So many questions! AML checks and responsibilities.

Have you been asked recently several questions by your bank or to complete a complicated form asking about your personal situation?

Have you recently acquired a property with a significant deposit and been asked to provide details of where the deposit funds have come from?

If so, you have been engaged in the enhanced checks that banks and solicitors are having to undertake as part of their anti-money laundering responsibilities. 

Regulators have become increasingly concerned that criminals are taking advantage of weaknesses in bank systems. They want banks and others, like solicitors, accountants and estate agents to be more robust in monitoring transactions, large money transfers and payments to cryptocurrency sites.  The regulators’ concerns coincide with a surge in fraud, highlighted in research by Which? that showed victims’ losses had grown by a third to £2.3 billion in the past 12 months.  Money laundering is estimated to cost every household in the UK £255 a year.

The increased vigilance by the banks, has resulted in customers having their bank accounts frozen, where the bank believes there is a suspicious activity on the account, for example an offshore relative transferring significant funds to the UK account or non-completion of an information request.  Recently more than 5,500 NatWest customers had their accounts frozen without explanation.

As the digital economy continues to expand and ongoing developments in fin-tech sends money flying around the world with unprecedented speed and ease, financial institutions and others, are struggling to balance their compliance responsibilities.

With extra checks and due diligence being undertaken, team Harbour Key have had to support our clients with these due diligence requests, for example sources of funds evidence to support the opening of new bank accounts.

When a bank, solicitor or accountant suspects money laundering, it has a regulatory duty to report the matter to the National Crime Agency (“NCA”) by filing a Suspicious Activity Report (“SAR”).  The banks also must freeze the account involved.  Failure to do so can result in prosecution, so all professionals who have anti-money laundering responsibilities generally err on the side of caution. Although in most areas the UK has a good record in preventing money laundering, the one area of weakness that has been identified is in respect of the ease of opening a limited company, therefore more checks have been taken by the likes of the banks when it comes to opening a bank account for a new company.

You may have noticed when we are preparing your accounts and tax return, a lot more questions are being asked about the information provided, for example expenditure breakdown, which is to make sure that the correct accounting and tax treatment is being applied.  Tax evasion is money laundering. So, for example, putting the repairs and decorating costs of your home through the business as repairs to the business premises is money laundering!

On 10 January 2020, changes to the UK’s Money Laundering Regulations came into force, which updated the UK's anti-money laundering regime to incorporate international standards set by the Financial Action Task Force and to transpose the EU’s 5th Money Laundering Directive.  The update brought more sectors into the anti-money laundering regime, for example art galleries, as well as extra responsibilities for everyone.  Accountants are under scrutiny as they are viewed as having access to lots of transactions and information, but in the most recent survey only make 1% of the annual SARs filed.

The level of checks that we now must undertake on taking on a new client and ongoing on a regular basis, which generally means when we complete the annual accounts and tax return, have increased.  Due to the level of checks we must complete, we now have to rely on a third-party source who have access to the required databases.  As a result, the costs to the business have increased to look after our clients and comply with the regulatory requirements, which unfortunately means a small increase in our fees to be announced shortly.

It is not only the professionals who have responsibilities to prevent fraud and tax evasion, we have flagged previously the offence of failure to prevent the facilitation of UK tax evasion.  Under this offence, corporates and partnerships (not individuals) can be found strictly criminally liable for failing to prevent criminal facilitation of tax evasion by any of their "associated persons", namely any person performing services for or on behalf of the business. Associated persons include, for example, employees, agents, sub-contractors etc.  Further details of the offence and what businesses are required to do can be found at our website.

As at 27 May 2021, HMRC had 14 live investigations, a further 14 live opportunities were under review, having dismissed 40 cases under the failure to prevent tax evasion offence.  The number of cases is expected to increase due to the level of suspected covid crime, for example furlough fraud.

As the ease to move money speeds up and fraud increases, the level of regulation increases impacting all of us, from the consumer trying to bank or buy a house, to team Harbour Key providing our services, as well as other business.  It is something that we must get used to, with further changes/updates expected.