GUIDE TO THE ANTI MONEY LAUNDERING REGULATIONS 2007

Transcription

1 GUIDE TO THE ANTI MONEY LAUNDERING REGULATIONS 2007 Edition 12/02 Association of International Accountants 1

2 WELCOME INTRODUCTION SCOPE OF THE REGULATIONS Establishment of Risk Assessment Policy Anti Money Laundering Officer Anti Money Laundering Procedures Money Laundering Reporting Officer (MLRO) Risk Assessment Policy Customer Due Diligence Reporting Record Keeping Availability of Procedures Training Requirements REPORTING OF MONEY LAUNDERING ACTIVITIES MONITORING FAILURE TO COMPLY & OFFENCES FURTHER INFORMATION FREQUENTLY ASKED QUESTIONS SUPPORT USEFUL CONTACTS 22 NOTES 23 2 Edition 12/01 Association of International Accountants

3 AIA has supervisory status for its members in the Money Laundering Regulations The aim of the Money Laundering Regulations is to have the most appropriate and proportionate measures to deter, detect and disrupt money laundering and the financing of terrorism. The Regulations apply to all practising accountants and, persons and firms providing accountancy services. This outline guide should be used in conjunction with the CCAB Anti Money Laundering Guidance, which has received HM Treasury approval. Edition 12/01 Association of International Accountants 3

4 WHAT IS MONEY LAUNDERING? Any action taken to conceal, arrange, use or possess the proceeds of any criminal conduct. Criminals try to launder 'dirty money' in an attempt to make it look 'clean' in order to be able to use the proceeds without detection and to put them beyond the reach of law enforcement and taxation agencies. SERIOUS ORGANISED CRIME AGENCY 4 Edition 12/01 Association of International Accountants

5 1.0 INTRODUCTION Under the regulations of the 3 rd European Union (EU) Anti Money Laundering (AML) Directive all external accountants must be supervised for anti money laundering purposes by a designated supervisory authority. AIA is listed in schedule 3 of the regulations as a supervisory body. An external accountant is defined in the regulations as someone who provides accountancy services by way of business to other persons, when providing such services. Accountancy services includes any service provided under contract for services which pertain to the recording, review, analysis, calculation or reporting of financial information. Practicing accountants supervised by AIA are required to demonstrate adequate AML policies and procedures are in place. 2.0 SCOPE OF THE REGULATIONS All accountancy related supervisory bodies listed in schedule 3 have agreed to adopt the Consultative Committee of Accountancy Bodies (CCAB) Anti Money Laundering guidance. In order to assist members in practice, the AIA have issued these Guidelines as an aide memoire toward helping them comply with their personal and firm s legal obligations. These guidelines must be read in conjunction with those issued by the CCAB, which can be downloaded from the Member Resources section of the AIA website The Supervisors listed in schedule 3 regularly meet to discuss common issues and agree on policy (AML Supervisors Forum). The accountancy related supervisors also meet on a regular basis to discuss sector specific issues (AML Accountancy Affinity Group). Some of the guidance agreed at these meetings will be referred to in these guidelines and can be downloaded from Edition 12/01 Association of International Accountants 5

6 Note: Members should also acquaint themselves with the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2007 which can also be downloaded from the Member Resources section of ESTABLISHMENT OF RISK ASSESSMENT POLICY The Money Laundering Regulations 2007 explicitly enshrine in UK legislation the concept off the risk-based approach to anti money laundering (AML) under which businesses must establish adequate and appropriate policies and procedures relating to risk assessment and management in order to prevent operations related to money laundering or terrorist financing. 1 This approach is applied to the way practices discharge their legal obligations in relation to customer due diligence as well as the way AIA supervise individual practices. The basic approach considers the likelihood of unwanted outcomes and focusing efforts and resources where the risks are highest. This section draws heavily upon the CCAB Guidance notes. Practioners and firms must be able to demonstrate to the AIA (as your anti money laundering supervisory authority) that the extent of customer due diligence measures is appropriate in view of the risks of money laundering and terrorist financing. In effect, this will be achieved by recording the process in a written policy. This policy is likely to include: 1 CCAB Guidance 08/ Edition 12/01 Association of International Accountants

