MLR3C2150 - Legislation: Changes affecting our compliance activity

There are several changes which specifically affect penalties and these are covered in detail in our penalties guidance MLR1

The main changes which will affect the way we undertake our compliance activities and are effective from 26 June 2017 are:

  • The need for businesses to adopt an appropriate and a risk-sensitive approach to all aspects of their anti-money laundering policy
  • The requirement for businesses to identify the ‘beneficial owner’ of funds, goods or services - i.e. who stands to gain
  • The requirement for ongoing monitoring of all business relationships with customers
  • The requirement for businesses to comply with directions issued by HMT where the Financial Action Task Force applies counter-measures
  • The requirement for business owners, nominated officers and people who control or direct relevant business carried out by MSBs and TCSPs to pass the fit and proper test
  • The requirement for MSBs to ensure their agents, their nominated officers and people who control or direct are fit and proper
  • The requirement for businesses to establish and maintain a written document of policies, controls and procedure
  • The requirement on relevant person to provide information to their supervisory authority as requested
  • The authority given to the supervisor to enter and inspect a premises without a warrant under regulation 69 or with a warrant under regulation 70
  • The requirement imposed by the fund transfer regulation:
  1. In relation to a payment service provider of a payer
  2. In relation to a payment service provider of payee
  3. In relation to the payment service provider of an intermediary

The example below demonstrates why it is important to carry out enhanced due diligence and enhanced on going monitoring of any businesses relationship with a PEP.

PEP Case Study: A senior government official launders embezzled funds via members of his family.

The family of a former Country A senior government official, who had held various political and administrative positions, set up a foundation in Country B, a fiscally attractive financial centre, with his son as the primary beneficiary. This foundation had an account in Country C from which a transfer of approximately USD 1.5 million was made to the spouse’s joint account opened two months previously in a banking establishment in neighbouring Country D. This movement formed legitimate grounds for this banking establishment to report a suspicion to the national FIU. The investigations conducted on the basis of the suspicious transaction report found a mention on this same account of two previous international transfers of substantial sums from the official’s wife’s bank accounts held in their country of origin (A), and the fact that the wife held accounts in other national banking establishments also provisioned by international transfers followed by withdrawals. The absence of any apparent economic justification for the banking transactions conducted and information obtained on the initiation of legal proceedings against the senior government official in his country for embezzlement of public funds led to the presumption, in this particular case, of a system being set up to launder the proceeds of this crime. The official concerned was subsequently stopped for questioning and placed in police custody just as he was preparing to close his bank account.

These are only a summary of the changes which Officers need to take into account when checking a business’s compliance with anti money laundering legislation.