Anti-money laundering policies are created by companies to identify - and prevent them being used by - money launderers.
It is worth explaining here that money laundering is the process of disguising the origin of money that has been gained from criminal activity. To give an example, someone who has earned wealth through large-scale drug dealing will look to move it and / or use it to make investments in order to make it difficult for anyone to realise how they obtained that money.
Money laundering is an activity carried out by organised crime groups in order to prevent any investigations being able to show that the money was gained through illegal activity. The UK’s National Crime Agency – the body created to tackle serious and organised crime – estimates that there is “a realistic possibility’’ that money laundering affecting the UK each year could involve hundreds of billions of pounds.
The scale of the threat posed by money laundering and the penalties for those who allow it to happen (which we cover below) mean it is vitally important for businesses to have an anti-money laundering (AML) policy in place. Only by having such a policy can a company be sure it is doing everything possible to identify and tackle the dangers posed by money laundering.
What is an AML policy?
In the UK, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (which have been amended since being introduced), the Proceeds of Crime Act 2002 and the Terrorism Act 2000 place obligations on businesses to be alert to the dangers of money laundering and to report any suspicious activity.
Creating an AML policy should be a major part of a business’ attempt to meet its legal obligations regarding money laundering. An AML policy is an essential part of detecting, preventing and reporting money laundering activities.
What types of business require an AML policy?
All companies could, in theory, benefit from having an AML policy. But many businesses should have such a policy because of the money laundering risk that they face and / or because they have to, due to regulations or the law.
The money laundering risk a company faces will depend on factors such as:
- The type of work it is involved in.
- The countries where it does its business.
- The types of clients it works for.
- The individuals, companies and organisations it deals with.
- Whether it is a regulated company – subject to the UK’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (which have been amended since their introduction).
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 apply to businesses that:
- buy and sell property or businesses.
- manage money, securities (such as stocks, bonds and other financial. interests) or other assets for clients.
- open or manage bank, savings or securities accounts or are involved in the creation or operation of trusts, companies or other financial structures.
- organise contributions necessary for creating, operating or managing companies.
When a company is deciding whether it needs an AML policy, it should carry out an AML risk assessment to ensure it is fully aware of the potential threat of money laundering it faces.
Why is it important to have an AML policy in your business?
Having an AML policy can be the difference between a business being able to identify and manage the threat of money laundering and being prosecuted for allowing it to happen.
Not having an AML policy (or having one that is inadequate) can lead to a company facing massive fines, not to mention huge damage to its reputation. It can also result in a company’s senior figures facing criminal prosecution.
A person convicted under the UK’s Money Laundering Regulations can be jailed for up to two years and be fined. Anyone convicted of money laundering under the Terrorism Act can face up to five years in jail and a fine. Under the Proceeds of Crime Act, a person convicted of money laundering can be jailed for up to 14 years and fined.
The Financial Conduct Authority (FCA) will prosecute a business if it believes it is not meeting its obligations to prevent and tackle money laundering. To take just two examples, 2021 saw the FCA investigate HSBC and NatWest for anti-money laundering failings and not complying with anti-money laundering regulations. HSBC was fined £63.9 million and NatWest £264.8 million.
Having the right AML policy in place should, therefore, be at the heart of many companies’ activities.
What should be included in an AML policy?
The type of AML policy a company requires will depend on factors (mentioned earlier in this article) such as the type and location of its work, clients and trading partners, and the regulations that apply to it.
But whatever the precise nature of a company’s activities, its AML policy needs to include:
- Specific details of its money laundering prevention strategy, including the roles given to named individuals and how the strategy relates to any AML risk assessment that has been carried out.
- A full explanation of the company’s methods for locating, verifying, monitoring and conducting due diligence on customers.
- Plans for educating staff about their anti-money laundering obligations and ensuring they fully understand the procedures in place for reporting any suspicions.
There should be a full written record of the AML policy. This is important for ensuring it can be referred to by staff but also because it may be asked for by regulators if they investigate a suspected incident of money laundering.
It is also important that the company reviews its AML policy on a regular basis and / or when there are any significant changes regarding the nature of its work.
How to Create an AML Policy
Creating an AML policy is an important task for a company. It has to be carried out correctly, otherwise it will fail to identify and prevent money laundering. At some point, the policy may also be subject to examination by the relevant authorities.
Due to its importance, a company wanting to create an AML policy could seek advice from professionals with the relevant expertise.
Every AML policy may be slightly different, due to each company’s particular circumstances. But generally, devising an AML policy involves addressing a number of issues:
- Defining the AML policy’s aims: The policy needs to explain in its introduction what its purpose is and the reasons why it has been created.
- Appointing a compliance officer: A person with the relevant expertise has to be chosen to take charge of AML compliance in the business. It will be their responsibility to examine existing anti-money laundering procedures, see where improvements can be made and, if necessary, propose new policies to ensure the company is meeting its AML obligations.
- Sharing data with the authorities: Businesses have to report their AML findings to the relevant authorities. Each business should detail in its AML policy exactly how this will be done.
- Sharing with other financial institutions: An AML policy should explain whether the company intends to share its anti-money laundering information with other companies, and precisely how it will do this. Sharing data with other companies is not compulsory but it can help a business comply with its AML obligations.
- Sanctions list cross-checking: Companies have to make sure anybody they intend to have a business relationship with is not on any sanctions list. An AML policy must state how such checks are made and how the company will ensure it is aware of any sanctions updates.
- Client verification: An AML policy has to detail how a business verifies the identities of those it does (or plans to do) business with.
- Customer due diligence: A business has to say how it will carry out due diligence - the necessary checks to be made before going into business with someone - on individuals; including the beneficial owners and senior management of other companies and politically exposed persons (PEPs).
- Filing suspicious activity reports: In the UK, meeting AML obligations involves a company making a suspicious activity report to the National Crime Agency. An AML policy has to outline the company’s procedure for this.
The Benefits of a Robust AML Policy
Creating an AML policy may be regarded as a chore by many in business. But such a policy is a legal duty for many businesses.
While an effective AML policy is a vital weapon in the battle against money laundering, it can also bring benefits for a company.
These include:
- Reducing the chances of the company failing to meet its legal or regulatory obligations – and suffering the penalties that could follow.
- Improving its risk management.
- Providing protection against those looking to involve it in financial crime.
- Ensuring a company’s reputation and position in its business sector is not damaged by participation (knowingly or unknowingly) in illegal activity.
Conclusion
There is little doubt about the scale of money laundering. The exact amounts of money involved are, for obvious reasons, unknown. But it is a huge problem – and one that poses a danger to many companies.
Those in business must ensure they do all they can to minimise the risk money laundering can pose to them. Creating an AML policy that reflects this risk is a large part of a company’s defence against the dangers of money laundering.
For some companies, this may appear to be a daunting challenge. But at Rahman Ravelli, our money laundering and compliance specialists are experts when it comes to devising AML policies that meet the needs of companies in each and every business sector.