7 the identification of money laundering and terrorist financing risks that are relevant to the business; and the design and implementation controls to manage and mitigate these risks, and record their operation. Practioners and firms must also be able to determine the extent of relevant customer due diligence measures necessary (section 5 of the CCAB) on a risk-sensitive basis depending on the type of client, business relationship, or services to be provided; Practioners and firms must also keep up-to-date the information collected in applying customer due diligence measures and in order to comply with regulatory requirements, you are also required to scrutinise transactions and other activities. This monitoring should be undertaken throughout the course of your business relationships to ensure that such activity is consistent with the businesses and individuals knowledge of the client, his business and risk profile assigned by your firm. Practioners and firms should assess the money laundering risks of: different products and services, client types and sectors, and the jurisdictions of client origin, funding, investment and conduct of business. being used in an active sense to launder money through the handling of cash or assets, becoming concerned in an arrangement which facilitates money laundering, through the provision of investment services or the provision of trust or company services. risks attaching to the client and/or those who trade with or otherwise interact with clients as regards their potential for involvement in money laundering. During the assessment practitioners and firms should apply a simple risk categorisation of low/normal/high on the basis of these categories. Such an approach is valid, and should be capable of minimising complexity, but needs to retain an element of discretion and flexibility where risk ratings may be raised or lowered with appropriate management input in response to particular or exceptional circumstances. Edition 12/01 Association of International Accountants 7

8 A simple matrix prepared from a risk-assessment of the factors considered above may be prepared to provide a basic framework for the categorisation of clients and engagements, and to direct the depth and type of customer due diligence accordingly. This matrix can then be incorporated into client acceptance procedures, and as step 1 of the customer due diligence process, allows a money laundering risk level to be assigned to ensure appropriate, but not excessive, customer due diligence work is carried out. 2 By definition, a risk-based approach to customer due diligence will identify situations which by their nature can present a higher risk of money laundering or terrorist financing. In addition, regulation 14 of the 3rd EU Directive, sets out a general provision that enhanced due diligence must be applied in such situations and means that the firm/practioner must obtain additional customer due diligence information about the client. In addition, the UK s 2007 Regulations also specify that enhanced due diligence must be applied in a number of situations. Two of these situations are outlined below: if a client has not been physically present for identification purposes if so, one or more additional measures must be taken to enhance due diligence e.g. Additional documentation or suitable introduction certificate from a regulated credit or finance entity, please see CCAB (section 5) for guidance. if a business relationship or occasional transaction is to be undertaken with a politically exposed person (PEP) in which case the business must provide for senior management approval for the relationship to be established, in addition to other checks. For example, the firm must take adequate measures to establish the source of wealth and funds which are involved and must conduct enhanced monitoring of any relationship entered into. 2 CCAB Guidance 08/ Edition 12/01 Association of International Accountants

9 Simplified due diligence is a phrase used in the 2007 Regulations (Regulation 13) which means that a business is not required to apply the customer due diligence measures laid out in Regulation 7, where the business has reasonable grounds for believing that a client falls into the relevant categories. Businesses who may be permitted to apply the simplified due diligence exemptions but who perceive other than a low risk of money laundering in a specific case, should consider applying their standard or enhanced due diligence processes. In any case where a client or potential client has been subject to simplified due diligence and a suspicion or money laundering or terrorist financing arises in relation to that client, the simplified due diligence provisions must no longer be applied and the customer due diligence requirements of Regulation 7 must be applied, subject to any tipping off issues. The main categories of relevance to those providing defined services are: credit or financial institutions subject to the provisions of the money laundering directive or equivalent overseas requirements, companies listed on a regulated EEA market or equivalent overseas requirements subject to specified disclosure obligations, UK public authorities and certain public authorities in the EU and EEA (see CCAB Guidance). Simplified due diligence is also available for some categories of products and transactions which may be provided by financial institutions. 3 The AML Accountancy Affinity Group has prepared guidelines on the features, design and implementation of a risk-based approach to AML which can be down loaded from ANTI MONEY LAUNDERING OFFICER All practices should appoint a Money Laundering Reporting Officer (MLRO) who should hold a position within the practice at a senior level. This person 3 CCAB Guidance 08/2008 Edition 12/01 Association of International Accountants 9

