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Online money laudering checks

Online money laudering checks

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I am aware of a number of companies who offer to provide new client ID and address verification. Are these any good, and more importantly do they replace the normal checks of passport/driving licence plus bank statement/utility bill? I can't help feeling I would rather eyeball the individual and his/her passport, even though this can often be inconvenient for all involved.
Nigel Harris


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01st Jun 2007 15:54

Eyeballing the Clients
I understand from where Nigel is comming but how does he know that the passport is not forged?

The ML reports do check in several places so that if the client is poporting to be someone else he or she must have created that identity over a long period. Years rather than days.

What we need to think about is protecting ourselves against not complying. Which ever system is used is must be robust. I am much happier with the reports. Others favour a different route.

It would be much cleaner if the ML authority told us exactly what it expects. Ie We require a....

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30th May 2007 15:07

MLRegs 2007
It is very hard to answer all the points here, but the first place to start is the sector specific guidance for ML Regs 2007 (MLR8) which states that verification can be done by document, electronic or a combination of both, this replicates the JMLSG notes 2006. There are good reasons for this, one there is the mandatory risk assessment for which you may require more information on the client in any other situations other than low risk, this is termed in the guidance his "electronic footprint", this would include information covering "time" for which a snapshot set of documents will not give you. also in these scenarios there is the mandatory requirement to do a search to see if the prospective client is listed on the PEP file or other sanctions listings.

In about 40% of clients cases, documents alone, for which you would need more than two, three at a minimum under the enhanced due dilligence in the new guidance, plus mandatory searches of various sanctions files etc will prove to be very hard indeed not to mention time consuming and potentially very costly.

Electronic searches can do away with the need for documentation, also two of the providers programmes are certification programmes for documents, e.g. could verify a bank account or passport as being real, this is another solution within MLR8.

The data sets searched include, electoral roll, all bank accounts, credit cards, mortgages, loans etc (all shared with the financail services industry), CCj's, IVA's & insolvencies, FTSE 350 shareholding, directors at home, PAF, deaceased persons files, stolen passports lists, PEP and sanctions files, previous searches and more. They are fully equiped for the rigors of the ML Regs 2007 including risk assessement.

They give you information for the risk assessment and KYC aspects of AML we as accountants struggle to get. All major finacial institutions have been using these for a number of years. NS&I (HM Treasury) has just switched to these systems. HM passport office are now using these for secondary searches after the disaster of issuing over 10,000 forged passport applications and SOCA now run SAR's though secondary electronic searches. In the second half of last year they found that from the p[eople listed on the SAR's, 21 where on the deacesed persons file and 431 on the stolen passports list. Remember it is easy to forge an identity with paper, but extremley difficult to forge a "social footprint" covering time.

Which ever method is used, do not forget the letter of engagement, our most important corroborative evidence we have.

For further infor visit our website

Steve O'Neill
Business tax Centre Ltd

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By Anonymous
30th May 2007 15:41

I am a massive fan of everything online but....
.....with online ID checks:

1) The man standing in front of me says he is John Smith of 25 Acacia Avenue - how do I know?

2) The online ID check says that John Smith of 25 Acacia Avenue is bona fide - how do they know that the proper credentials of John Smith belong to the man standing in front of me just because he SAYS that he is John Smith.

Does that make sense?

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30th May 2007 16:44

Case of mistaken identity
I agree Steve. Did you see Paul Merton in China the other day on TV? One place he visited Googled him from his passport (his real name is Paul Martin) and mistook him for a Canadian PM and rolled out the red carpet!! Easily done.

On the other hand, I have some clients under investigation for fraud with Interpol at the moment. I met them several times, copied their passports and papers myself, so I have no doubt as to who they are - just didn't know they were potential criminals (fraudsters wasn't the stated occupation on the passports)!

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By Anonymous
31st May 2007 13:23

confirming identity
What I don't understand is how does confirming that John Smith of Acacia Avenue is who he claims - or Paul Merton is Paul Merton, contribute in anyway to knowing whether or not he is a money launderer or drug dealer or whatever.

Shouldn't they publish a list of all the money launderers and drug dealers so that we can check our clients against it?

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By Anonymous
04th Jun 2007 08:25

Paul is right.....
.....this is about protecting ourselves and has nothing to do with whether clients are money launderers or not.

So what does this legislation actually achieve?

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04th Jun 2007 10:22

Belt and braces

I would suggest that the most effective method of confirming the identity of a new client (or an existing client under the proposed MLR 2007) is both to see some documentation from the client (such as a passport) and to undertake an electronic check.

