This issue contains information on changes to sanctions list and legistaltion following the end of the transition period, as well as Suspicious Activity Reporting resources and money laundering risk alerts from the National Crime Agency.

ICAEW update

2020 was a challenging year and the coronavirus pandemic has presented a number of AML risks. From performing client due diligence on clients without meeting them face-to-face or being vigilant in identifying suspicions around government support schemes fraud, firms will have had to adapt their policies and procedures. AML Essentials continues to bring you resources to help and support you, as well as providing links to the latest information and guidance.

ICAEW continues to be at the forefront of AML supervision as Michelle Giddings, Head of AML, chairs the AML Supervisors Forum in 2021. By bringing together the Supervisors, the Forum aims to share and develop best practice across all AML Supervisory Authorities and to liaise closely with UK Government and national/leading agencies committed to the prevention and reduction of crime and laundering of the proceeds of crime.

Transition period ends: New Sanctions Lists

The end of the Brexit transition period will impact firms when the UK introduces new sanctions legislation. We understand that the changes will include the following areas, which may create new positive matches for firms using electronic verification databases:

• new entries to the list
• “housekeeping changes” – for example Belarus will change to “The Republic of Belarus”
• Enhanced detail compared with the current EU list – including additional aliases, if known; full names where known (so John Smith could become John Martin Smith) and variant spellings. 

Office of Financial Sanctions Implementation has indicated that full compliance will be required. If your firm uses an electronic verification supplier who use underlying data provided by 3^rd party databases, you will need to understand which fields the product uses and the level of ‘fuzzy’ data.  Whilst accountants may be less likely than a bank to find a sanctioned individual or entity on its books, there will be strict liability if a firm conducts business with a sanctioned person regardless of the number of hits it is trying to clear. 

Transition period ends: Changes to Money Laundering Regulations

The end of the implementation period has triggered a number of changes to the Money Laundering Regulations and related legislation, which are required to ensure the AML regulatory regime continues to operate effectively.

The obligations on businesses are contained within UK domestic legislation so continue after the end of the implementation period. Businesses should continue to refer to the EU exit preparedness pages on gov.uk for information and updates. The below legislative changes came into effect at the end of the transition period.

The key change for firms to be aware of is in respect of ‘high-risk third countries’. Regulation 33 of the Money Laundering Regulations requires a relevant person to apply enhanced due diligence in any business relationship with a person established in a high-risk third country or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country.  Regulation 33.3.a defines a ‘high risk third country’ as a country listed by the EU by Delegated Act pursuant to the EU’s powers under the 4th Anti Money Laundering Directive.  Under Schedule 8 of the EU Withdrawal Act any changes to the EU’s list will cease to have effect in the UK once the Transition Period has ended. This in effect means that EU’s list effectively becomes frozen in time in the UK and as a result creates a new autonomous list that replicates the EU’s list as of the final day of the Transition Period. We intend to update the new autonomous list following the February Plenary of the Financial Action Task Force so that the UK new autonomous list is aligned with the FATF lists of ‘jurisdictions under increased monitoring’ and ‘high-risk jurisdictions subject to call for action’ (sometimes referred to the FATF grey and black lists). This will be done using the powers under s.49 of the Sanctions and Anti Money Laundering Act (2018).

The remainder of the changes are technical in nature with no substantive policy changes and do not have any substantial effect on how firms continue to meet their requirements under the MLRs.

• The changes set out in SI 2019/253. Among other updates, this will remove references to the European institutions and equalise the regulatory treatment of EEA member states and ‘third countries’.

