AMLCC

Research by Transparency International estimates that £6.7 billion worth of property in the UK had been purchased with suspicious wealth, with £1.5 billion bought by Russians accused of corruption or links to the Kremlin.

This demonstrates the significant extent to which foreign kleptocrats have infiltrated the UK's property market and highlights the urgent need for action.

The UK, particularly London, has long been an attractive destination for kleptocrats to launder their illicit funds. Their money laundering is often carried out through complex networks of shell companies, offshore accounts and property investments. These methods allow them to obscure the origin of their funds and integrate them into the legitimate economy.

What’s being done about this critical issue and how does it affect the Accountancy sector?

Economic crime legislation

The Economic Crime (Transparency and Enforcement) Act 2022 (ECA) was introduced to strengthen the UK's AML framework by increasing transparency and enforcement measures.

With the spotlight firmly on the flow of money to the Putin-backed regime after Russia’s invasion of the Ukraine in February 2022, one of the ECA’s main goals was to streamline the process for imposing sanctions.

The ECA allows for individuals and entities to be sanctioned more quickly, especially if the same individuals have been sanctioned by another country. To date, over £18 billion of Russian and other assets in the UK have been frozen, showing the positive impact the ECA has had. 

The ECA also strengthened the UK's beneficial ownership register, requiring companies to disclose information about their true owners. This increased transparency makes it more difficult for kleptocrats to use shell companies to launder their funds.

Building on the ECA, the UK government has proposed the Economic Crime and Corporate Transparency Bill. It aims to further enhance the UK's AML framework by delivering the biggest upgrade to Companies House since the UK first introduced a register of companies in 1844. This reform will make it even harder for kleptocrats to create opaque company structures to launder their criminal assets, among other reforms.

Kleptocracy and accountancy

Accountants, with their expertise in financial systems and regulations, can unwittingly - or knowingly - play a crucial role in enabling kleptocrats to achieve their aims.

A huge risk to your business is working with a client who has a complex corporate structure. These structures often involve multiple shell companies registered in offshore tax havens, which provide anonymity and secrecy. By establishing a web of interconnected companies, kleptocrats can obscure the source of their funds and make it difficult for law enforcement agencies to trace the money back to its illicit origins.

This is why it’s crucial that you identify the Beneficial Owner (BO) or Ultimate Beneficial Owner (UBO) of your client. Questions regarding ownership form part of the AMLCC risk assessments. If you’re unable to identify the BO or UBO, you shouldn’t act for that client.

Another method employed by kleptocrats is the use of nominee directors and shareholders. These individuals, often with no real connection to the kleptocrat, are appointed to act as company directors or shareholders, adding another layer of anonymity to the corporate structure. This makes it even more challenging for authorities to identify the true beneficial owner of the funds.

Kleptocrats might also look to exploit you for your knowledge of tax regulations and loopholes to minimise the tax liabilities of their companies. This not only helps to maximise the profits from the laundered funds but also reduces the chances of attracting unwanted attention from tax authorities.

If you have knowledge or a suspicion of money laundering, terrorist financing or proliferation financing, you must submit a Suspicious Activity Report to the National Crime Agency as soon as possible.

By strengthening the UK's AML framework and increasing transparency in its financial system, the UK can make it more difficult for kleptocrats to launder their illicit funds and reduce the risk of financial crime. And the Accountancy sector has a duty to uphold these rules and regulations, to protect the integrity of the UK's financial system from the negative social and economic impacts associated with money laundering by kleptocrats.

The UK has long been at the forefront of the global fight against corruption and financial crime. However, digital verification company Credas found that in the UK alone £87.9 billion is laundered annually. This makes us second only to the US for the amount of money laundered through our financial system every year.

As part of ongoing efforts to combat the illicit flow of money into and out of the UK, the government established the Combatting Kleptocracy Cell (CKC) in 2022. We’ll look at the CKC, its mission, its successes and how accountancy firms like yours, as key gatekeepers for the UK’s financial system, also have a vital part to play in the CKC’s work.

What is the Combatting Kleptocracy Cell (CKC)?

