The anti-money laundering (AML) and counter-terrorist financing (CTF) regulatory landscape continues to rapidly evolve, with more attention being focused – and more responsibilities being imposed – on corporates entities, including banking institutions.
Within the last few years, we have seen a rise in enforcement and penalties pertaining to the AML regime, including the first-ever criminal conviction of a bank under the Money Laundering Regulations 2007, where a bank was taken to Court by the Financial Conduct Authority and was charged for failing to comply with the obligations set out for 'relevant persons' who must adhere to certain requirements designed to prevent it from being used for money laundering purposes.
The increased scrutiny in this area shines necessary light on the amount of caution that needs to be taken by all relevant persons, as one could still suffer implications in a money laundering scheme even if one is on the periphery of it.
'Relevant persons', as defined by the MLRs 2017, include the following types of entities:
- credit institutions
- financial institutions
- auditors, insolvency practitioners, external accountants and tax advisers
- independent legal professionals
- trust or company service providers
- estate agents (including letting agents)
- high value dealers
- casinos
- art market participants
- cryptoasset exchange providers
- custodian wallet providers
AML compliance obligations involve carrying out ongoing monitoring of business relationships, doing so on a risk-sensitive basis and carrying out enhanced monitoring in high-risk cases.
There are a number of AML and CTF compliance areas to consider, to avoid any level of complicity in money laundering activities. This article is the first in a series which will outline the key things to consider.
'Red flags'
These are indicators that warn of potential illicit activity or money laundering. Identifying red flags can help businesses take appropriate action and report suspicious transactions. Examples of common red flags include (but are not limited to):
- Unusual transaction patterns, e.g.:
- Transactions that are inconsistent with a customer's typical behaviour or profile
- Large, frequent, or rapid transactions that are unusual for the customer's account
- Atypical customer behaviour, e.g.:
- Customers who are reluctant to provide identifying information or documentation
- Customers who are uninterested in the risks associated with complex transactions
- Customers who may appear to be operating under someone else's instructions
- Questionable transaction characteristics, e.g.:
- Transactions involving multiple countries without a clear business rationale
- Transactions involving high-risk jurisdictions known for money laundering or terrorism financing
- Transactions involving unusual cash deposits or withdrawals/rapid movement of funds
- Customer profile, e.g.:
- Politically exposed persons (PEPs) or their close associates engaging in high-value transactions
- Customers with inconsistent or unverifiable sources of wealth
- Customers associated with industries prone to higher AML risks (e.g., casinos, money service businesses)
- Geographical risks:
- Transactions involving countries or regions known for corruption or weak AML regulations
- Transactions routed through countries not involved in the underlying business activity
Red flags are not necessarily definitive evidence of money laundering/other illicit activities. However, employing a risk-based approach (i.e., considering red flags on a case-by-case basis) should help prompt further investigation and additional due diligence where and when necessary.
Conclusion
Effective AML compliance involves staying vigilant and recognising warning signs to prevent financial crime and protect businesses from regulatory scrutiny.
To ensure compliance with the rising obligations, 'relevant persons' should consider reviewing and fortifying their compliance procedures.
As the AML regime in England and Wales continues to expand, engaging legal professionals with expertise in AML compliance can greatly assist your efforts.
Utilising Legal Expertise
At Gherson, our specialist financial crime lawyers can provide tailored advice catered to your industry, helping you implement and maintain satisfactory compliance strategies, including by providing (regular) firm-wide training and assisting with setting up, reviewing and/or revising compliance policies and programmes suitable to your specific needs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
