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National risk assessment (NRA) of money laundering and terrorist financing 2020

The NRA is the UK’s stock-take of our collective knowledge of money laundering and terrorist financing risks in the UK.

Why has it been prepared?

Money Laundering Regulations (MLR) require HM Treasury and the Home office to prepare a joint report setting out the findings of a risk assessment which identifies, assesses, understands, and mitigates the risks of Money Laundering and Terrorist Financing affecting the UK.

The NRA aims to inform firms how to prioritise and allocate resources to counter money laundering and terrorist financing.

This is the third NRA, the previous assessment was published in 2017.

Why is it relevant to your firm?

MLR stipulate that supervisors and our member firms must conduct their own risk assessments which must consider the NRA. Therefore, you should prepare your firm-wide risk assessment with the risks identified in the NRA in mind.

Whilst we have summarised some of the key risks identified in this report there is an abundance of material in the original document and we recommend that you read it.

Read the report

What do you need to know?

You need to understand the key risks and threats highlighted within the NRA. When you prepare your firm-wide risk assessment you should consider how these risks prevail in the environment in which you operate. In particular, you should consider whether you offer services that the NRA considers high risk, or engage with clients in sectors or geographies that are high risk.

Your firm-wide risk assessment should describe how you plan to mitigate any changing risks.

What does the NRA say about accountancy services

The NRA concludes that the risk that accountancy service providers could be used to facilitate money laundering is considered high. The risk that accountancy service providers could be abused by terrorists is considered low.

The risks exists because criminals may use accountants to help their illicit funds gain legitimacy and respectability by using the accountants professionally qualified status.

Some services provided by accountants are at higher risk than others. Those most at risk are:
  • Company formation and termination
  • Mainstream accounting
  • Payroll

Services we provide that the NRA considers constitute a risk

Trust and company services Trust and company services are considered high risk when coupled with higher risk services or other higher risk factors.
Risk is also enhanced if you are asked to form a company by a corporate service provider in another jurisdiction. Firms that offer registered office or nominee directorships are at risk as these cans be used to conceal beneficial ownership or be used to facilitate the movement of money to offshore jurisdictions.
Mainstream accounting There is a risk that accountants may legitimise false books, record or transactions. In particular:
  • bookkeepers may facilitate money laundering by creating records that hide existence of taxable assets.
  • Bookkeepers may create invoices in the absence of a sale or inflate the value of goods sold.
  • Accountants could provide false references relating to applications such as mortgages.
Payroll The NRA considers payroll services a risk as this can provide criminals with legitimate looking record of money movement.
Provision of tax advice and acting as agent for HMRC Under declaration of tax due to HMRC.
Company liquidation and associate service (IP) Can be used to mask the audit trail of money laundered through a company

The AASG Risk Outlook provides further guidance and red-flag indicators on each of these risk areas.

International money laundering threats

The NRA also considers the money laundering threat from other international jurisdictions.

China A significant volume of proceeds of crime flow in and out of China through use of informal value transfer systems.
Hong Kong A financial gate way into and out of mainland China for both legitimate and illicit finds
Pakistan Criminals purchase high value assets to launder funds which are transferred between Pakistan to UK and vice versa.
Russia Significant volume of Russian or Russian linked illicit finance is channelled through the UK economy through regulated and unregulated sectors – to include company formation.
UK Crown dependencies Criminals seeks to exploit close relationship and try to disguise illicit assets by taking advantage of existing channels and strong business connections.
UAE Attractive location for those who which to launder the proceeds of crime from abroad.
Trade Based Money Laundering (TBML) Exploiting domestic trade and international import and export systems to disguise convert and transfer criminal proceeds through the transfer of funds and goods.
PEPs Threat of overseas PEPs laundering illicit gains through the UK.

The AASG Risk Outlook provides further guidance on geographical risk.

Which sectors should I consider a higher risk amongst my client base?

The NRA also assess the risk of other regulated sectors in the UK. You should consider whether the NRA presents additional risk factors that you should consider as part of your firm-wide risk assessment.

Company and partnerships Companies and trusts are known globally to be misused for money laundering, and as the global financial centre the UK is particularly exposed to criminal exploitation of these activities.
TCSPS The risk of TCSPs being used to facilitate money laundering Is high. Can be exploited by criminals through use of nominee directorships, UK mail forwarding service and providing registration addresses of hundreds of companies and single addresses.
Legal services Higher risk of facilitating money laundering – particularly conveyancing; trust and company services and client accounts.
Property sector UK Property purchases - High risk of being used to facilitate ML.
Cash intensive businesses Used to clean money.
Cash from criminal activity is documented as legitimate business proceeds and can be placed into company business accounts.
Money Service Businesses Criminals take advantage of services provided by Money transmission services.
Art market participants International nature of market; size of the market, the ability to conceal the beneficial owners and destination of art makes this at high risk of money laundering.
Financial service Retail banking, wholesale banking and wealth management at private banking all at higher risk of money laundering.
Crypto assets Although the NRA identify this as a medium, not a high risk, they also note the increasing prevalence of the use of crypto assets by criminals incorporating them into their money laundering methodologies.
Crypto assets are digital representations of value or contractual rights.
Firms should be aware of the risks, for example if clients offer to pay in crypto assets or if clients are using them as exchange mechanisms.

The AASG Risk Outlook provides further guidance and red-flag indicators on each of these risk areas.

How has COVID-19 impacted on the risks?

The social distancing and lockdown measures implemented in the UK has reduced the money launderer’s ability to move cash across borders. This has led criminals to use other known methodologies to move cash via freight, use of crypto assets and trade-based money laundering. Accountants should be aware of unexplained changes to the client’s businesses or changes that are explained as being a result of COVID-19, but are out of line with expected/known changes to businesses (eg, cash transactions where, generally, businesses have moved to only accepting card payments).

Criminals may look to invest illicit funds in straggling businesses, cheaper properties, and mediums sized businesses unable to source funds elsewhere.

Accountants should also be aware of COVID-19 19 related fraud such as:

  • The sale of fake testing kits and PPE.
  • Appeals to support bogus charities.
  • Frauds targeting government financial support schemes.

Further information