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Crime and punishment

Prevention of money laundering and terrorist financing means an increasingly robust regime and changes on the horizon for accountants. Lesley Meall reports

Things change fast in the world of money laundering and governments must relentlessly play catch up as criminals and terrorists find new ways to clean dirty money. “The UK’s anti-money laundering and counter terrorist financing supervisory regime is comprehensive,” says John Glen MP, economic secretary to the Treasury.

Nonetheless, government is partnering with the private sector to make the anti-money laundering (AML) and counter terrorist financing (CTF) regime more robust. It has a strong base. In December 2018 when the intergovernmental Financial Action Task Force (FATF) evaluated the UK’s AML/CFT regime, it was the strongest of over 60 countries assessed – but there is room for improvement.

Ongoing action to make the UK financial system hostile to illicit finance includes: a new public/private Economic Crime Plan; stronger AML/CTF checks at Companies House; and transposing the fifth EU AML Directive (AMLD 5) into UK legislation. As a Professional Body Supervisor (PBS) under the Money Laundering Regulations 2017, ICAEW and its members have an important role to play. It has been working to make the suspicious activity reporting system more effective and was at the table, representing the profession, when the Economic Crime Plan was agreed. It looks at how to work together and share information more effectively and how to enhance supervisory work undertaken by ICAEW and other PBSs.

Direction of travel

“Government focus on AML is really high at the moment and will continue to be,” says Sophie Falcon, ICAEW integrity and law manager. New UK money laundering regulations are coming and professional accountants must be aware of timescales and the direction of travel – even if definitive details are scarce.

AMLD 5 is scheduled for transposition into UK law early in 2020 (and AMLD 6 is expected towards the end of 2020). So there are many AML revisions looming over the horizon. The amendments and new provisions in AMLD 5 aim to strengthen transparency and the preventative framework, adhere to international FATF standards, and keep the UK AML/CTF regime effective, while being proportionate and managing burdens on businesses. Headline proposals include, for example, an extension to who falls within the scope of the AMLD: letting agents, art intermediaries, cryptocurrency exchanges and wallet providers will join professionals – such as accountants and lawyers – who are already in scope. Many of the changes are welcome. “A lot of what is in AMLD 5 is helpful clarification,” says Falcon, but: “There are things that members are likely to have to do differently.”

For example, in the area of client due diligence (CDD). “There are going to be amendments to some of the CDD you will need to do, in terms of what’s risky and how you approach this. There will be some extra things to take account of in the CDD process,” she says.

Helpful clarification

Those within the scope of AMLD 5 will be obliged to report discrepancies between beneficial ownership information they hold on companies and what’s on the UK register of people with significant control (PSC); those taking on a new client will need proof that they are registered where applicable. Falcon says: “In our submission on the AMLD 5 consultation, we said that this needs to be an obligation to report things you notice, not an obligation to check information you would not necessarily be looking at as an accountant, as that would be onerous.” Electronic CDD is also expected to change with AMLD 5.

“Europe and the UK government are trying to encourage electronic CDD, so there are proposals making it clear you can use this and guidance on how,” says Falcon. ICAEW recently released a helpsheet, offering practical tips such as tests you can apply for providers. “We think electronic CDD is a good thing, but members need to exercise some discretion around the reliance they place on it.”
Politically exposed people (PEP) are another area of CDD where AMLD 5 promises clarification: all European countries will have to create a list of the roles (such as those in the government and the military) that are politically exposed. “We think that’s quite helpful. It has been difficult if you are dealing with an overseas jurisdiction to know who counts,” says Falcon.

Clear information will make it easier to identify PEPs, so that accountants can treat them as high risk and conduct enhanced due diligence (EDD). Greater clarity would be welcome on express trusts – and what they include and exclude. The fourth EU AML directive increased the trans - parency of beneficial ownership for trusts, requiring central registers of beneficial ownership, and in 2017 the UK launched a new online registration system. UK trusts with tax liabilities already use this, but AMLD 5 proposes an extension to include all express trusts – which could capture all kinds of arrangements that may not have been intended.

“This needs to be carefully considered by government, so that it is not too widely drawn,” says Paul Simkins, quality assurance director, ICAEW. Many EU jurisdictions don’t have trusts, but the UK uses them in lots of areas, such as employee benefit schemes, life assurance, pensions and property ownership, so the need to register all trustees and beneficiaries could be onerous. “I think Europe proposed this without realising how huge it could potentially be,” says Falcon. Many coming AMLD 5 changes do not disproportionately affect account - ants, but are noteworthy: such as plans for a centralised UK register of bank accounts, identifying owners. Although implementation of the register will largely fall on the banking sector, it will be significant for many outside banking, because of the high volume of sensitive private and personal data that will be collected on people. “We did mention in our consultation that we are concerned about the security of this data,” says Falcon.

Expect change

ICAEW is collaborating with other professional bodies to ensure that all of the changes in AMLD 5 are reflected in AML guidance for members. “We are forming a working group to update our guidance when the final detail emerges,” says Falcon. Draft legislation was not available at the time of writing, so accountants will need to visit the ICAEW website for news. As Falcon observes: “We are not going to have a massive amount of notice when we do learn exactly what is going to happen.”

Changing companies house

There have long been concerns that the regime at Companies House (CH) has been subject to abuse by fraudsters and other criminals. Although accountants must carry out stringent CDD on those they assist to set up companies in the UK, this is not currently the case at CH. Anybody from anywhere in the world can go directly to CH and form a company with very few questions asked and no checks done to verify who they are or what they are doing.

Personal information that is made available online, through public director registers at CH and in accounts that have been filed with it, also benefits criminals. Research from fraud prevention non-profit Cifas found that 76% of identity fraud victims who are company directors have their home address registered as their business address with CH – which makes this information available online.

The recent CH consultation on corporate transparency and register reform is considering:

  • Whether directors should be able to apply to suppress the ‘day’ element of their date of birth, signatures and information about historic registered offices if this is a residential address.
  • CH verifying the information filed for people such as directors, those with significant control and shareholders.
  • Extending the registrar’s powers so that CH can query, amend or remove information.
  • Cross-referencing CH data sets with other public and private sector bodies, and taking a risk based approach to intelligence sharing. ICAEW’s response to this CH consultation is in Representation 78/19.

Originally published in Economia on 8 November 2019.