With the current terrorism ‘threat level’ to the UK listed by MI5 as ‘substantial’, new types of challenges face both the security services and the business and legal communities. The nature of the threats has changed, and so have the destinations that they originate from. But one thing remains unaltered – terrorism will always need money to achieve its aims, and to minimise suspicion that money needs to be ‘clean’.
Solicitors are well versed in the Anti-money laundering (AML) regime, and now those rules are being revised to take into account the changing face of terrorism, and how it is financed. The COLP and COFA are the driving force of compliance in their firms. Even if neither is Nominated Officer (or MLRO), they still have a duty to ensure compliance with the rules, thanks to Rule 8.5 of the SRA Authorisation Rules 2011.
Firms should think about how to deal with this potential duplication of accountability.
What is the current legislation?
The current Money Laundering Regulations came into effect in 2007 and require businesses covered by the regulations to put in anti-money laundering controls. As well as solicitors, the other sectors covered by the specifics of the legislation include the finance and banking industry, accountants and even estate agents.
Money laundering is an international problem, and as such requires a global solution, where all countries participate. The UK is one of the most active and rigorous participants in the Financial Action Task Force (FATF) and is a signatory to the European legislation contained in the 3rd EU Money Laundering Directive.
In the UK legislation enforcing anti-money laundering controls is contained in the Proceeds of Crime Act 2002, the Terrorism Act 2000 and the Money Laundering Regulations 2007, and enforcement is primarily the responsibility of SOCA (Serious Organised Crime Agency) and HMRC.
Updates to the AML regime
In October 2012, the Financial Action Task Force published two statements that identified certain parts of the world that they considered to have “strategic deficiencies” in how they dealt with money laundering. These were countries that they considered to be failing to implement suitable checks and balances to minimise the chances of their financial systems in particular being used as a route for money laundering.
The list of countries that, in the opinion of the FATF, fell short of legislative compliance included the usual suspects such as Afghanistan, Iran and many of the South American states. But it also included what had previously been regarded as more compliant states such as Turkey.
The growing list of non-compliant states indicates how much money laundering has become a 21st Century crime, as the use of electronic transfers means that cash can be moved around the world instantly and via routes that would in most cases be overlooked. This allows criminals and terrorists to circumvent countries where compliance to money laundering legislation is enforced more rigorously, and therefore allow them to avoid detection or being ‘red flagged’ by the security services as a result of a Suspicious Activity Report from a regulated business such as a bank.
We can expect to see significant updates to the AML regime in the coming years (the fourth Directive is expected to be incorporated into UK law in 2013-14).
What it means for the legal community
As the legislation is added to, solicitors (and COLPs and MLROs in particular) will need to familiarise themselves with developments to the anti-money laundering regime, and ensure that client transactions involving high risk locations comply to existing UK and EU legislation. Client due diligence will of course be key.
It is essential that businesses understand their obligations regarding anti-money laundering legislation and that if they have the correct control system in place for reporting any suspicious activity to SOCA and HMRC. To that end it is the responsibility of the legal community to keep itself up to date with all amendments, additions and revisions, and that all organisations remain vigilant.
More details can be found at:
http://www.hm-treasury.gov.uk/d/advisory_notice_moneylaundering_nov2012.pdf
