Pressure on accountants intensifies as money laundering crackdown heats up

Fines for UK firms failing to comply with money laundering regulations totalled nearly £300m in 2019 (The Times, January 2020).

Combined with the introduction of new rules, which took effect in January, it’s clear that accountants must pay close to attention to AML – or face some serious repercussions.

The message has to be – don’t assume you’re covered.

The latest EU directive (still relevant to the UK, despite Brexit) is called 5MLD and it came into force on 10 January.

IRIS ran a poll in the days leading up to implementation and found the majority (71 percent of 148 surveyed) did not know about the new rules.

What must accountants do?

Are you aware how 5MLD affects you as an accountant and what you need to do to comply?

Most accountants are members of a professional body and some may feel this is sufficient AML supervision. But the reality is that your professional body may have some work to do – and you need to be aware of that.

OPBAS regulates the UK’s AML supervisory regime. In investigating 22 professional bodies to find out what they were advising accountants on AML, they focused on eight key areas: governance, risk-based approach, supervision, information sharing, guidance for members and staff competence, enforcement and record keeping, and quality assurance.

Surprisingly, only one professional body passed all eight areas. OPBAS found that 80 percent of professional bodies didn’t have suitable governance arrangements for AML supervision.

The ramifications of non-compliance

The latest AML rules are clearly a major piece of regulation. You have no option but to be ‘supervised’ and there is no route around it. HMRC is taking a no-nonsense stance. This is evidenced by a customer, who recently showed us a letter they had received this year, stating that any practitioner wanting an agent code must be “supervised by one of the professional bodies” or “our Anti Money Laundering Supervision service.”

Failure to provide requested documents can result in a regulation 66 notice, and not complying with that could result in a penalty or sanctions.

HMRC itself provides a paid-for anti-money laundering supervision service, which could be office-based compliance checks, but may also mean a visit and inspection. It is worth noting that even if you sign up to the HMRC service, the responsibility still sits with you to follow the advice and the same fate would await you for non-compliance as any other accountant.

The combination of the OPBAS report findings and the clamp down by HMRC will prompt professional bodies to take a far stricter and more consistent stance on AML. OPBAS is pushing them to be more robust in their own AML procedures and tougher on accountants.

While OPBAS reported some professional bodies were worried about losing members through enforcement, they can’t afford to fall foul of the FCA or damage their reputation with poor vigilance. Going forward, if you are part of a professional body and don’t comply with AML rules, they could boot you out.

What are the key details of 5MLD?

There is a lot of detail to get your head around, but IRIS has created a handy free guide with all the essential knowledge you need. Download it for free here.

Meanwhile, here is a little summary of key changes:

Enhanced due diligence: this focuses on high-risk countries, the list of which will be expanded to cover those with an increased risk of money laundering. Additional checks are required to assess sources of wealth, overseas transactions and businesses owned abroad.

Trust registration service: 5MLD expands the scope of the Trust Registration Service, requiring trustees or accountants to register those trusts with the TRS, this includes Discretionary, Interest in Possession, Charitable, Employee Ownership and Bare Trusts.

Beneficial ownership: this required obliged entities to verify the identities of customers or beneficial owners. When an obliged entity goes into a new business relationship with a company or trust that meets the requirements, they must collect proof of registration.

How serious is AML for the UK?

Money laundering comes at a huge cost to the UK. Estimates are that serious organised crime enabled by money laundering costs the UK £37bn every year and £90bn is illegally laundered through Companies House registered shell firms.

Further evidence of how seriously AML compliance needs to be taken by accountants comes from The Financial Conduct Authority and The National Crime Agency.

The FCA says that both lawyers and accountants are “at high risk of enabling money laundering through the UK’s financial system.”

The NCA warns: “Accounting and legal professionals, and estate agents, can be criminally exploited – this is sometimes complicit, sometimes negligent, and sometimes unwitting – and this small minority of people can pose a very significant threat.

“They can act as intermediaries and use their skills, knowledge and abilities to draft documentation, disseminate funds, and allow highly complex structures to be created that move and store large amounts of criminal money and conceal ownership effectively.”

What’s the answer to compliance?

If you are struggling to keep pace with all of the compliance, do you have a solution?

IRIS AML is simple-to-use and cost-effective software that helps you to manage and document AML requirements, including fully integrated electronic ID and sanctions/PEP checks, and implement a risk-based assessment scheme.

The software also streamlines the client onboarding process, minimises compliance costs for practices and assists with staff training.

Let one of our team call you. Drop us an email at [email protected] or call us to arrange a time for an IRIS expert to ring you back 0344 844 9644.