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AML responsibilities: taking on clients during COVID-19

25 March 2020: with no end in sight to the current coronavirus disruptions, ICAEW offers a series of tips to comply with the government’s anti-money laundering regulations during these difficult times.

In its latest guide, Anti-money laundering responsibilities: client take-on procedures, ICAEW’s Business Law department looks at how to adapt processes to reflect more remote interactions with prospective clients.

A key concern is the severe restrictions now placed on personal and face-to-face interactions and the ability to perform effective client due diligence (CDD).Given that the three stages of CDD are client identification (information gathering), risk assessment and verification (evidence gathering), any inability to meet the client face to face may impact a member’s ability to conduct an effective client risk assessment. This should lead to increased levels of caution, perhaps by gathering more evidence in the third stage of CDD to verify the client’s identity. 

A good option is to use ICAEW’s client screening service, which offers members a free search on a leading risk and compliance database. Each search will check an individual’s or entity’s name against government sanction and PEP (politically exposed persons) lists, in addition to several other legal, regulatory and industry watchlists.

Another potentially challenging CDD area is verification of the client’s ID when the client is unable to produce certified copies of their passport or driving licence, as no-one is around to do so. In this scenario, it is important that the evidence is obtained from a reliable source, and one that is truly independent of the person whose identity is being verified. Businesses should always consider how they will demonstrate the provenance of document copies. Certified copies can be treated as a reliable source if you are satisfied with the standing of the certifier. Non-certified copies cannot usually be accepted.

Consider whether evidence can be obtained from other sources, such as electronic identification processes. If they are secure from fraud and misuse, and capable of providing an appropriate level of assurance that the person claiming a particular identity, is in fact that person then this is usually acceptable. 

A good checklist of questions to pose in this scenario includes:

  • Does the system draw on multiple sources? A single option (such as the electoral register) is not usually deemed to be adequate.
  • Are there control mechanisms to ensure data quality and reliability? Systems should have built-in data integrity checks which, ideally, are sufficiently transparent to prove their effectiveness. Also, those that fail to update data regularly are more prone to inaccuracy.
  • Is the information accessible? It should be possible to either download and store search results in electronic form or print a hardcopy with all the details required. It is fine to have a record of the issuer of a document and its unique identifier, but not necessary to have a reproduction of the original document.  

Consideration should also be given as to whether the evidence provided has been sourced from an official source, such as a certificate of incorporation from the official company registry or a passport. 

Self-isolating issues

Questions have been raised by ICAEW members about whether businesses can defer the normal client due diligence checks if the staff member responsible for conducting them is self-isolating - something that is likely to occur for many businesses.

The complete answer is that CDD should normally be completed before entering into a business relationship. The money laundering regulations recognise that CDD will occasionally need to be completed while the business relationship is established, rather than before. Despite this, delays like this are only allowed when there is little risk of money laundering or terrorist financing (MLTF). 

The business should still gather enough information to form a general understanding of the client’s identity so that it remains possible to assess the risk of MLTF. 

No client engagement - including transfers of client money or assets - should be completed until CDD has been completed. Where a key employee is not working due to self-isolation or illness, the firm still has a responsibility to ensure the proper checks are carried out and that the appropriate CDD process is completed before any services are delivered.

In essence, members’ responsibilities to comply with AML are still in force and still greater caution may be the watchword of the moment.  

For further information contact the ICAEW money laundering enquiries helpline on 01908 248 250. 

Governments around the world have announced tax measures to support businesses and individuals in response to the COVID-19 pandemic. For more details click here.