UK national risk assessment of money laundering and terrorist financing reveals significant intelligence gaps in relation to “high end” money laundering

On 15th October 2015, the UK government published the first UK national risk assessment of money laundering and terrorist financing.

The report expresses three concerns of the impact of money laundering in the UK:

  • That much of the money laundered through the UK is the proceeds of overseas corruption, the effect of which creates political instability in other jurisdictions.
  • That money laundering is a key enabler of serious and organised crime, estimated to cost the UK £24 billion a year.
  • That there is an overlap between money laundering and terrorist financing.

What is the national risk assessment (NRA)?

The risk assessment was created after consultation with a number of bodies, including law enforcement agencies and the private sector. The objective of the risk assessment was to understand the risks posed to the United Kingdom by money laundering and terrorist financing, and to enable the most efficient allocation of resources to mitigate those risks. The risk assessment is also an obligation under the Financial Action Task Force (FATF) recommendations.

What are the key findings?

The report made the following key findings:

  • UK law enforcement bodies are best equipped to deal with “cash based” money laundering, that flowing from money service businesses and the drugs trade.
  • There are significant intelligence gaps in relation to “high end” money laundering, particularly where proceeds are held in bank accounts, real estate and investments, rather than cash.
  • UK law enforcement bodies need to know more about the role of professional service sectors, including banks, accountancy and legal firms, who are deemed to be high risk sectors.
  • The effectiveness of the supervisory regime in the UK is inconsistent, and there needs to be a risk-based approach to supervision, as well as a credible deterrent.
  • While the majority of those working in the regulated sector are not complicit in money laundering, some within may aid those involved, either unwittingly, or through negligence or non-compliance.
  • The law enforcement response to money laundering has been weak for an extended period of time, and it has not been a priority for most local police forces.
  • The National Crime Agency was launched in 2013. In 2014, over 350,000 suspicions activity reports (SARs) were sent to the UK Financial Intelligence Unit (UKFIU), part of the economic crime command in the NCA.
  • The SARs regime came under criticism by supervisors and private sector representatives, and the government has committed to reviewing the regime.

What happens next?

The findings of the NRA will assist the government’s response to money laundering and terrorist finance, and will shape the forthcoming Anti-Money Laundering Action Plan produced by HM Treasury and the Home Office. The plan will set out how the government will work with supervisors and the private sector to address the risks identified in this NRA. The priorities of the action plan are likely to be:

  • Improving the intelligence capability in relation to “high end” money laundering through the financial and professional service sectors.
  • Enhancing the performance of law enforcement to the most serious threats.
  • Reforming the suspicious activity reports (SAR) regime.
  • Working with supervisors in the regulated sector to address inconsistencies and improve the knowledge of firms and individuals.
  • Improving the sharing of information between law enforcement, the private sector and supervisors.

In addition, both the action plan and risk assessment will be considered by FATF during the next mutual evaluation of the UK.

What observations can be made from the report?

Perhaps the biggest omission in the report is a clear plan as to which law enforcement body should take the lead in investigating and prosecuting suspected money laundering. At present, there has been minimal law enforcement or regulatory action against professional enables, or members of the regulated sector suspected of breaching the sections 330-333 of the Proceeds of Crime Act  2002 (POCA) or the Money Laundering Regulations 2007. Part of the reason for this is surely a lack of any coherent or consistent policy.

Questions must be raised as to how the action plan can be carried out against a background of government spending cuts. Both improving intelligence capacity and the performance of law enforcement will require considerable investment. Certainly, the process of transforming law enforcement focus from “cash” based money laundering to “high end” will require a blend of investigative, forensic accountancy and legal skills.

The report should be seen as helpful and constructive to those with the job of implementing an anti-money laundering regime, providing guidance on enforcement and supervisory policy. The report however provoked an immediate reaction from the Law Society, who suggested that the level of engagement with the legal sector by those charged with drafting the report was not as thorough as expected. The Law Society president, Jonathan Smithers, commented “we are disappointed that this misleading report has designated the legal sector as high risk”.

To read more about the money laundering regime in the UK,  see our Practical Law practice note, Money laundering offences in the UK: overview

To read more about suspicious activity reporting (SAR) see our Practical Law practice note, Reporting suspicious activities: overview and Reporting obligations under the Proceeds of Crime Act 2002: guide for financial institutions

Practical Law David Bacon

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