10 should be in a position to make high level decisions and be the focal point of all AML activities within the firm. In the case of sole practitioners then the MLRO and the practitioner are one and the same. The MLRO will consider internal reports and decide if there are sufficient grounds to submit a Suspicious Activity Report (SAR) to SOCA. The AIA expects the MLRO to keep a detailed written record/notes of these decisions, including date, internal report number, information sources consulted and reasons for decision to report to (or not) to SOCA. The MLRO may also take responsibility for AML training within the practice as well as well as feeding back to other practice members how to proceed with work once an internal report or SAR has been submitted and deal directly with SOCA on consent and disclosure issues. Practices should make provisions to ensure the work of the MLRO is covered during periods when the appointed MLRO is away from the practice. 2.3 ANTI MONEY LAUNDERING PROCEDURES All practices are required to produce and maintain AML policies and procedures which will be reviewed by AIA on a regular basis as part of the practice monitoring process. The procedures should include the following MONEY LAUNDERING REPORTING OFFICER (MLRO) The role of the MLRO carries significant responsibility and should be undertaken by a senior person within the business who has sufficient 10 Edition 12/01 Association of International Accountants

11 authority to take independent decisions, and who is properly equipped with sufficient knowledge, and resources, to undertake the role. 4 Qualifications Membership of Professional bodies as well as any other relevant qualifications e.g. MLROs.com or Institute of Money Laundering Prevention Officers. Responsibilities in Firm Roles and responsibilities in the practice Senior Position Organisation chart Awareness of MLRO What procedures are in place to ensure all employees are aware of the MLRO? Who monitors MLRO? If the MLRO is a member of one of the bodies listed in schedule 3 and supervised by this body is this clearly defined? RISK ASSESSMENT POLICY The CCAB Guidance makes it abundantly clear that a risks based AML policy must be fully supported by the firm s most senior members and that it must be distributed to the firm s members. The CCAB states that, Professional firms are likely to already have in place policies and procedures to minimise professional, client and legal risk. Antimoney laundering procedures and policies may be integrated into existing risk management systems or be controlled separately. In either case, anti- 4 CCAB Guidance 08/2008 Edition 12/01 Association of International Accountants 11

12 money laundering policies and procedures should be valuable to businesses, in contributing to the control of risks to both businesses and individuals in this and other areas. 5 As detailed above a clear written risk policy should be in place that targets resources where risk is greatest and reduces the requirements where risk is low. The risk policy should be designed to reflect the nature of the firm s client businesses in the practice portfolio and should be reviewed and assessed on a regular basis and when the nature of the portfolio changes. In other words the policy must be updated to reflect changes in potential risk CUSTOMER DUE DILIGENCE Effective customer due diligence measures are an essential part of any system designed to prevent money laundering. Practices should apply a risk based approach to allow effort to be concentrated on higher risk areas and therefore risks must be assessed before the appropriate levels of due diligence can be applied. Customer due diligence needs to be carried out: when establishing a business relationship when carrying out an occasional transaction where there is a suspicion of money laundering where doubts arise relating to the validity of previous identification information Practices must apply customer due diligence to new and existing clients. This can be applied to existing clients at appropriate times in line with the practices risk policy. Before entering into a business relationship practices must: 5 CCAB Guidance 08/ Edition 12/01 Association of International Accountants

