Anti-Money Laundering Checks 2021: A Complete Guide

Anti-Money Laundering Checks | Read Time 3-5 Minutes.

There has become no better way to deal with terrorist, traffickers, and criminals in today’s ever-advancing digital climate than to stop their funding. How is this done? Anti-money laundering checks and comprehensive risk-based approaches enforced in the UK across financial institutions and businesses. Through robust anti-money laundering checks, it is has given the edge financial institutions need to crack down on criminals.

This article explains the true value of establishing effective anti-money laundering checks, human resources, procedures, and technologies towards anti-money laundering compliance. Furthermore, it includes a comprehensive anti-money laundering compliance checklist that businesses can use as a guide towards preventing money laundering.

What is Anti-Money Laundering?

Anti-money laundering is a term used to explain the collection of laws, processes, and regulations used to prevent the illegal generation of income. In the UK, the government’s anti-money laundering regulations are set to protect businesses from being victim to money laundering schemes launched by criminals. Furthermore, they ensure sufficient procedures and control within firms to minimise the risk of money laundering and ensure anti-money laundering checks are completed.

Anti-money laundering checks are used to validate a person’s true identity and check the money has been acquired through legitimate means. Furthermore, anti-money laundering checks help prevent a wide range of criminal activities, including corruption, tax evasion, market manipulation, and illicit goods trade.

Anti-money laundering regulations in the UK apply to the following business sectors:

• Accountants
• Financial Services
• Estate Agents and Solicitors

The businesses within the listed sectors are covered by the anti-money laundering regulations and must be monitored by a supervisory authority. However, if your business fall’s outside of this list but is typically associated with one of the 7 categories below, it will need to be registered with the HMRC.

Types of businesses that typically need to be registered with the HMRC:

• Money service businesses (not supervised by the Financial Conduct Authority)
• High-value dealers
• Trust and company service providers
• Accountancy service providers
• Bill payment service providers (not supervised by a professional body)
• Telecommunication, digital and payment service providers (not supervised by a professional body)
• Art market
• Letting agencies

It is a legal requirement in the UK to register with the HMRC before undertaking trade. Furthermore, trading while not registered would result in a criminal offence and may result in a prosecution or fine.

anti-money laundering Compliance Checklist

Businesses in the UK are required by law to perform anti-money laundering checks and adhere to anti-money laundering regulations. Businesses can use the following checklist as an anti-money laundering guide to get started.

1. Appoint A Chief Compliance Officer

A key element of the anti-money laundering regulations is that it requires businesses to appoint a Money Laundering Reporting Officer (MLRO). The MLRO is appointed to be a senior employee who implements and monitors anti-money laundering policies and procedures.

A chief compliance officer (CCO) role is to effectively communicate the company’s key principles and compliance regulations to others within the business. The chief compliance officer is usually the head of the compliance department. Under the position are a series of managers and compliance officers, depending on the size structure of the business. Furthermore, the chief compliance officer typically has a relationship with the board of directors, who provides oversight of the business’s compliance program.

2. Risk-Based Approach in Anti-Money Laundering

Taking a risk-based approach to anti-money laundering should not be taken for granted. It is a fundamental obligation enforced by law in the UK.

Risk-based approaches to anti-money laundering require businesses to carefully assess any potential risk they may face regarding money laundering. A risk-based approach to anti-money laundering can be performed using several different facets. Furthermore, to effectively implement it, businesses will need to conduct and enforce accurate risk assessments. This should include asking questions about:

• Infrastructure: Is the business perceptible to any internal weaknesses where criminals could exploit a money-laundering operation?
• Regulations: Does the client/customer meet the regulatory obligations?
• Vulnerabilities: Could the client/customer be exposed to money laundering threats such as drugs, arms, or sex traffickers?
• Geography: How perceptible is the customer/client to money laundering based on where the business is located?

It is vital for businesses to regularly update and review anti-money laundering risks assessments. Furthermore, This will help to prevent new risks arising and demonstrate robust anti-money laundering compliance.

3. CDD and KYC Procedures in the United Kingdom

In the UK, businesses that are regulated under anti-money laundering laws have to implement “know your customer (KYC) and customer due diligence (CDD)” procedures in customer/client account opening activities. Furthermore, these practices are a fundamental part of anti-money laundering checks and are a statutory obligation for businesses.

KYC Process:

The KYC process ensures businesses verify the identity of customers, clients, and suppliers. It is enforced so that businesses owners evaluate the potential risks for illegal activity that the customer may pose.

One of the main reasons for establishing the KYC guidelines is to prevent people from laundering money through the business. Furthermore, it also helps business owners better understand their customers and their financial practices to reduce the risk posed by money laundering.

CDD Process:

The CDD process involves using Politically Exposed Person (PEP) lists to identify people with a prominent public function. Furthermore, it is also used to check their close relatives or businesses ties. This is because people of high positions such as politicians can pose more significant risks for involvement in money laundering crimes.

4. Identity Verification

Following the KYC process, ID verification is an essential part of anti-money laundering checks. It can be performed in various ways, such as using physical documents or electronic identification. Furthermore, when verifying a person identity, you must confirm the individual’s name and residential address or date of birth as a minimum requirement.

The most common ways which can be used to verify a person identity include:

Physical documents

There are various types of documents that can be used to prove someone’s identity. However, certain documents will carry more weight than others. For example, documents such as a passport require the person to verified in order to acquire the form. Alternatively, other documents such as a utility bill can be obtained with very little information being present.

It is advised to use documentation supplied by the government with supporting documentation by public authority, court, and regulatory service providers. Furthermore, a government-issued document that includes the name and residential address or date of birth can be used to verify someone’s identity.

Physical documents may include:

• A current signed passport.
• Driver’s licence (not provisional).
• Birth certificate.

When reviewing physical documents, you should take careful consideration to consider the risk of the document being forged. 

Electronic Identity Verification

Another method that can be used to verify an individual’s identity independently or in conjunction with supporting documentation is electronic id verification.

The online check works by matching the provided identity details from the individual against their online electronic “footprint”. An electronic footprint is built over time through everyday activities such as opening a bank account. Moreover, activities which require digital information with regards to your ID and address will contribute to an individuals online digital footprint.

An electronic ID verification check must ensure multiple sources are used and that it includes two matches, verifying the person’s full name and residential address. Furthermore, the electronic verification should include screening against both positive and negative information. The positive information could consist of the individual’s identity details, whilst the negative could include screening against databases such as the death register.

5. Detecting and Reporting Suspicious Activities

Businesses regulated by anti-money laundering laws are required to report their customers/clients’ suspicious transactions that flag financial crime risk. Once flagged, suspicious individuals are reported to the National Crime Agency Link.

Determining the risk level of a customer/client is of significant importance in detecting suspicious transactions. Businesses most commonly do this by analysing unusual transactions, fraudulent activity and suspicious ID confirmation requests.

Anti-Money Laundering Software

Anti-money laundering software is used by businesses to help detect suspicious activities by individuals or organisations who are attempting to generate income through illegal operations. Furthermore, compliance professionals use the software to meet regulations such as the Bank Secrecy Act and corporate policies regarding financial fraud.

Banks and financial institutions use anti-money laundering software from all departments as this type of software helps evaluate new customers and ensures anti-money laundering checks are completed. Furthermore, anti-money laundering software can be used to detect fraudulent activities that may impact a business’s profitability and reputation.

For more information with regards to criminal fraud please visit our Criminal Fraud Page. Finally, if you require information about the stages of money laundering please visit our LGBT Lawyers Money Laundering Blog.