The CKC is a multi-agency unit inside the UK's National Crime Agency (NCA), involving collaboration from various UK government departments, law enforcement agencies and financial intelligence units. It deals with financial crimes that include bribery, embezzlement, fraud and tax evasion, often involving politically exposed persons (PEPs) and other high-net-worth individuals (HNWIs).

Its primary objectives are to:

1. Identify, track, and freeze the assets of corrupt individuals and their networks.

2. Facilitate the recovery of stolen assets and return them to their rightful owners.

3. Hold corrupt individuals accountable for their actions through criminal prosecutions and other legal measures.

4. Deter future corruption by sending a strong message that the UK will not tolerate the use of its financial system for illicit purposes.

What does this mean for accountants?

In cases where the CKC is investigating or prosecuting PEPs, individuals or entities involved in kleptocracy, they may require the assistance of accountants, bookkeepers, tax professionals or licensed insolvency practitioners to provide financial records and their full cooperation.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) provide you with guidance on the treatment of PEPs as high-risk individuals. Regulation 33 (6) of the MLR 2017 indicates some transactions which may be high risk, especially where a PEP is involved.

HNWIs in the UK can also be seen as high risk. HNWIs from other jurisdictions who choose to invest in UK-based assets, particularly through tax-efficient structures or offshore holding companies or trusts, may be subject to Unexplained Wealth Orders or freezing orders.

As such, if you have PEPs or HNWIs in your client base you should have already recorded your awareness of the risks they present and the steps you’ve taken to mitigate them. As examples of the steps you should take to protect yourself and your firm from being involved in a PEP’s or HNWI’s potential criminal activities, you should:

1. Conduct enhanced due diligence on those with political connections or from high-risk third countries.

2. Implement robust anti-money laundering (AML), counter-terrorist financing (CTF) and counter-proliferation (CPF) policies and procedures.

3. Stay informed about relevant laws, regulations, and guidance.

4. Train your employees on AML, CTF and CPF requirements, including the risks associated with politically exposed persons (PEPs) and HNWIs.

5. Report any suspicious activities or transactions to the NCA using a SAR.

By taking these steps, amongst your other legal obligations, you’re also furthering your business’ compliance with relevant regulations.

How successful has the CKC been?

Despite being a relatively new initiative, there have already been several notable achievements and ongoing investigations that demonstrate the CKC’s potential to make a significant impact in the UK’s fight against money laundering and corruption.

Working with members of the International Anti-Corruption Coordination Centre (IACCC): The IACCC brings together specialist law enforcement officers from multiple agencies around the world to tackle allegations of grand corruption. In 2018 alone, it received 27 referrals, 14 of which came from Asian countries and 10 from African ones(1). It also identified and disseminated intelligence of 227 suspicious bank accounts found in 15 different jurisdictions and around £51 million of worldwide suspicious assets(2). The CKC plays a vital role in the IACCC’s work(3).

Action against Russian elites: Since its establishment in 2022, the CKC has had significant success investigating and obtaining 100s of disruptions (actions that demonstrably remove or reduce a criminal threat). £billions in assets have been seized from Putin-linked elites, the professional service providers that support and enable them(4), as well as multiple arrests made. This includes the high profile arrest of Mikhail Fridman, in December 2022.

The Global Anti-Corruption Sanctions Regime: In April 2021, the UK introduced the Global Anti-Corruption Sanctions Regime, which allows the government to impose asset freezes and travel bans on individuals and entities involved in serious corruption. Since setting up the CKC has played a key role in identifying targets for sanctions and gathering evidence to support their designation. This includes over 1,100 Russian individuals(5).

In summary

The CKC’s investigations represent a significant step forward in the UK’s efforts to tackle global corruption and money laundering. By targeting high-level corruption and working closely with international partners, the CKC has the potential to protect the integrity of the UK's financial system and promote global stability.

These crimes might seem far away from our day-to-day roles. But, as gatekeepers to the UK’s financial economy, UK accountants, bookkeepers, tax professionals and licensed insolvency practitioners all have a part to play - both legally and morally.

