Step in the right direction for anti-money laundering

Anti-money laundering regulation amendments – too little too late?

As the UK government was urging its European neighbours to tighten their
anti-money laundering laws after last month’s terrorist attacks, it was quietly
amending its own reporting regulations to iron out some of the burdensome
anomalies created 15 months ago.

The reforms to the anti-money laundering regulations (AMLR), introduced
without fanfare last month with the Serious and Organised Crime and Police Act
2005, were treated to a less than enthusiastic response from the accountancy
profession. ‘A step in the right direction’ was the general comment, an
acknowledgement that these few tweaks will do little to change perceptions that
the UK has the most onerous, but not necessarily the most effective, anti-money
laundering regulations.

The AMLR were widened to include accountants and lawyers in March 2004 under
the Proceeds of Crime Act (POCA), which also introduced an all-encompassing
definition of money laundering.

Accountants face up to 14 years in prison if they fail to report suspicions
of money laundering, and the latest amendments, six in all, while not altering
the legal penalties, attempt to iron out some of the more unproductive burdens
of the POCA.

Section 104 of the Act has probably had most impact on accountants and law
enforcement agencies. Under previous rules, accountants were compelled to file a
suspicious activity report or SAR to the National Criminal Intelligence Service
(NCIS) if they suspected money laundering. Accountants were obliged to do this
even if they didn’t know the name of the perpetrator, their address or
whereabouts of the laundered property – a simple suspicion was enough.

Also, as the definition of money laundering had been widened, an accountant
working for a retailer, such as a supermarket, was obliged to report the fact
that their client kept records on shoplifters, even if they hadn’t seen the
records.

This created the rather bizarre situation where accountants felt compelled to
adopt a shop-the-lot policy, filing reports to the NCIS that it couldn’t follow
up or act on. ‘In a way it was meaningless,’ says Karen Briggs, partner at KPMG
Forensic. ‘I don’t think the POCA was meant to be aimed at shoplifters.’

NCIS was overwhelmed by an increase in reports as accountants felt compelled
to disclose their suspicions. It has yet to produce figures for 2004, but
estimates put it at 250,000 SARs, compared to 100,000 in 2003.

KPMG put the cost to business at £5m in 2003, and this could peak at £250m
for last year.

The amendment to section 104, introduced on July 5, removes this obligation
and will reduce costs for both business and the NCIS. Accountants now need only
file an SAR if they have detailed information or if the potential seriousness of
the offence is in the public interest.

‘This should make life easier,’ says Iain Coke, the ICAEW’s manager of
business law. ‘But it’s not a revolution in the POCA. Accountants still face
severe penalties for not reporting. It has just been made more proportionate and
specific cases have been removed from the requirement.’

The amendments also introduce a regulation covering foreign business.
Previously accountants were expected to file an SAR on clients whose
transactions were illegal in the UK but legal in the country of origin. The
famous example is the Spanish bullfighter, whose salary and investment in the UK
had to be reported to the NICS. The reforms now provide a defence and
accountants are not obliged to report if they know that the ‘laundering’ is
legal in the relevant country.

Again, this has been welcomed by Briggs, but with a caveat.

‘These changes are a step in the right direction,’ she says. ‘The regulations
constantly have to be reviewed to ensure they remain effective.’

But as the ICAEW points out, the reforms are not a revolution and the
institute is still waiting for the consultation on privilege, out 12 months ago,
to be implemented.

This would put accountants in the same position as lawyers and would exempt
them from reporting when they were giving legal advice to clients. Coke said the
reforms were still under discussion and a timetable for introduction was not
imminent.

In the meantime, the institute is urging the government to publicise the
benefits of anti-money laundering regulations to help change business
perceptions. Businesses conceded that they only complied with regulations to
avoid penalties not because of good business practice. Yet just over half of
companies in other countries including those in France, Germany and the US,
believe anti-money laundering rules make good business sense.

So while the government pledges that the UK will be no safe haven for crime,
it also needs to persuade business of the benefits of its rules while removing
some of the burden.