The question is, when does the risk merit this 'belt and braces' approach?

There will be some 'high-risk flags' such as where the client's activities, or requests for services, or location (compared to the accountant's), are unusual. Particular care should be taken, for example, where the client asks you to handle his funds or to assist him to make investments.


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04th Jun 2007 09:11

"What does the ML legislation actually achieve?"

In terms of the question posed by Patrick (below), like all such legislation it imposes a burden on the law-abiding majority.

Arguably it has some deterrent effect on the criminal minority who may be less inclined to instruct a reputable accountant with the intention of abusing his services.

(In terms of "Is this passport a forgery?" the best advice is not so much "examine the document carefully" as "examine the potential client carefully" and be suspicious if he appears to be "odd" in the sense of having no real commercial purpose in approaching you for your accountancy services. Be especially on your guard if you are asked to handle client funds or act as a correspondence address.)

At the next level - where a report is made to SOCA - we know that HMR&C do actively consider and follow up reports of suspected tax evasion.

Reports of suspected terrorism (of which there are relatively few) are followed up.

As far as wider criminality is concerned (such as theft, fraud, drug trafficking, dealing in stolen goods, etc) the picture is much less positive.

In connection with the use of financial intelligence in asset recovery from criminals the Home Office itself recently said:-

"Probably the most under-used source of intelligence are the Suspicious Activity Reports (SARs) filed by the regulated sector under the anti-money laundering provisions of PoCA. Recent analysis . . . has suggested that SARs are a highly valuable resource. Even relatively simple preliminary checks suggest that financial institutions had good grounds for suspicion in a significant proportion of cases, perhaps 40%. If we assume 40% of SARs have good grounds for suspicion, numbers of SARs rising towards 250,000 and with one study suggesting average values of SARs ranging between £10,000 and £36,000, this could mean that SARs represent valuable intelligence on between £1bn - £4bn of suspicious transactions flowing through the system. . . . It is however clear that SARs are a hugely under-used resource at the moment." (Home Office, Asset Recovery Action Plan, Consultation Document, May 2007)

I suppose we can at least conclude that government are aware that they are not making effective use of the reports that banks, accountants, lawyers and others are taking great pains to submit. This is, however, just the latest in a long line of reports indicating that law enforcement agencies and SOCA, and its precursor NCIS, are not able to make proper use of the information required to be disclosed under PoCA 2002.


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04th Jun 2007 14:18

Production orders


On the subject of production orders, you may be interested to know about a case in which I am currently instructed by the Police / Crown Prosecution Service in which it is alleged that a retail business is little more than a device to enable cash from drugs to be laundered. (I can't be more specific as the case has not yet come to court.)

A production order has been served on the accountants who have acted for the retail business. They have responded by making available their client's records, but nothing else. No working papers, no correspondence, no file notes nor emails!

Needless to say they are now threatened with contempt of court proceedings by the police.

This demonstrates the accountant's lack of understanding of production orders. There is a big difference between dealing with HMR&C on a routine enquiry and dealing with the courts in relation to a criminal prosecution. I believe this lack of understanding is a failing which is widespread.

Accountants need to wise up quickly or face considerable grief!


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04th Jun 2007 12:53

It is about prevention
The ML Regs are designed for the prevention of money laundering, denying the money launderer the use of our good name and our expertise.

Patrick almost got it right earlier on when it said they were there for our protection. We have to remember that a good number of our clients have, are doing or will commit a money laundering offence from a simple case of tax evasion to the more complex including criminal activity.

At the core of the ML Regs 2007 is the "know your client" culture, of which the risk based approach is a part of. The more we know about our clients and their business interests the better chance we have for spotting suspicious activity and not have our clients dropping us in it.

I agree with David on his belt and brace approach and indeed document certification is one of the solutions to the enhanced due diligence requirements. This is one of the main advantages of the programmme we use is its ability is certify whether for instance you have a valid UK passport or indeed the bank statement you hold is a true document and belongs to the named person. Again the simpliest method of doing this is through an electronic search programme.(there are some which do not have this feature)

Back to Davids earlier answer on the use of SAR's there is an admittance that they have not been used to their full potential, especially when we had NCIS. in the seminars we have just completed with the SOCA presentation, they state that this situation is coming to an end and since their inception and the subsequent Landers review this has been made a high prioroity to make the most of the SAR's. The only draw back to this is that we are all likeley to see a massive increase in the number of production orders we have to deal with.

Steve O'Neill
Business Tax Centre

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