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1 https://mlexmarketinsight.com/news-hub/editors-picks/area-of-expertise/anti-bribery-and-corruption/corrupt-elite-are-very-litigious,-which-complicates-probes,-says-anti-graft-police-chief 2 https://ngm.com.au/combat-grand-corruption-iaccc/ 3 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1147515/6.8300_HO_Economic_Crime_Plan_2_v6_Web.pdf 4 https://www.nationalcrimeagency.gov.uk/news/wealthy-russian-businessman-arrested-on-suspicion-of-multiple-offences 5 https://committees.parliament.uk/publications/30459/documents/175743/default

Your supervisor can only make an assessment of your AML compliance and risk management based on what they see in front of them. You must prove you’re complying fully with your legal obligations and that you don’t see AML as just a tick-box exercise.

You need to give a holistic, 3D view of your firm and the steps you’ve taken to protect it from becoming unwittingly involved in criminal activities. 

For example:

• Do you have a written, comprehensive AML policy and is it tailored to explain your business’ actual policies, controls and procedures to manage any potential risks it faces?
• Have you identified any high risks in a business-wide risk assessment and added information to prove you understand and manage those risks?
• Have you kept records of the latest AML training for all employees and agents?
• Do you know the ultimate beneficial owner (UBO) of each company, trust or structure you act for and where their funds originate from?

These are all questions that, when answered, go towards making your business more compliant. They’re also challenges that AMLCC can help you solve. This is how…

Do you have a written, comprehensive AML policy and is it tailored to explain your business’ actual policies, controls and procedures to manage any potential risks it faces?

You must have a written, tailored AML policy, in accordance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) and other legislation. Your written AML policy needs to detail your business’ unique circumstances, show that you’re aware of your obligations and prove your compliance with the regulations.

This means you must tailor it to your business, adding as much firm-specific detail as possible so that your supervisor, or law enforcement if necessary, can build a full picture of your firm. The AML policy should include, and clearly articulate, your business’ day-to-day processes. For example, when onboarding a new client, it should state which identification documents are acceptable, what is an acceptable proof of address, which forms need to be completed, which searches and checks need to be done, and so on.

The AML policy on AMLCC is fully editable and allows you to make the document completely bespoke.

Have you identified any high risks in a business-wide risk assessment and added information to prove you understand and manage those risks?

Your firm’s risk assessment enables you to identify the areas of your business most at risk of being used to facilitate money laundering, allowing you to target your resources on these areas. This risk assessment is a legal requirement under the MLR 2017, as well as other guidance such as AML Guidance for the Accountancy Sector (AMLGAS).

But you need to do more than identify high risks. You need to show you’ve assessed how they could impact your business, that you fully understand them and you need to detail the steps you’ve taken to mitigate them.

AMLCC provides a comprehensive business-wide risk assessment for your business, with space to add comments to every risk considered as well as upload appropriate documents. These records give your supervisor proof that you’ve considered your AML responsibilities, recognised the risks your business potentially faces and made sound judgements to mitigate them.

Have you kept records of the latest employee AML training?

Once again, you’re legally required to educate your employees and agents, including senior management, so they understand money laundering, terrorist financing and proliferation financing, and their responsibilities in a regulated business. All staff must also read and understand your firm’s AML policies, controls and procedures (PCPs) and acknowledge they’ve done so.

By training employees on AML, they’ll be better placed to identify and address potential risks in their service lines or client relationships. This helps to mitigate the risk of money laundering and other financial crimes in your firm.

With AMLCC’s built-in training videos, you can give your employees a holistic view of AML and their role in it. Time and date-stamped tests and certificates mean your supervisor can see how you’ve empowered all your relevant employees to effectively perform AML in their day-to-day roles.

Do you know the ultimate beneficial owner (UBO) of each company, trust or structure you act for and where their funds originate from?

Identifying and verifying ultimate beneficial ownership (UBO) is one part of your client due diligence - and also a legal requirement. These legal duties were most recently updated in the Economic Crime (Transparency and Enforcement) Act 2022 and subsequent amendments. The regulations are clear that if you cannot successfully identify and verify the UBO you should not act for the client.

By understanding ownership structure and the source of funds, you can better assess the risk associated with your clients and ensure you’re not unwittingly facilitating illegal activities.

