Money laundering is a serious economic crime that the government has instituted regulations and guidelines to help minimise and eliminate wherever possible. As such, all finance professionals, businesses, and relevant entities must adhere to the HMRC’s anti money laundering guidelines. This article discusses anti money laundering, how it applies to those entities, and what finance professionals need to keep in mind.
What is anti-money laundering?
Anti-money laundering refers to efforts, practices, regulations, and laws that prevent and minimise money laundering in the country. Money laundering is essentially taking dirty money obtained through criminal activities and passing it through the financial sector to make it appear legitimate, thus clean enough for legal transactions. This illegal activity threatens the country’s economy, among other vices. For example, the UK economy loses at least £37billion a year from money laundering related activities. Therefore, money laundering is dangerous on two fronts:
1. The promotion of criminal activities since it presents a way to make the ill-gotten funds seem legitimate.
2. The loss of taxable income because what should have been legitimate business is diverted to illegitimate ones, as there is the assurance of clean money in the end.
How does money laundering work?
Let’s look at the money laundering process, especially how financial institutions and professionals come into play. This activity involves three steps:
This is the injection of dirty money into legitimate financial institutions or networks. This is the riskiest step for criminals, involving placing huge sums of cash into those institutions or networks. Most criminal activities and transactions are conducted in cash because electronic means would leave a trail that could handicap laundering efforts. Therefore, criminals will offer or pay loans, set up cash-only businesses, gamble on safe or fixed bets, and buy real estate or foreign currency.
Layering is the series of multiple transactions, investments, forms, or enterprises the money goes through. The money usually crosses borders, further making its origin untraceable. Such clever and fast movement is possible through the work of financial experts, such as professional bookkeepers and accountants.
Having gone through multiple channels, the dirty money now enjoys legitimacy as proceeds from a legitimate business, such as money in a bank account, or investment in legitimate property such as real estate, art, etc. The criminal entity can withdraw the money or sell the property and use it to advance their cause, such as terrorism, or to live in luxury. What was once dirty money is now clean and can be freely used as such.
What’s the government’s stance on anti-money laundering?
Throughout the money laundering process, finance professionals (specifically, accountancy services providers) play a vital role in enabling all the complex transactions and movement of dirty money. Whether through coercion, payoffs, or other means of compelling these professionals to participate in money laundering activities, the government realises their vital role and has instituted laws and regulations to diminish their input as much as possible.
How do I ensure my compliance with the anti-money laundering guidelines?
As an accountancy services provider, individual or company, you need to take a proactive approach to ensure you are on the right side of the law. As such, you should:
Identify risk factors that could compromise your operations
Besides the financial losses, the HMRC is concerned about the impact of criminal activities on the citizens in the process of acquiring dirty funds. As such, accountancy services providers need to ensure they aren’t associated with such criminal entities and their activities, by identifying instances where they may be involved in money laundering. Examples include an unusually high amount of cash receipts or payments, or cash deposits for banks. Additionally, unnecessary transaction splitting between your firm and other ASPs is a red flag.
Conduct an AML check
An anti-money laundering check is an assessment process to help you better know your clients and their sources of funds. Through identity checks, verification, and monitoring of financial transactions, you’ll detect fraud and other financial crimes likely to be money laundering and distance your organisation from those entities.
Get the right AML training
You need to take an AML course or ensure your finance department members undergo such training. As an ASP, you have a legal duty of compliance. Since your organisation operates under the money laundering prevention laws, AML training prepares you best to spot, avoid, and even report instances of money laundering. Additionally, AML training aligns with the HMRC’s strategy to remove the scourge of money laundering within our borders.
Money laundering is a terrible criminal activity that harms not just the country’s finances, but also the lives of its citizens. Anti-money laundering rules and regulations are there to minimise the practice, with the education and vigilance of accountancy services providers playing a pivotal role in the exercise. We understand this strategy and appreciate your busy schedule. Therefore, our AML training courses are tailored to complement those busy schedules while delivering quality education. Get in touch today, and let us help you acquire proficiency in anti-money laundering.