13 identify and verify the clients identity using documents or information from reliable and independent sources identify the ultimate beneficial owner(s) where risk measures require this. A beneficial owner is defined as the person who owns or controls more than 25 percent of the shares or voting rights (directly or indirectly) obtain information on the purpose and intended nature of the business relationship understand who controls the business understand the nature of the client have knowledge of the clients source of funds understand the clients business and economic purpose During a business relationship practices should monitor activity on a continuous basis. This includes reviewing transactions and source of funds for consistency against knowledge documented when commencing the relationship. There are a variety of tools available to practices to aid the customer due diligence process. Practices will be required to demonstrate the appropriateness of the chosen approach is in line with the risk policy. Please refer to section 5 of the CCAB guidelines for further details including simplified and enhanced due diligence, Politically Exposed Persons (PEPs) and methods of identification. This section also has a useful table giving examples of risk-based verification REPORTING Practices should have written procedures relating to the mechanisms in place for the MLRO to receive disclosures (internal reports) from all work colleagues within or working on behalf of the practice. Part 7 of the POCA relates to this and requires everyone in the practice complies in terms of knowledge, suspicion or reasonable grounds for knowledge or suspicion of money laundering. Failure to report in accordance with Part 7 of POCA where relevant information or material was obtained through practice work and procedures is a criminal offence. Edition 12/01 Association of International Accountants 13

14 Once an individual has submitted an internal report to the MLRO he has then fulfilled his obligations. The onus is then on the MLRO to follow the internal report up with further investigations and where appropriate the submission of a Suspicious Activity Report (SAR) to SOCA. Sole practitioners are required to have procedures in place that demonstrate how a disclosure is identified and acted upon Procedures to submit SAR s to SOCA The MLRO is responsible for receiving internal reports and making SARs to SOCA as and when applicable. The MLRO will also be responsible for determining whether consent is required to continue with the engagement or any aspect of it. Reports made in accordance with the provisions of POCA are made under protected (s337) or authorised (s338) disclosures. The Protected Disclosure is a report made by any person as a result of information coming to their attention in the course of their work where this information led to knowledge or suspicion that another person is engaged in money laundering. The Authorised Disclosure is a report made by a person who makes the discloser: before he has carried out the prohibited act, whilst he is doing the prohibited act provided when he started he was not aware of the money laundering and made the report as soon as he became aware of it, after the prohibited act, provided he had good reason for not reporting it before the act was committed and the report was submitted by him at the earliest possible time. No guidance is offered in the POCA as to what constitutes good reason. Please refer to the CCAB guidelines section 6 for further details. 14 Edition 12/01 Association of International Accountants

15 2.3.5 RECORD KEEPING Records must be kept for five years after the end of the practice relationship or completion of the transactions with a client. Practices are also advised to securely store information relating to internal reports submitted to the practice MLRO and SARs submitted to SOCA. Section 3 and 7 of the CCAB guidelines give examples and further details. Under the Data Protection Act 1998 practices are exempted from disclosure under a subject access request where disclosure would be or is likely to be prejudicial to the prevention or detection of crime. Section of the CCAB guidelines refers. It is recommended that all details of internal reports are held by the MLRO and excluded from client files. The duty to report is a matter which does not fall within the delivery of professional services to clients and accordingly reporting details are not required to be placed on client files. Exclusion of information from client files assists in avoiding inadvertent or inappropriate disclosure of information and provides some protection against the threat of tipping off. Client files should retain only that information relevant to, and required for, the professional work being undertaken. It should be noted that anti-money laundering supervisory authorities have an obligation under Regulation 24 (2) to make reports of suspicion. However, the law is 26 not clear as to the interaction of the POCA privilege reporting exemption (Section ) and the 2007 Regulations and unless this is resolved, there remains the risk of an anti-money laundering supervisory authority reporting a matter that was properly the subject of the privilege reporting exemption. Keeping internal reporting papers separate from client files may assist in mitigating this risk but is not a complete solution. 6 6 CCAB Guidance 08/2008 Edition 12/01 Association of International Accountants 15