You’ll find a comprehensive set of questions in AMLCC’s client-risk assessments, along with the options to add explanatory comments or documents to each question. This crucially important additional information you add helps give your supervisor a ‘3D view’ of your client base, the risks it might present and the steps you’ve taken to mitigate these risks.

For more information about the tools AMLCC gives you and how you can use them to build up a complete, 3D picture of your business’ AML, visit amlcc.com

As an accountant, you already know you have a duty to report suspicious activity under anti-money laundering (AML) legislation. In fact, that’s a key reason - if not the key reason - the AML regulations dictate that client due diligence must be carried out on every client, including a client risk assessment.

The purpose of these Suspicious Activity Reports (SAR) reports is to help law enforcement agencies detect money laundering schemes and other criminal activities before they can cause further harm or damage the economy at large.

It’s crucial that the contents of a SAR are accurate and up to date to enable law enforcement to quickly assess and action those reports. We want those with criminal intent to know that professionals will report any suspicions immediately and effectively.

To do this, it’s important to understand what constitutes suspicious activity, so you don’t miss an opportunity to report something that could be important for law enforcement agencies. It also means you protect yourself and your firm from liability and the consequences of non-compliance.

What is suspicious activity?

Whether it’s a matter of thousands or millions of pounds, a SAR must be submitted by accountants, bookkeepers, auditors, insolvency practitioners and tax professionals who have formed a suspicion of criminal activity that has already, or may, generate proceeds from that crime. Don’t forget that a reduction in a liability is as much the proceeds of crime as the generation of funds.

The government has outlined several indicators that might suggest unethical or criminal activity, such as unusual transactions, incomplete or inconsistent information, and unexplained behaviour. Some of the activity that might indicate money laundering or other financial crimes include:

• Suspicious deposits made into bank accounts.
• Large, unusual cash withdrawals from a bank account.
• Unusually frequent transfers between multiple accounts belonging to one individual or entity.
• Acting dishonestly in their business and benefiting as a result.
• Unusual or unexplained levels of income relative to your understanding of a business (its purpose, staff levels, premises etc.)

Though suspicion is referred to in case law, it’s not defined in AML legislation. From my personal experience working as an insolvency practitioner, and from my discussions with accountancy professionals, if you need to ask yourself whether you’ve formed a suspicion…you probably have.

But if you’re still unsure, imagine that someone of the same experience and qualifications as you is sitting next to you and considering the same set of information that you have. What view would they form?

The benefits of submitting a SAR

Submitting a SAR can have several benefits, both for the person submitting the report and for society as a whole.

It helps prevent crime: SARs help law enforcement agencies detect and prevent crime. By reporting suspicious activity, individuals can help to stop criminal activity and prevent harm to others.

It enhances national security: SARs play a critical role in enhancing national security by providing valuable intelligence to law enforcement agencies. By reporting suspicious activity, individuals can help prevent terrorist attacks and other threats to national security.

It maintains a safe and stable financial system: SARs are an important tool in maintaining the integrity of the UK’s financial system. By reporting suspicious activity, individuals can help prevent money laundering and other financial crimes that can undermine the stability of our country.

You fulfil your legal obligations: Last but by no means least, you’re required by law to submit a SAR when you suspect money laundering or terrorist financing. Failure to do so can result in legal action, financial penalties and damage to your reputation.

When and how should accountants submit a SAR?

If you do come across suspicious activity, you must assess the risk of money laundering, terrorist financing, proliferation financing or other criminal activity. It’s important to note that you don’t need to have evidence of criminal activity to submit a SAR. You only need to have reasonable grounds: a suspicion.

In some cases, you may be unsure whether or not to submit a SAR. In such cases, it’s advised to seek guidance from your firm's Money Laundering Reporting Officer (MLRO). It’s also worth noting that failure to submit a SAR when required to do so is a criminal offence that can result in a fine or even imprisonment. Therefore, it’s important to take the reporting of suspicious activity very seriously.

If you’re an employee of a business, you must make a written internal SAR to your MLRO. This needs to be as detailed as possible and include factual information about your clients - names, addresses and account details - as well as your reasoning behind the SAR.

