Author: Azizur Rahman
7 August 2017
4 min read
The legislation relating to money laundering has become tighter over the years as the authorities seem increasingly determined to tackle the problem.
A number of incidents in recent months that we detail here have illustrated the need for those in business to have anti-money laundering procedures in place. But they also indicate that those introducing and maintaining procedures must make sure they are fit for purpose. If they don’t do what they are supposed to – prevent money laundering - they are worthless.
Recently, Deutsche Bank, the Bank of Ireland and BNP Paribas were all punished for failing to do everything possible to prevent money laundering.
The US Federal Reserve fined Deutsche Bank $41 million and criticised its “unsafe and unsound practices’’ for failing to maintain money laundering controls – just months after the bank was fined $629 million for failings that allowed wealthy Russians to allegedly launder $10 billion.
Bank of Ireland was fined 3.15 million euros by the country's central bank for “significant failures” in its anti-money laundering controls; including 12 breaches of Irish anti-money laundering laws, not reporting six suspicious transactions and failing to carry out sufficient checks on a politically exposed person.
Similarly, French authorities fined BNP Paribas 10 million euros for inadequate anti-money laundering controls, after a 2015 inspection showed shortcomings in the bank’s prevention procedures.
It is worth noting that all three banks had anti-money laundering procedures: they were punished because those measures were not good enough.
It is an outcome that everyone in business can learn from. If your preventative measures are not adequate they will provide no protection against the money launderers – or the investigating authorities.
Foreign authorities are making more money laundering enquiries in the UK than ever before. The National Crime Agency (NCA) believes that more than £90 billion is laundered each year through the UK and European Union ministers are improving cooperation between its countries to boost the prosecution of money laundering.
Such factors prove that money laundering is coming under greater scrutiny. Those found to have inadequate anti-money laundering procedures will find little scope for escaping punishment.
The Fourth EU Money Laundering Directive (4MLD) came into force in June 26, 2015 and places more obligations on banks and other financial institutions. It removes the automatic right to exempt certain customers or investors from due diligence checks, demands more transparency on beneficial ownership and imposes an obligation to carry out risk assessment and monitoring on customers. It also requires more due diligence on people or organisations from what are deemed to be high-risk countries and on politically exposed persons (PEP’s), their relatives and close associates
So what needs to be done to ensure your procedures are fit for purpose?
The quick answer is be alert, aware and proactive regarding prevention. If you take the right steps to prevent money laundering, it almost goes without saying that your business is unlikely to be affected by it.
Money laundering is the disguising of the origins of money that is the proceeds of crime. A person can launder their own criminal proceeds or have it done for them by another person. Both of these are offences under the Proceeds of Crime Act 2002 (POCA).
If you implement adequate procedures that deny the opportunity for a person to launder money, you will not face problems in the future. And even if you do, you have a valid defence if you can demonstrate that you had taken all possible precautions to prevent it.
Let’s make this clear. This does not mean setting up a review of working procedures, drafting some rules on preventing money laundering and telling staff about them. That is simply not enough. If you don’t believe this, ask the three banks I mentioned earlier: they had all done that and yet paid the penalty for not doing enough.
We do not know exactly how or why those banks got it so wrong. But preventing money laundering means scrutinising a would-be client or trading partner’s identity and background, as well as that of anyone else who wants to move money in or out of a business. It means checks on who exactly benefits from a transaction and the relationships between everyone involved.
Indicators of money laundering can include a vagueness or reluctance to talk about the people and amounts involved in a transaction, strange conditions being insisted upon (especially regarding the movement of money) and a company being asked to be party to a deal “out of the blue’’, with no clear reason given for this.
Your procedures have to recognise and be a response to all of this.
Specialist legal help is available for those requiring assistance when devising and introducing anti-money laundering procedures. Limits on the size of cash-only deals, appointing certain staff to examine transactions and restrictions on access to company accounts can all reduce the potential for laundering.
Yet such procedures need to be monitored and tested regularly and, if necessary, revised. A failure to ensure your procedures are at their maximum effectiveness means a greater risk of money laundering. Again, specialist help can be hired to assess the ongoing strength of compliance procedures and make the necessary changes.
Random sampling of firms covered by the Money Laundering Regulations was announced last year by the Financial Conduct Authority (FCA). While such a measure is limited to firms considered to be high risk, such an approach could bring extra security to any company looking to design out the risk of laundering.
Regular and intensive auditing, both by staff and external bodies, will also go a long way to identifying a firm’s weaknesses to money laundering. But this is only if they are conducted with an awareness of the potential risks associated with that company’s size, type of business and the trade sector and geographical area it works in.
Just as poorly-devised and badly-run prevention procedures will do little to stop money laundering, weak or non-existent checks on any procedures introduced will not ensure those measures are doing what they are supposed to.
Creating the procedures is only the first part of a commitment to preventing money laundering. Making sure they are doing what they are supposed to do is an ongoing commitment.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.