16 2.3.6 AVAILABILITY OF PROCEDURES Practices should ensure all procedures relating to AML are made available to all relevant employees. The policies should clearly state when they were produced and when they were subject to review TRAINING REQUIREMENTS Procedures should reflect the training needs of the practice and its employees. Training records should be reviewed annually and where appropriate updated to reflect the changing needs of the practice 3.0 REPORTING OF MONEY LAUNDERING ACTIVITIES SARs must be submitted using the prescribed SOCA Suspicious Activity Report Form via the SAR Online System which can be accessed at or by following the links on Failure to submit a SAR using the prescribed form is an offence under s3391a POCA. Under POCA 7 there is no minimum limit relating to the value of activities that may relate to money laundering and would like all occurrences reporting. For the avoidance of doubt, there is no de minimis limit in operation. Consent - If a practice believes an activity they are about to undertake would constitute a money laundering offence under s POCA, they must make an authorised disclosure to SOCA (or have good grounds not to have done so). If the authorised report was made before the act took place the reporter must receive consent from SOCA before proceeding any further with the activity. Once a consent request is made SOCA must respond within 7 SOCA has confirmed that they will not be prescribing one. 16 Edition 12/01 Association of International Accountants

17 7 working days. If a consent request is declined and for further details you must refer to CCAB guidelines section 8. The Privilege Reporting Exemption This is a complex and potentially very difficult area of AML practice to get right. With effect from February 2006 a relevant professional adviser who suspects, or has grounds to suspect, another person is engaged in money laundering is exempted from making a disclosure where the knowledge or suspicion comes to him in privileged circumstances. In such circumstances, provided the information given is not intended to be used by the client or another person to further criminal activities, s330 (6) POCA affords the adviser a complete defence against any charge of failure to disclose. If however you or your firm has a suspicion that this information is being proffered in order to help further a crime then an SAR must be submitted to SOCA. Whether or not the privilege reporting exemption applies needs to be considered carefully, including a consideration as to whether the relevant professional adviser was working in privileged circumstances when the particular information or other matter came to him. This is an important consideration, as a relevant professional adviser may be providing a variety of services to a client, not all of which may create privileged circumstances for this purpose. Accordingly, it is strongly recommended that a careful record is maintained of the provenance of information considered when a decision is made on the applicability or otherwise of the privilege reporting exemption 8. A relevant professional adviser is defined as an accountant, auditor or tax adviser who is a member of a professional body which is established for accountants, auditors or tax advisers. This applies to practicing AIA members. Section gives further details as well as useful examples of privileged circumstances. 8 CCAB Guidance 08/2008 Edition 12/01 Association of International Accountants 17

18 If in doubt, you should contact the AIA AML Advice Line for further guidance t: MONITORING All AIA practicing members will be supervised by AIA in conjunction with practice monitoring visits unless the practice has indicated it is being supervised by another body listed in schedule 3. The AML Supervisors Group has produced a useful flowchart that details who is responsible for monitoring and supervising. Please see attached appendix Anti Monet Laundering Supervision Flow Chart. 5.0 FAILURE TO COMPLY & OFFENCES Section of the POCA clearly defines the money laundering offences and anyone can commit one of these. Conviction of any of these offences is punishable by up to 14 years imprisonment and/or an unlimited fine. Section 2 of the CCAB guidelines sets out the offences in great detail and should be referred to, however the main offences that members should be aware of can be summarised as follows: Failure to Disclose Members in practice commit an offence if they fail to make a disclosure where they have knowledge or suspicion, or grounds for suspicion that money laundering is occurring. Tipping Off The criminal offence of Tipping Off in s333a POCA arises where a person in the regulated sector discloses that a disclosure has been made during the course of business to either a MLRO or SOCA (or any other person approved by SOCA to receive disclosures) or the police or HMRC and this disclosure is likely to prejudice an investigation; Or 18 Edition 12/01 Association of International Accountants