There’s an internal SAR tool integrated into the AMLCC platform. This walks employees through the reporting process, giving guidance about what information to submit to create a comprehensive SAR. This makes it quicker and easier to make an external SAR.

It’s up to your business’ MLRO to make an external report to the National Crime Agency (NCA). If your MLRO decides not to make an external SAR, it’s vital they document why this decision has been made. AMLCC let’s you do this too, so that if law enforcement do come knocking you can show you’ve made every attempt to comply with your AML obligations.

The UN’s Office on Drugs & Crime has found that up to US$2 trillion is laundered globally every year. This is 5% of the world's GDP. This money comes from the kind of illegal activities you read about every day – drugs, fraud and human trafficking to name a couple.

Shocking though it may seem, having a client that's involved in these crimes is not unlikely. The 2020 MLTF National Risk Assessment confirmed this. The trusted reputation of the accountancy sector makes it high risk as a target for criminal activity.

Your AML obligations exist so you can detect and report suspicious activity internally to your MLRO, who then decides whether to make a SAR to the National Crime Agency (NCA).

What are your AML obligations?

Your legally required AML obligations include:

• having up-to-date, bespoke, AML processes, controls and procedures (PCPs).
• having a complete, up-to-date firm-wide risk assessment.
• identifying & verifying clients.
• completing individual risk assessments for each client entity.
• maintaining firm & client records.
• training every employee & agent on AML, your PCPs & how to use them.
  
  

Non-compliance puts your firm's reputation at risk. The accountancy supervisors are really cracking down. Between the ICAEW and AAT alone, 11

members were expelled and 10 had practicing licenses revoked in 2021/2022 as well as fined practices up to £24,500. HMRC also revoked practicing licenses and issued numerous fines including a fine of approximately £17,000 to a small firm for inadequate risk assessments and other non-compliance issues.

How can AMLCC help?

AMLCC, when used correctly, allows you to fulfil all of your firm's AML obligations. Effectively, efficiently and in one online platform. Thousands of UK accountants have already used it to pass their supervisory visits and protect themselves from the consequences of non-compliance.

Comply

Tailor online AML policy & compliance documents that reflect your national guidance. Every document & update is saved to your audit trail.

Manage risk

Online firm & client risk assessments give guidance & mitigation advice where appropriate. Add comments and documents to show your actions and demonstrate your understanding & make internal reports through AMLCC.

Educate

Industry-specific AML training videos give every employee & manager strong, up-to-date knowledge of AML rules & regulations.

Report

If money laundering, terrorist financing or proliferation financing is detected, or suspected, employees and agents can make an internal SAR to your MLRO through AMLCC. Guidance on what information to submit means the resulting SAR from your MLRO is always comprehensive.

AIA members qualify for a discount on their AMLCC subscription. For more information on how AMLCC can enable your firm’s AML compliance, risk management and education, please visit us at amlcc.com

Director of AMLCC, Richard Simms, explains why Suspicious Activity Reports (SARs) are at the root of your AML obligations - and why you need to take them very seriously:

The key issue that so many anti-money laundering (AML) regulated professionals miss is that the Regulations exist primarily so SAR reports can be made whenever necessary. Thereafter, law enforcement can decide whether the report potentially adds further evidence to a situation they are already aware of, or reports a new situation.

The Financial Action Taskforce (FATF) estimates that 2%-5% of the global GDP is laundered, which amounts to over £37bn in the UK alone.

This, and the associated criminal activities, are more of a threat than many UK accountancy firms appear to believe. To support this claim, HM Treasury’s National Risk Assessments for money laundering (ML) and terrorist financing (TF), which includes proliferation financing (PF), has found that lack of awareness of these risks contributes significantly to the sector’s increased risk of exposure.

The Proceeds of Crime Act 2002 created an offence of not reporting knowledge or suspicions of these illegal activities. But if you’re not aware of what to look out for, you won’t spot them to report them.

What is suspicious activity?

