Guidance

Understanding risks and taking action for high value dealers

Updated 3 February 2021

About this risk assessment

This risk assessment tells you about the key risks that your business might face as a high value dealer (HVD).

You must read this alongside the published HVD guidance and other relevant documents, such as the National Risk Assessment 2020.

Risk characteristics

A high value dealer means anyone who as part of their business trades in goods (including an auctioneer dealing in goods), when in respect of any transaction they make or receive payment in cash of at least 10,000 euros.

This is whether the transaction is executed in a single operation or in several operations which appear to be linked. A payment remains a ‘payment in cash’ even if the cash is paid by or on behalf of the person making the payment to another person or into a bank account.

The UK National Risk Assessments (NRA) of 2015, 2017 and 2020 give a consistent view that cash is inherently high risk due to it being untraceable, readily exchangeable and anonymous.

HVD services are currently assessed as medium risk for money laundering and terrorist financing.

The UK NRA reports highlighted that the products and level of cash use in the HVD sector can make HVD businesses attractive to criminals seeking to convert criminal proceeds into high value or luxury portable assets. These can be easily moved outside the UK or used to conceal the origins of criminally derived cash.

The risks posed by the sector have increased from low risk to medium risk, as assessed by the NRA published in 2020. This is due to the vulnerabilities created by anonymity of transactions, portability across borders, exposures to high-risk jurisdictions and level of cash used in the sector, which make HVDs attractive for trade-based money laundering.

There are certain HVD sub-sectors, such as alcohol/cash and carry, cars/vehicles, and jewellery/gold that are higher risk within the HVD sector.

The use of illicit funds to buy, then sell high value goods is one of the oldest, and most common elements in money laundering and terrorist financing methodologies.

Different high value goods share some commonalities, in that they are highly versatile for criminals. High value goods retain their value, can be quick and easy to undertake using legal tender and can be readily transferred from person to person.

They are usually easily transportable domestically or internationally and can be easier to carry than cash. The goods for example, precious metals, stones, and jewellery, can be dispersed to third parties, and can be easily converted back into cash. The value of some goods, such as gold, may increase but generally the goods can be sold at a small loss for ‘clean money’, making the product more attractive for re-sale in the open market.

The purchase of some goods, such as cars, boats, jewellery and gold are considered to be status symbols in the criminal world. Vehicles can be used for further criminal offences, such as drugs transportation or robberies. This makes these goods more attractive to organised crime groups and they may seek to buy them from HVDs.

Risk indicators

It is vital that HVDs understand and meet their obligations under the Money Laundering Regulations (MLRs) to protect themselves, their families and their communities from the dangers of infiltration by criminals.

Any weakness in the controls the business uses may be exploited by criminals who will seek to use, coerce or control the HVD to move more of their illicit money. Such money is often earned from activities that cause significant harm to society, such as drug dealing, people smuggling or modern slavery.

It is important that a business carefully assesses and documents the specific risks that business faces and establishes and keeps up-to-date policies, controls and procedures to address these. These must be effective to help prevent money laundering or terrorist financing through the business.

Risks common to all HVDs

The key cross-sector risks for all HVDs include:

• unusual sales or purchase activity
• linked transactions
• goods purchased by organised criminal groups (OCGs)

Key risk indicator	Notes
A potential sale or purchase of goods does not appear to be normal business practice, have a valid commercial reason or makes no economic sense.	This could be the goods, the delivery method or payment arrangements that are not consistent with the normal practice for the type of business concerned.
A business wants to conduct a sale or purchase of goods for cash for an ‘off the record sale’.	The cash here is not likely to have been recorded in that business’ records and have a proper audit trail. If offering cash this way, the business is also likely to be using cash for other purposes, such as paying workers cash in hand and thus avoid paying tax and National Insurance on the wages.
A customer wanting to break down cash payments artificially from one payment into smaller payments to try and avoid detection and not adhere to the requirements under the MLRs.	These are linked transactions. For example, a customer buys 4 pallets of goods in cash each costing £5,000 so a total sale of £20,000. Normal business practice would be for all 4 pallets of goods to be on one invoice. The transaction would therefore be caught by the MLRs and appropriate customer due diligence (CDD) measures would be required. It would be wrong and expose the HVD to unacceptable money laundering risk to seek to avoid the requirements of the MLRs by asking for 4 invoices, each for £5,000. Whilst these individually would be under the HVD threshold, the total cash for the sale is still £20,000.
Making or receiving a high value cash payment for goods by way of business from an un-registered HVD.	As part of your CDD measures, if that business is in the UK, you should check on the HMRC website whether the business is a registered HVD. If not, you should not continue with the high value cash payment. You should consider reporting this activity to the National Crime Agency (NCA) via a Suspicious Activity Report (SAR).
Criminals take advantage of unwitting legitimate businesses.	Talking to your customers about the reason they need to pay you in cash will determine whether there is a legitimate reason for this.
A new customer with little or no trading history and no trade references.	Is this a genuine customer or a front for a business that is possibly laundering money?
The customer asks for the goods to be delivered in an unusual manner or to an address that is not their own.	There may be a genuine reason for this, but it is important to ask questions to decide if the transaction should go ahead and/or a SAR filed.
A customer travels a long distance in the UK just to purchase goods, when the goods are readily available near their home location.	Why would your customer do this, it does not make commercial sense? If the goods you sell are unique and not readily available elsewhere, this would make business sense.

