On
being advised that the firm had purchased the AMLCC Complete Professional’s Guide the conversation virtually ended as it appears the inspector is satisfied that the firm has
taken appropriate steps to prevent money laundering.
Although we cannot promise that no inspection will ever take place, nevertheless we can
assure members that those who subscribe and maintain the full AMLCC service provision
can be reasonably confident that they will receive a clean bill of health when an
inevitable inspection is completed.
My company, AMLCC, provides a complete package for the price of £197 (+VAT). This
provides access to electronic verification and long term secure storage of reports and a
complete Risk Assessment Wizard from which you can produce the required list of High
Risk clients. There is also a manual, Policy Statement and full training with tests and
CPD certificate for staff and the firm’s MLRO.

DISCLAIMER
AMLCC, authors, consultants and editors expressly disclaim all and any liability and responsibility to any member or reader in respect of anything,
and the consequences of anything, done or omitted to be done by any such person reliant wholly or partly upon the whole or any part of this article
© P T Harmsworth and AMLCC Ltd 2009
anti Money Laundering Compliance Company Limited
39 Station Road LUTTERWORTH Leicestershire LE17 4AP
Tel: 01455 555 468 Fax: 01455 555 572
email: info@amlcc.co.uk website: www.amlcc.co.uk

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YOU CANNOT BE SERIOUS!

YOU CANNOT BE SERIOUS!

The Government is!

The coalition Government has announced that the SERIOUS Organised Crimes Agency
(SOCA) is to be abolished and replaced with another (similar in function) organisation.
This will not however affect the requirement for Accountancy Service Providers (ASPs) to
submit Suspicious Activity Reports (SAR) as required under the Money Laundering
Regulations 2007 (MLR).
The MLR were introduced following an EU Directive which seeks to severely restrict the
activities of terrorists and drug dealers. In addition the Directive goes further and
requires reports of serious crime and, as is usual, our Government has gone one step
further and imposed the requirement to report any suspicions of crime; reporting is
therefore not restricted to serious crime.
The MLR stipulate that ASPs must submit a SAR as soon as they become aware, or have
suspicion, of criminal activity under three Acts – the Proceeds of Crime Act 2002 (POCA),
the Terrorism Act 2000 (TA) and the Fraud Act 2006 (FA).There are penalties for
neglecting to report suspicion so it may make sense to file too many reports rather than
too few.
There is no di minimus limit for reporting so remember a client that deliberately avoids
say £50 or £100 of VAT is reportable. Whilst no action may seem to be taken on single
reports, there will inevitably come a day when reports are coordinated resulting in
prosecutions.
The information collected under SARs is available to the Police and is used as a basis for
prosecution under any of the Acts. This information is also available to other
Government Agencies including HMRC. Of course HMRC are not particularly interested in
the sale of drugs per se but there is considerable interest in taxpayers who seek to avoid
tax by complicated arrangements or by reducing declared income or overstated
expenses.
An indication of how seriously the Government view repeated offenders is contained in
POCA – serious or serial offenders (those who have repeated their crime however small)
risk their assets being seized. Doubtless HMRC are looking for a case to make an
example similar to the employee who regularly took medications valued between £300-
£400 from his employer. He was convicted and his house seized (worth £200,000)
together with an Order that restricted his spending to no more than £20.

HMRC and Supervisors are!

All ASPs are required to register with a supervisory organisation and the default
supervisor is HMRC. HMRC’s approach has been to encourage ASPs to register as the
first phase and there will undoubtedly be fines issued for failing to register.
HMRC has now moved into the supervisory stage and letters are being issued to
registered practices. These request details of how the practice is managing the
requirements of MLR including the practice’s written Policy Statement. Practices who can
reply confidently may well avoid an early inspection and, contrary to popular belief,
HMRC has already carried out a significant number of inspections.

And you should be too!

