The impact of money laundering on the accounting industry
Serious and organised crime costs the UK economy billions each year. The majority of its financial proceeds are laundered through UK banks and other regulated businesses, as are trillions of pounds each year from international criminal activity or corruption. While money laundering is itself an example of serious crime, this illegal practice plays a wider role, as it transfers financial power from legitimate businesses and individuals into the hands of criminals, while undermining financial institutions and markets.
The UK national risk assessment of money laundering and terrorist financing 2017 (NRA) concluded that there is a particularly high risk of criminals exploiting accountancy services for the purposes of money laundering and determined that high-end money laundering and cash-based money laundering remain the greatest areas of risk in the UK. It also discovered that the traits or characteristics for identifying criminal activity are becoming increasingly blurred and that professional services, such as accountancy, provide a gateway for criminals to disguise the origins of their funds.
As such, accountancy service providers and Trust or Company Service Providers have a significant role to play in ensuring their services are not used to further a criminal purpose. As professionals, accountants must act with integrity and uphold the law, and they must not engage in criminal activity.
The current regulations
All regulated businesses, including AAT Licensed Accountants and Bookkeepers offering self-employed services must comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). HMRC-approved guidance on the regulations has been produced by the Committee of Accountancy Bodies (CCAB).These revoke the Money Laundering Regulations 2007 and the Transfer of Funds (Information on the Payer) Regulations 2007.
Key developments as a result of the new legislation are below.
- The introduction of a ‘criminality test’ for beneficial owners, officers or managers of a supervised business (accountancy or bookkeeping businesses) to prevent criminals convicted in relevant areas or their associates from holding a management function in or being the beneficial owners of those obliged entities
- The introduction of the Trust and Company Service Provider (TCSP) register held by HMRC. This holds all individuals and practices who offer TCSP secretarial services (or Company Secretarial Services as referred to by AAT). All AAT licensed members approved to offer Company Secretarial Services will have their company name and address shared with HMRC and added to the register, which will be accessible to law enforcement agencies to use for their activities.
- A more prescriptive approach to the firm-wide risk assessment. There is a requirement for a written risk assessment and a list of factors that firms must take into account.
- A requirement for firms to have appropriate risk management policies and procedures in place to identify whether a client, or the beneficial owner of a client, is a Politically Exposed Person (PEP) or a family member or known close associate of a PEP.
- A requirement for firms to have written policies, controls and procedures in place to identify and prevent activities related to money laundering and terrorist financing, as well as data protection requirements. A written record of training must be maintained.
- Enhanced Due Diligence in a range of situations where there is a high risk of money laundering or terrorist financing.
- A requirement for firms to carry out a money laundering compliance review regularly to monitor compliance and effectiveness of the firms AML policies, controls and procedures.
- A requirement for firms that place reliance on the Customer Due Diligence (CDD) of a third party to obtain all relevant information and have a written arrangement in place that confirms that the firm being relied on will provide the relevant documentation immediately on request.
Suspicious Activity Reporting
If you "know", "suspect" or have reasonable grounds for knowing or suspecting that a person is engaged in money laundering or dealing in criminal property, you must submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA) as soon as it is reasonably practicable.
A SAR alerts law enforcement that certain client activity/transactions are in some way suspicious and might indicate money laundering or terrorist financing activity. It provides valuable information on potential criminality and protects you, your organisation and UK financial institutions from the risk of laundering the proceeds of crime. Failure to submit a SAR once you have reasonable grounds to do so is a criminal offence.
The easiest and quickest way to submit a SAR is using the SAR online service. Once you have submitted a SAR, you must not discuss, inform or ‘tip off’ the party involved as this will lead to an investigation being prejudiced, so you must give careful consideration to how you will handle your relationship after submitting this.
For more information on what must be reported, when and how a report should be made and consent please refer to CCAB’s Guidance for the Accountancy Sector.
AAT’s role in combatting money laundering
Driving best practice
We recognise the constantly evolving risk of money launder and terrorist financing, and are working with other professional bodies as part of the Accountancy Affinity Group to promote consistency in standards and best practice. We provide support and guidance to all AAT professional members to help them comply with the current money laundering regulations, through AAT Knowledge Hub.
We act as a money laundering supervisor for AAT Licensed Accountants and Bookkeepers who provide accounting and bookkeeping services to clients. In this capacity, we provide them with a range of additional resources and guidance for licensed members, and conduct practice assurance reviews to help our licensed members comply with the current regulations.
To support us in this, we are supervised by the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), a regulator set up by the government to strengthen the UK’s AML supervisory regime. OPBAS regulates over 20 professional bodies and ensures that professional bodies' AML supervisors provide consistently high standards.
Each year, as part of our supervisory obligations, AAT submits an activity report to HM Treasury. You can read the most recent one in PDF.
Criminality record check
All licensed members who are supervised by AAT must be approved as "fit and proper" to act as a licensed member under the Money Laundering Regulations. This means all existing licensed members and any new applicants must demonstrate they do not have any unspent relevant criminal convictions as defined by Schedule 3 of the regulations by providing a basic disclosure certificate.
These measures also apply to all beneficial owners, officers and managers (BOOMs) within a firm, even if the person is not providing accountancy services.
Applications for a Basic Disclosure Certificate can be made from the relevant body be dependent on where BOOMs live and work.
- Disclosure and Barring Service (England and Wales)
- Disclosure Scotland (Scotland)
- AccessNI (Northern Ireland)
The basic disclosure must have been obtained within the last three months from the date of submission. If the disclosure is more than three months, then it will not be accepted. Individuals who have an unspent criminal conviction of a relevant offence cannot act as a BOOM.
It is a regulatory requirement that the AML supervisor be informed of any new appointments to the role of beneficial owner, officer or managers along with confirmation they do not have an unspent criminal conviction. AAT firms can do this by emailing email@example.com
AAT monitor how licensed members are complying with this legal obligation during our practice assurance and AML monitoring activities.