19 A disclosure is made relating to investigations into allegations that money laundering offences have been committed that is likely to prejudice that investigation and the information disclosed came to the person during the course of business. Prejudicing an Investigation Section 342 POCA refers. Committed when a person knows or suspects a money laundering investigation in underway and makes a disclosure that is likely to prejudice the investigation, or falsifies, conceals or destroys documents relevant to the investigation. 6.0 FURTHER INFORMATION Members in practice should ensure a copy of the CCAB guidelines is made available to all practice employees and is read in conjunction with this summary along with the relevant Acts. Should you have any queries relating to AML issues please refer in the first instance to the Frequently Asked Questions below or submit your query via the Technical Advice Form, which can be accessed through the AIA website, Alternatively contact Tim Pinkney, Director of Compliance. e: aml@aiaworldwide.com t: To access other useful resources please refer to and follow the AML links in the Technical Advice section. 7.0 FREQUENTLY ASKED QUESTIONS 1) When do the updated anti money laundering rules come into force? They are in force now. Edition 12/01 Association of International Accountants 19

20 Do they apply to my existing relationships? Yes, but you should consider updating you client due diligence on a risk sensitive basis. 2) Where can I obtain additional free information? There is extensive information on the AIA website and you can contact AIA for further Guidance. 3) Why can t my firm have a standard risk assessment to fill in? Because every firm/aia member s practice runs different risks and the risk based approach is designed to encourage AML procedures that are relevant to the specific business. 4) Will compliance with these guidelines guarantee immunity from prosecution? No, but by following these guidelines and the CCAB Guidance you reduce considerably the risk of Regulatory investigation and the possibility of prosecution by Law Enforcement Agencies. 5) If I or my firm do not comply with the CCAB Guidelines and the AIA Guidance, am I subject to prosecution? If you do not comply you do not receive the same level of protection from prosecution or regulatory oversight and/or discipline. You may have a valid reason to undertake and record AML controls that are appropriate to your business, but you need to record in writing why you are doing it and how it meets the best practice hurdle of identifying and forestalling the use of your firm for AML or terrorists financing purposes. 6) What are the implications if, when my firm implements a risk based approach, a money launderer gets through or an AML/Terrorist incident takes place? A risk-based approach can never, by its nature, be an error free system. However, it ensures the most cost effective results by directing the attention of businesses to the risks relating to different clients and services, in order to determine what level of knowledge and verification is required when establishing a business relationship and in conducting that relationship. 9 A 9 CCAB Guidance 08/2008 Section Edition 12/01 Association of International Accountants

21 Suspicious Activity Report would still have to be made to SOCA and AIA expects the firm to make a disclosure of the system weakness to the Association. The firm would be expected to review and improve its systems accordingly. 8.0 SUPPORT IN PRACTICE In Practice is a monthly e-magazine for AIA members in practice. HM REVENUE & CUSTOMS AIA and HMRC are working in partnership to ensure that all members have easy access to the latest information from HMRC, including rates, deadlines and guidance. ACCOUNTANCY E-NEWS The weekly Accountancy E-news keeps members up-to-date with the latest news and developments from the profession. INTERNATIONAL ACCOUNTANT International Accountant, AIA s professional journal is published six times a year and is designed to convey news of accountancy innovations and developments, economic and management issues that will interest and benefit AIA members. AIA WEBSITE AIA s website contains a wealth of technical information pertinent to you. Your first point of reference should be Edition 12/01 Association of International Accountants 21

22 MEMBERSHIP SERVICES Membership Services are happy to respond to your queries and can be contacted by t: +44 (0) , e: or f: +44 (0) USEFUL CONTACTS The Association of International Accountants, Staithes 3, The Watermark, Metro Riverside, Newcastle upon Tyne, NE11 9SN, United Kingdom T: +44 (0) F: +44 (0) MEMBERSHIP SERVICES T: +44 (0) E: EXAMS DEPARTMENT T: +44 (0) E: RECRUITMENT DEPARTMENT T: +44 (0) E: 22 Edition 12/01 Association of International Accountants

23 10.0 NOTES Edition 12/01 Association of International Accountants 23

24 24 Edition 12/01 Association of International Accountants