A number of accountants that I have spoken to do not think that they need to comply
with MLR and here are some of their questions with answers:
Q: I am a sole practitioner so I don’t need an MLRO
A: Every practice is required to comply with MLR and therefore to establish Money
Laundering policies and procedures.
You are therefore obliged to act in the capacity of MLRO for your practice and to report
any suspicious activity as defined under POCA. You must be aware of the MLR and the
easiest way to prove that you have the required knowledge is to arrange training. You
(or your MLRO) must have a Policy Statement, preferably produced in writing.
Q: I have no permanent staff
A: You (or your MLRO) must arrange training for any person who has contact with
clients however limited the interaction may be, so answering the telephone infrequently
qualifies for proof of understanding of MLR and the requirement to report any suspicion
to you.
Q: I know most of my existing clients and their business activities.
A: If you haven’t properly researched the requirement of MLR and have not attended
training then how can you confidently suggest that none of your clients are acting
fraudulently since you do not necessarily know exactly what is reportable?
Q: I have seen identity and address evidence for newer clients
A: Customer Due Diligence is now a requirement. Have you checked whether he/she is
connected to a Politically Exposed Person? Do you know if they have personal
expenditure commitments that cannot be supported on the income they declare?
Q: I am supervised by HMRC and I don’t think they will ever get around to ‘inspecting’
my practice for compliance
A: HMRC has already checked a measurable percentage of firms.
I apologise for what may seem a negative message in this article but it is becoming
increasingly clear that all ASPs must take the MLR more seriously and I hope that
readers will provide for their compliance and ensure that there are no gaps in knowledge
or working practices.
Finally, AMLCC is here to help you ‘be serious’ so please get in touch and for a free
online demonstration or further details, please contact Stephen Watts on 01455 555 468
or email swatts@amlcc.co.uk

What AMLCC is and what we can do for you!

My company, AMLCC, provides a complete package for the price of £197 (+VAT). This
provides access to electronic verification and long term secure storage of reports and a
complete Risk Assessment Wizard from which you can produce the required list of High
Risk clients. There is also a manual, Policy Statement and full training with tests and
CPD certificate for staff and the firm’s MLRO.

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High Risk clients

It is not until you have gathered all this information that you can assess the risk of the
client being involved in money laundering. I venture to suggest that you will find a
reasonable percentage of your clients who should be included in the High Risk category and you should keep a (confidential) list available to all client facing staff. This is to
enable the staff to comply with MLR2007 which places an additional burden to ensure
that the client are who they say they are and to be particularly careful in dealing with
that client of course with the knowledge of the reason for the High Risk rating. The cash
flow of a predominantly cash business will need careful auditing to ensure there are no
unexplained reasons for changes in income or expenditure or even a change in the profit
margin that does not relate to the previous year’s accounts. To delve further into this
example, it is important that you check the ownership of the business at regular
intervals (i.e. at least annually) as an incoming partner/director could be involved in
terrorist financing or perhaps more likely in drug dealing, using the business as a front to
clean the income.

Of course there will be a number of clients for whom you have acted for many years and
who are therefore unlikely to transgress. Nevertheless if justified following your risk
assessment, they must be included in the list albeit you can add a note to the effect that
you have intimate knowledge of the business. The reason for keeping this client on the
list is to ensure that any temporary or replacement staff are aware of the need to be
cautious in regard to the risk of money laundering.

Your anti-Money Laundering Supervisor (i.e. your practice regulatory organisation) will
undoubtedly want to see your list of High Risk clients if you receive an inspection visit.
Finally, you must review your CDD at regular intervals for all clients – say every two to
three years for Low Risk and at least annually for High Risk clients.

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Electronic verification

Electronic verification

HM Treasury approved the use of ‘Electronic Verification’. Everyone living in UK is
creating what is known as an ‘electronic footprint’ which is being built up from several
sources but is principally based on data from financial institutions, the electoral role and
other data sources. This is a system that is now available to practices on payment of a
small fee (around £3-£5 per enquiry) and the resultant report delivered to your desktop
in not much more than a nano-second. This is perfect for establishing the client identity
whatever their background and avoids endless copying of otherwise acceptable
documents. It is in fact such a strong source of verification that you are recommended to
use it for every High Risk client. It is also recommended now for all new clients and for
existing clients when carrying out a review of their requirements for future services.

 

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Step 8 Anti Money Laundering Compliance for Estate Agents & Accountants: Ensure you are supervised

Ensure you are supervised

Any practice (including part-time) must be supervised to ensure compliance with MLR.
There are 22 professional organisations that provide supervision for their members and if
you are not supervised by one of these then you must apply to HMRC.

SUMMARY

These eight requirements are a brief summary of MLR2007 which itself is relatively short
bearing in mind the effect that compliance will have on your practice. Every MLRO will
need help and H M Treasury have approved the following guidance and compliance with
the content of these is therefore obligatory. :
• HMRC’s document MLR8 Preventing Money Laundering and Terrorist Financing
• HMRC’s document MLR9 Registration Notice
• The CCAB Guidance
• ATT/CIoT’s Guidance for Tax Practitioners
These documents can be downloaded from the relevant websites for HMRC, CCAB and
ATT.

CONCLUSION
It has been estimated that the average increase in practice overheads is in the order of
2-3% of turnover which is particularly unwelcome news in the middle of recession.
However MLR2007 is here to stay and accountants ignore it at their peril!

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