Cash payments and bank accounts

Because HVDs make or receive high value cash payments for goods they will normally need to use the services of a bank. There are lots of risks associated with cash, from how it is presented, how it is paid, to who makes that payment. These are explored below in more detail.

Key risk indicator	Notes
Customers paying in Scottish or Northern Irish bank notes in other parts of the UK with no customers from those areas or close geographical links).	Does your customer have cash businesses in Scotland or Northern Ireland using Scottish and/or Northern Irish bank notes? There have been law enforcement cases involving criminals buying drugs in England but paying in Scottish/Irish notes. For more, see further comment 1.
A customer paying large amounts of cash in an unusual manner.	What does the cash look like, do the bank notes look like they came from a bank or do the bank notes look like bundles of street cash? Has the customer presented cash in a secure bag or in a carrier bag or fast food paper bag? Criminals may use carrier or fast food bags to transport cash as these draw less attention to them.
A customer or representative makes cash deposits directly into your business bank account from multiple branches of the bank around the country).	The money laundering risks posed by a customer paying cash into your business bank account is greater than if they pay the cash directly to you at your business. Criminals have been known to deposit cash directly into an HVDs bank account which means the HVD does not have sight of the cash or of the person making the deposit. For more, see further comment 2.
A customer or representative making multiple smaller cash deposits into your business bank account. This can be numerous small amounts of cash paid into a single bank or split over numerous locations across the UK. This is not normal business practice.	It is unusual to have numerous small amounts of cash paid into your business bank account, particularly if the branches are not located close to your customer. Attention should be paid to the timings and frequency of these linked cash payments as they may be deliberately broken down to avoid detection. If a customer is paying in cash, and is located near to you, why would they go to a bank and pay the cash in, when it would be just as easy to come to your premises and pay you personally? It is your responsibility to carry out checks on customers making such cash payments, not your bank’s.
The person paying you the cash is not known to you and does not appear to have a link to your customer.	If that person is not linked to your customer, how are they in possession of your customer’s money? You need to identify the person delivering the cash and their relationship to your customer.
Where do your customers get the sterling from?	If your customer operates their business activities outside the UK, you must consider where the sterling came from. Can you satisfy yourself there is evidence to support where the cash came from? If the sterling comes from a foreign exchange, especially in the UK, your customer should provide proof (for example, by way of a receipt), which you must retain a copy as part of your CDD checks.
Your customer does not have a bank account, or the only account they have is a personal account rather than a business account.	If a customer is using their personal bank account instead of a business bank account why are they doing this? Is the customer doing this to avoid bank charges for paying cash into their business account or because the bank has closed their business account or refused to open an account?

Country or geographic area risk

There are different risks if the goods are bought and sold in the UK, or outside of the UK. The risk of money laundering or terrorist financing increases for particular countries, and you will need to take extra steps to mitigate these risks. These are explored below in more detail.