You’ll already be aware of what money laundering and terrorist financing are. As a brief recap…

Money laundering is doing almost anything - or planning to do almost anything - with money or goods that are the proceeds of crime. It’s a term that’s rumoured to have its origins in the prohibition era, when Al Capone used laundromats to hide the origin of money gained from the sale of alcohol.

Whether or not this is true, criminals are highly likely to ‘clean’ ill-gotten gains by using legitimate businesses to put a distance between a crime and the proceeds gained from it.

The funds associated with terrorist financing may relate to funds from a legitimate source or from criminal activity. The funds are obtained with the intention of financing terrorism. 

In September 2022, counter-proliferation financing was added to your legal obligations. The Financial Action Task Force defines proliferation financing as:

"the act of providing funds or financial services which are used, in whole or in part, for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of chemical, biological, radiological or nuclear (CBRN) weapons and their means of delivery and related materials (including both technologies and dual use goods used for non-legitimate purposes), in contravention of national laws or, where applicable, international obligations.”

This is an intentionally broad definition. PF applies to financing every part of the supply chain.

Suspicious activity reports

Your firm must appoint a member of senior management to hold the role of the Money Laundering Reporting Officer (MLRO), also known as the Nominated Officer (NO). This is the person that employees and agents need to make an internal report to.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (The Regulations) require every regulated business to have steps in place that enable each relevant employee and agent to identify and report suspicious activity to the firm’s MLRO.

The ultimate purpose of your firm’s AML activity - from its policies, controls and procedures to client due diligence (CDD) and risk assessments - is to create an environment where ML, TF, and PF can be detected, prevented and reported. SAR reports made by your MLRO to the Financial Intelligence Unit (FIU) in the National Crime Agency (NCA) are the result of this AML work.

It’s your MLRO’s responsibility to decide whether a SAR is necessary. If you’re a sole practitioner, you’re your own MLRO and so should make a report to the NCA directly.

The more information the SAR provides, the more helpful it is to law enforcement. You should be routinely monitoring your clients’ risk and keeping up to date with any changes in their circumstances or transactions. This will enable you to give the NCA valuable information.

Investigations often include multiple SARs from different sources. So although you may feel your report will not add much information, it could prove to be the missing piece to a much larger scenario.

Remember a principal reason for identifying and verifying the identity of clients, and keeping this up to date, is to enable current information to be passed on to the NCA as part of a SAR report.

Reducing risk in your firm

It may seem unlikely that your client will be involved in criminal activity. The generally held belief is that these are the kinds of cases other people experience. But it’s not uncommon for law enforcement to approach a firm to request more information on an investigation into a client that seems completely legitimate. Don’t forget: criminals will work exceptionally hard to appear to be a ‘normal’ client.

This is where your AML policies, controls and procedures can save you from becoming part of the investigation. Every employee and agent must be trained in these, as well as in AML, CTF and CPF.

Your protection starts with having these policies, controls and procedures in place, to empower all of your business’ employees to detect, prevent and report any knowledge, or suspicion, of money laundering or other related criminal activity.

Client due diligence (CDD), including a comprehensive risk assessment, needs to be undertaken during the onboarding process, whenever circumstances change, and regularly for the duration of the business’ relationship with the client. You must ensure you properly identify the ultimate beneficial owner of a business, which is vital to determining the client’s level of risk and the requirement for enhanced due diligence measures.

You legally need to include a sanctions check in this process too. It’s only by knowing who your client really is, and the nature of their financial activity, that you can make an accurate assessment of their risk.

Recent reforms of Companies House give it increased powers to query and challenge information submitted to it. So thoroughly checking for inconsistencies on the companies register has become even more important.

Lastly, the more detailed records you keep of your AML activities, the more protected your firm is. If you keep clear records and documents, your supervisor and law enforcement will be able to see that you’ve taken the best approach. This could shield you from fine, loss of reputation and even criminal prosecution.

About Richard Simms

Richard Simms, MD of FASimms and AMLCC, is a licensed insolvency practitioner, chartered accountant and a leading authority on anti-money laundering. He is a sought-after guest at accountancy and AML conferences worldwide due to his position at the pulse of changes in guidance and legislation that impact DNFBPs.