The government's recent response to the House of Commons' Treasury Select Committee report, 'Economic Crime – Anti-Money Laundering Supervision and Sanctions Implementation', provides some pointers for future policy initiatives in this area. These will be of particular interest to businesses in the property sector, others currently supervised by HMRC, and those on the receiving end of banks' policies of 'de-risking'.
In its response, the government welcomes the Committee's recommendations as well as those of the Financial Action Task Force (FATF), the intergovernmental anti-money laundering (AML) body, in its report of December 2018. It indicates that the proposals of both the Committee and the FATF will be considered more thoroughly in an Economic Crime Plan, under the direction of the Economic Crime Strategic Board, which will be delivered in conjunction with the private sector and published in July 2019.
The response first refers to the newly formed National Economic Crime Centre (NECC) when acknowledging that a better understanding of the size and scale of the threat of economic crime is key to combatting that threat. The NECC, it says, is poised to lead this first collaborative public-private assessment of the impact of the threat of economic crime to the UK, while the Home Office was said to have carried out a review of the scale and nature of fraud on individuals and businesses, primarily to identify the areas for further research. That report found that significant improvements had been made in terms of reporting and recording fraud, although the true scale of fraud against individuals and business was difficult to 'unpick'.
Other types of economic crime, such as money laundering, are described in the response as being "inherently clandestine, making measurement highly challenging." However, it also cites a recent Royal United Services Institute (RUSI) workshop, attended by government representatives as well as law enforcement and academia, which admitted that: "gaining a true and comprehensive picture of the scale of economic crime is exceptionally difficult", but concluded that "with a robust approach, it may be possible to at least establish the lower bounds of the scale of economic crime." In light of this the response says that: "While the government recognises the merit in improving our estimates of the size and scale of economic crime, we should therefore only pursue this where further improvements in our estimates are both possible and practical."
The government has, for now, responded to the Committee's specific recommendations as outlined below.
The property sector and estate agents
The response acknowledges that the property sector poses a risk from an AML perspective, particularly in relation to high-end money laundering, noting that:
"While the 2017 National Risk Assessment for Money Laundering and Terrorist Financing (the NRA) concludes that much of the risk lies with those closer to the client and their funds (such as legal professionals), it also notes that effective and comprehensive due diligence on all parties by estate agents can help mitigate the money laundering risks around property."
The response describes how, following FATF's recommendations, "HMRC has a team dedicated to identifying businesses not registered for supervision, which actively seeks information on individuals or entities engaging in activity under the MLRs [Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017] which would require them to be registered with HMRC for supervision." Furthermore, HMRC is said to be working with Companies House to identify unsupervised company formation agents, with the aim to bring them under supervision or prevent them from continuing to carry out their business.
With regard to the issue of whether HMRC should retain its role in AML supervision, amidst concerns that this may be unduly influenced by its role as a tax authority, the government responded by stating that HM Treasury will submit a report to the Committee on HMRC's AML supervisory role, and its relationship with the Office for Professional Body AML Supervision (OPBAS) by September 2019, in response to the Committee's suggestion that OPBAS take over some of HMRC's supervisory responsibility, on the basis that this would "reduce fragmentation in the current supervisory landscape and allow HMRC to focus on its tax authority responsibilities."
The Committee outlined the weaknesses Companies House currently posed, in that they are not obliged to carry out AML checks, and do not have the requisite powers to verify information on their register. The response refers to the Department for Business, Energy & Industrial Strategy (BEIS) having conducted a consultation seeking views on how Companies House can be empowered to contribute to the UK's efforts to combat economic crime, with the findings due to be published shortly. Those issues to be consulted on include: options for reforming the information which companies are required to disclose; increasing the checks on this information; and measures to improve the exchange of intelligence between Companies House and law enforcement authorities.
The response addresses the issue of financial institutions from the point of view of their regulation by the Financial Conduct Authority (FCA), noting that the FCA agreed with the Committee's recommendation that there should be a "sharp focus on the supervision of the core financial services", keeping up "constant pressure" on businesses in that sector with "appropriate enforcement action". The FCA is said to be currently compiling a response to the FATF recommendations. In the meantime, the government's response refers to the FCA currently overseeing 70 investigations into AML and financial crime, with several of these investigations said to be operating on a dual civil and criminal basis.
The government's response only briefly acknowledges the plight of those individuals affected by the current blanket approach to de-risking, whereby often law-abiding individuals have their bank accounts frozen due to certain characteristics, such as being connected to, or even merely having the same nationality as those subject to targeted sanctions. Its opening comment on the subject is as follows: "The government recognises that derisking can inhibit the government's progress in achieving its objectives on promoting financial inclusion, supporting international development and reducing levels of economic crime." It then goes on, however, to discuss high-risk features of certain sectors, such as the remittance market, namely the flow of money sent by immigrants to their families in their native countries, saying that:
"In the case of remittances, the government's 2017 NRA [National Risk Assessment] has assessed the money service business (MSB) sector, which tends to provide remittance services, as presenting a high level of risk for money laundering and terrorist financing. The government is clear that regulatory and commercial activity with respect to the MSB sector and cross-border remittances should reflect that assessment, as is the case with other sectors identified as high risk."
The government acknowledged that de-risking is "a global issue that requires coordinated, concerted effort across borders to resolve", with the UK leading "international efforts to put de-risking on the agenda at the G20 and in other international fora."
The Committee noted in its report that Brexit appeared to have side-lined the government's proposals for reforming the law on corporate liability for economic crime. The government responded merely by stating that the Ministry of Justice would shortly be providing a response, following their call for evidence, on the case for reform in this area.
The response described the role of newly-formed Office of Financial Sanctions Implementation (OFSI) as considering every reported suspected breach, and taking some compliance action on every substantiated breach, whether by issuing warnings, calling on companies to improve their compliance or discuss their actions, or referring those cases warranting criminal investigation to law enforcement.
The Committee recommended a review be conducted into OFSI in September 2019, two years after its formation. However, in their response the government says that OFSI regularly reviews its processes and structures, following the establishment of the OFSI Governance Advisory Board in 2018, which assess the department's performance and capability, risk management and decision making, with the body periodically publishing key statistics on its work in an annual review. It also points out that the FATF report has given the UK the highest rating for its work in promoting and imposing the global use of financial sanctions against terrorism and the proliferation of weapons of mass destruction. The US is the only other country to have achieved such high ratings.
In short, the government largely agrees with the observations and recommendations set out by the Committee, taking steps to reform key institutions such as HMRC and Companies House, and pursue more thorough enforcement in the property sector. However, the government did not appear to have any plan in place with respect to the de-risking issue, which currently penalises many law-abiding individuals tarnished with an AML and sanctions risk. Its stance on this issue is unclear, and it remains to be seen whether the imminent publication of the Economic Crime Plan will shed any more light on this rather neglected area.
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