• A few other miscellaneous EU amendments to cover changes made since that SI, which:

• enable the FCA to make regulatory technical standards about additional measures to be taken in certain third countries to mitigate money laundering risks: SI 2019/1390

• update new EU references in the MLRs to e.g. overseas authorities and EEA states and to reflect recent changes in EU law including to 4MLD: SI 2020/628 (regs 4 and 8)

• update the latest EU references in the MLRs relating to trust registration: SI 2020/991

• update a couple of references to ‘exit day’ within the MLRs: SI 2020/1301

• The expanded definition of terrorist financing in regulation 34D of the Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019 as inserted by SI 2020/1289. While this new definition of terrorist financing will be included in the MLRs, there will be a redundant reference to the Terrorist Asset-Freezing etc. Act (2010) which is due to be repealed. This will have no effect, but will be removed from the regulations at the next opportunity.

• Not a change to the MLRs, but the completion of the IP will also bring into force section 49 and Schedule 2 of the Sanctions and Anti-Money Laundering Act (2018). These will allow the government to continue to make secondary legislation relating to anti-money laundering.

National Risk Assessment

The government has published the National Risk Assessment. We will shortly publish a summary as well as the updated AASG Risk Outlook.

New CCAB guidance

The CCAB has published updated guidance for the January 2020 amendments of MLR17, although HM Treasury has not yet approved it.

What is money laundering?

ICAEW and IFAC series

Read the second and third installments of the ICAEW/IFAC series on AML – what is money laundering?

Furlough Fraud

• Accountants must be wary of COVID-support fraud

Following claims of fraudulent activity around government support schemes, chartered accountants should turn to their code of ethics to assess and manage their potential exposure to ethical and reputational risk.

Suspicious Activity Reporting: Thematic review

To understand how and when our firms report suspicious activity, we carried out a thematic review. The results have been fed into new resources. Our aims included helping firms to improve:

• the quality of their SARs; and
• their training, so that staff can better identify the red flags.

• Access the resources

Money laundering risks to be alert to

1. Bribery and Corruption Risks to UK Independent Schools – Case Studies and Red Flags.

Do you provide services to Independent Schools?

If you have Independent Schools as clients you should be aware of the National Economic Crime Centre Amber alert “Bribery and Corruption Risks to UK Independent  schools – Case Studies and Red Flags”

You should also be ensuring that any clients operating in this environment have read the guidance and introduced appropriate mechanisms for monitoring risks.

The publication highlights the numerous ways in which independent schools can be used as destination for funds linked to bribery and corruption. It lists the red flags that schools should be alert to when receiving funds for school fees and donations. These might involve school fees being paid by third parties on behalf of parents, students who come from higher risk jurisdictions, cash deposits to pay school fees, payments out of custody accounts and large deposits of payments of fees in advance.

2. Chinese Underground Banking

Do you provide services to Chinese clients who have transferred monies out of China?

It is very difficult to move money out of China and there are significant restrictions on what money coming out of China can be spent on – in particular, Chinese nationals can’t buy UK property unless they can evidence to the authorities that they are emigrating and intend to make that property their primary residence.

This means that ‘underground money shops’ have been created to facilitate the movement of money out of China. These underground money shops are often involved in money laundering operations all over the world. They have ‘collectors’ based overseas that collect cash from criminals and use this to facilitate purchases in the UK on behalf of Chinese citizens. Chinese students are often used as mules as they have UK bank accounts.

If you have Chinese clients you need to be alert to the risk that you may be handling, or facilitating the handling, of the proceeds of crime. You should understand the source of funds (and wealth). Firms that have conveyancing firms within their client base should also be alert to any Chinese clients.

You can read more in this NCA publication on Chinese Underground Banking and ‘Daigou’.

Read the latest NCA publications 

The NCA has published a number of important resources over the past three months. You can find all of the relevant documents here. We strongly recommend that you read the documents and use the information to inform training and any changes to your risk assessment procedures.

The resources include:

• SARs annual report 2020
• Glossary codes and reporting routes
• SARs In Action – November (issue 8)

The UKFIU has also published its third podcast available at: ukfiu.podbean.com, Apple Podcasts, Google Podcasts, Podtail and Amazon music/audible.

Further links and resources

• Suspicious Activity Reporting
• Government has published its response to the Corporate Transparency and Register Reform consultation
• Raise an AML concern
• Take Five – Stop Fraud