Key risk indicator	Notes
Cash payments from high-risk jurisdictions.	High-risk jurisdictions (See GOV.UK for information about high-risk jurisdictions) are more likely to be linked to money laundering and terrorist financing. You should carefully consider the purpose and nature of any transaction with a business from a high-risk jurisdiction. For more, see further comment 3.
Cash payments received from customers operating in countries who restrict the use of cash and/or have limits in place for amounts of cash permitted to enter/leave that country.	Many countries have strict limits on the volume of cash that can be legally used or taken out of that country, often around $10,000 or equivalent. If your customer operates in one of these countries and exceeds that cash limit, it is likely that cash is being used to circumvent local restrictions. Care should be taken to ensure cash has been properly declared at borders.
Customers from overseas are unable to evidence travel to the UK from the country of their business location, or travel to the UK regularly to pay you cash but with no UK business premises or operation.	If your customer has travelled into the UK, you would expect them to be able to show evidence of this. Why would someone travel to the UK to pay you cash on a regular basis? What would the customers traveling costs be and do these seem reasonable compared to the price of the goods?
Your customer has brought cash into the UK, do they have details of the C9011 (customs declaration) form to evidence this?	Any customers travelling to the UK from outside the EU with cash exceeding 10,000 euros must declare this using Form C9011 at the port of entry. If done via a paper form a duplicate copy is kept by the person bringing cash into the UK, or records may be held electronically. This form should be requested and retained as part of your CDD checks.
Where did the cash come from?	If a customer produces C9011 evidence of bringing sterling into the UK, there may be further questions need to be asked about the source of the sterling. For example, is it reasonable for a customer from that country to have large stocks of UK sterling or is more likely the UK sterling came from criminal activity?
Does the transaction you are completing make commercial sense?	Does your customer have a market place for the goods you are selling in their home country? For more, see further comment 4.

Further comment 1

If your customer only operates in England, where did the Scottish or Northern Irish notes comes from? Does your customer have operations in Northern Ireland or Scotland and then carry high values of notes all the way from there to you? If your customer claims people travel long distances to their business in Southern England, is this credible?

When you see cash, how is it presented to you, is it all bundled up or is it just loose bank notes? For instance, if your customer says they withdrew the money from their bank account, higher values may be in thousand pound bundles, with a bank wrapper around it, and less likely to be rough bundles with rubber bands holding it all together.

If the customer claims the cash came from a casino win, then it should be wrapped in that casino’s slips, and further CDD checks could be done with that casino to confirm the origins.

Can you satisfy yourself there is evidence to support where the cash came from? If not, should you continue with the transaction? Or should you stop the transaction and submit an SAR?

Further comment 2

The payment of cash directly into your business bank account can pose a significant risk of money laundering. It is known that criminals and their associates like direct deposits as this helps them retain their anonymity as they are not seen by the HVD and allows multiple people to deposit criminal cash on behalf of one customer with little chance of discovery.

Direct deposits into your account, or using third-parties, also removes your ability to check the appearance of the cash (dirty, street cash or unexpected volumes of Scottish/Northern Irish notes etc).

You are responsible for anti money laundering (AML) checks on such deposits, not the bank or the third-party cash collection business.

You must be able to demonstrate what your procedures are to monitor bank deposits or cash collection pickups, be able to identify who put cash in to your business bank account or passed it to the collector, challenge any unexpected deposits, amounts or unexpected locations, and if relevant complete a SAR.

Do the deposits and deposit locations match what you know of the stated customer? Or are the deposits being made in locations or multiple locations remote from the stated customer? If the customer is a retail customer, sole proprietor or small business, how are they able to deposit cash in multiple locations across the UK on the same date or at the same time?

Further comment 3

There are risks for HVDs in relation to the country that their customers are operating in, Some jurisdictions are deemed higher risk than others and/or have poor or insufficient money laundering and terrorist financing measures.

Other risks include levels of bribery and corruption, tax evasion, capital flight, conflict zones, and organised crime activity in a jurisdiction. It is not only the country that customer is based in that may be the risk, it could also be neighbouring countries as money laundering or terrorist financing often involves the movement of funds across borders.

There is lots of information about high-risk jurisdictions, which is detailed from several open source documents and media. All HVDs will need to decide their own level of comfort when assessing jurisdictional risk. The business will be expected to develop and maintain awareness around this topic and incorporate it into their written policies and procedures and risk assessment.

Further comment 4

You need to consider if the sale of goods makes commercial sense. For example, a business overseas is buying large quantities of goods from a UK HVD, but there is no market place in that country for these goods for re-sale.

Why is the customer doing this and do they have an end user to sell to? The director has travelled to the UK to pay for the goods. Why would they travel to the UK to pay you in sterling when a bank transfer would be quicker, easier and cheaper in normal circumstances?

There are higher levels of risk whenever you are involved with supply chains of goods but do not have physical sight or control of the goods, especially if you do not have a relationship with the stated seller or buyer.

In some money laundering methodologies, third party payment invoices are either manufactured by criminals (the invoice does not relate to any sale of goods) or is amended to change the bank account details to one controlled by the money launderers. The invoice is simply used to try to claim some legitimacy for the movement of the money.