Anti-money laundering sneaks itself on hectic January tax season
For a lot of accountants, January is not the best time to think of anything else other than tax. As you tuck into SA return after SA return you may or may not have noticed that following a consultation back in June 2019 the money laundering and terrorist financing (amendment) regulations 2019 (MLRs) came into force on 10 January 2020, updating existing regulations.
Although not the first thing on many accountants’ minds, money laundering, being one of a large number of obligations those providing financial services must adhere to, is now in the spotlight again.
Even though the results of the consultation are still to be published the requirements of the fifth money laundering directive do now apply.
Here is a brief summary of some of the key changes within the 2019 regulations.
New obliged entities
The scope of obliged entities (being those individuals or businesses that are supervised by a UK supervisory authority for compliance with money laundering obligations) has been extended to include letting agents, Crypoassets, Art intermediaries and widening the scope in relation to ‘tax advisers’.
Reporting discrepancies to Companies House
A requirement has been introduced that obliged entities and, where appropriate, competent authorities (such as relevant law enforcement agencies) report any discrepancies they find between the beneficial ownership information available to them and the beneficial ownership information available in the central registers (Companies House).
Report a discrepancy:
Client due diligence
Where a customer is a body corporate, obliged entities are now required (rather than taking reasonable measures) to identify and verify the names of the senior persons responsible for the operations of the body corporate.
Client due diligence requirements have also been extended for obliged entities to verify the identity of the senior managing official, when the customer is a body corporate and the beneficial owner cannot be identified.
Further still, there is now an explicit requirement that relevant persons are “required to understand the nature of their customer’s business and its ownership and control structure”
Enhanced due diligence
The scope of persons on whom obliged entities must conduct EDD has been expanded from ‘natural persons or legal entities established in the third countries’ to ‘business relationships or transactions involving high-risk third countries.’
Obliged entities will also be required to apply a newly defined set of EDD measures with respect to business relationships and transactions involving high-risk third countries.
Politically exposed persons
To assist with identifying PEPs a list indicating the exact functions which qualify as prominent public functions will be issued. It is intended that the government will adopt the approach already taken by the FCA in identifying prominent public functions so as to minimise disruption.
Whenever an obliged entity enters into a new business relationship with a company or trust that is subject to beneficial ownership registration requirements, they must collect either: proof of registration on this register OR an excerpt of the register identity of the customer before establishing a business relationship.
Trust registration service
The scope of the Trust Registration Service has been expanded by requiring trustees or agents of all UK and some non-EU resident express trusts to register those trusts with the TRS, whether or not the trust has incurred a UK tax consequence.
The threshold for which CDD measures must be applied has been reduced allowing some low-risk e-money products to be exempt. Electronic money, or e-money, is an electronic store of monetary value on a device (such as a prepaid card) that may be widely used for making payments and value transfers, which does not necessarily involve bank account transactions.
National register of bank account ownership
The UK is required to establish a centralised automated mechanism – such as a central registry or electronic data retrieval mechanism – which allows identification of natural and legal persons which hold or control bank accounts; payment accounts; or safe-deposit held by credit institutions within the UK.
How does this affect me?
It is felt in some quarters that such regulations are seen as just another set of red tape, another barrier to doing their job and that someone somewhere is trying to make money off the back of the profession. Whereas in reality, money laundering is a worldwide problem and is costing the UK £24 billion a year (as reported by the NCA) and accountants are a prime target for criminals to try and carry out fraudulent activities.
Some believe, as the old saying goes, “it will never happen to me” yet regulators must take the stance that “prevention is better than cure” and regulations should be seen as a deterrent and a way to reduce crime not just control it. The process of client due diligence, enhanced due diligence and risk assessment, provides a framework but the main principle is all about finding a balance. By using a risk-based approach, you have the opportunity to find the appropriate level of checks that need to be carried out depending on the expected level of risk of each client.
A risk-based approach does not mean cutting corners. For a number of accountants, the approach is met with robust and thorough policies and processes, however others will simply perform an electronic identity check and some will do nothing.
Whatever your current process for tackling money laundering and terrorist financing the new regulations apply to all accountants and must be assessed accordingly.
What do I do now?
If you don’t already, one of the most important things is to be aware of what your obligations are and put appropriate plans in place so you can reduce the risk of your business being used for money laundering or financing terrorism, and remain compliant with the regulations.
While all firms must be fully compliant with the new requirements from 10 January, HMRC have stated that they “will take into account the short lead-in time businesses have had to implement all the new requirements in assessing the response to any non-compliance” and “will assess each case on its own merits”.
It is hoped that other supervisory bodies will follow suit.
How can TaxCalc help?
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