Compliance Guidelines:

Regulatory Bodies in the United Kingdom

Some of the key regulatory bodies involved in AML compliance in the UK include:

Financial Conduct Authority (FCA):
The FCA is the primary regulatory body for financial services firms operating in the UK.  It plays a crucial role in supervising and regulating AML compliance for banks, investment firms, and other financial institutions.

Office for Professional Body Anti-Money Laundering Supervision (OPBAS):
Established by the UK government, OPBAS is a regulatory body that oversees the effectiveness of the AML supervisory efforts of the professional bodies, including those responsible for accountants, tax advisors, and real-estate agents.

Below are some key provisions from the UK’s legislation, along with references:

Proceeds of Crime Act 2002 (POCA)

Offences related to Money Laundering

A person is deemed to commit an offence if they engage in the following actions:

• Concealment, disguise, conversion, or transfer of criminal property.
• Removal of criminal property from England, Wales, Scotland, or Northern Ireland.
• Participation in or concern with an arrangement known or suspected to facilitate the acquisition, retention, use, or control of criminal property.
• Acquisition, use, or possession of criminal property.

Reporting Requirements

Part 7 mandates financial institutions and businesses in the regulated sector to:

• Report any suspicions about criminal property or money laundering activities to the UK Financial Intelligence Unit, a component of the NCA (National Crime Agency).
• Those not within the regulated sector are still obligated to report suspicions arising during the course of their trade, business, or profession.

Investigative Powers

It encompasses powers required to conduct the aforementioned investigations such as:

• Production orders, search and seizure warrants, disclosure orders, customer information orders, and account monitoring orders.
• Only designated officers (like police officers) can apply for these investigative tools, and they must do so through a court.
• Applications related to civil recovery, detained cash, and exploitation proceeds investigations are made to the High Court, while others go to the Crown Court.
• Powers of entry exist under specific warrants and certain production orders.

Section 327

• Defines money laundering offenses in the United Kingdom. This section sets out the legal framework for identifying and prosecuting individuals or entities involved in the handling of criminal proceeds.
• Essentially, Section 327 of POCA is a crucial component of the UK’s efforts to combat money laundering by clearly defining the unlawful activities associated with it.

Section 328

• This section of the Proceeds of Crime Act 2002 focuses on the acquisition, use, or possession of criminal property.
• In essence, it makes it an offense to become involved in any way with property that is the result of criminal activities

Section 330

• Specifies the reporting requirements for those in the regulated sector, including Suspicious Activity Reports (SARs).
• ARs are confidential reports submitted by regulated entities to the relevant government agency or authority.
• These reports are filed when the entity suspects or has reasonable grounds to believe that a transaction or activity they are involved in or have observed is suspicious, potentially linked to illegal activities, or otherwise violates AML/CTF regulations.

Money Laundering, Terrorist Financing, and Transfer of Funds (MLR 2017)

A relevant person must apply customer due diligence measures if the person establishes a business relationship and doubts the veracity or adequacy of documents or information previously obtained for the purposes of identification or verification.

Article 27

A relevant person must apply customer due diligence measures under the following circumstances:

• Establishment of a business relationship.
• Execution of occasional transactions involving transfers of funds exceeding 1,000 euros, as defined in Article 3.9 of the funds transfer regulation.
• Suspicion of money laundering or terrorist financing.
• Doubts about the authenticity or sufficiency of previously obtained identification or verification documents.
• For those not being a high-value dealer or casino, in cases of occasional transactions amounting to 15,000 euros or more.
• High-value dealers must apply the measures for cash transactions amounting to 10,000 euros or more.
• Casinos must implement these measures for transactions involving wagering of stakes or collection of winnings amounting to 2,000 euros or more.

Article 28

When a relevant person is required to implement customer due diligence measures:

• Identification and verification of the customer’s identity is essential.
• Assessment of the purpose and nature of the business relationship or transaction.
• For corporate bodies, there are specifics about verifying the body corporate’s details and understanding its beneficial ownership.
• The identification and verification process for beneficial owners is outlined.
• The use of the registers of people with significant control is not enough by itself.
• If someone is acting on behalf of the customer, they too need to be identified and verified.
• Ongoing monitoring of the business relationship is required, including scrutiny of transactions and regular reviews of records.
• How a relevant person meets the requirements of customer due diligence can vary based on risk assessment and other factors.
• In specific circumstances, a relevant person might not be required to continue applying customer due diligence measures.

Enhanced Customer Due Diligence: Politically Exposed Person

Relevant individuals are required to implement enhanced customer due diligence measures and ongoing monitoring in various high-risk scenarios. These scenarios include:

• Identified high-risk cases of money laundering or terrorist financing.
• Business dealings with entities in high-risk countries.
• Correspondent relationships with financial institutions.
• Business relationships with politically exposed persons (PEPs) or their close associates.
• Situations where false or stolen identification is provided.
• Complex and unusually large transactions with no clear purpose.
• Any other inherently high-risk situations.
• Exceptions apply when the customer is from an EEA state and meets certain conditions.
• Specific enhanced measures for cases with complex transactions are outlined.
• Additional potential enhanced measures are described.
• Various risk factors, categorized into customer, product/service, and geographical, to be considered while assessing the risk are detailed.
• Emphasis is made on individual risk factors not always indicating high risk.
• European Supervisory Authorities’ guidelines to be considered for determining the extent of measures.

Regulation 34

Credit institutions are mandated to gather comprehensive information about the respondent from a third country in a correspondent relationship. This includes:

• Understanding the respondent’s business nature.
• Assessing the respondent’s reputation and supervisory quality.
• Evaluating the respondent’s anti-money laundering and terrorist financing controls.
• Seeking senior management’s approval for new correspondent relationships.
• Documenting the responsibilities in the correspondent relationship.
• Ensuring the respondent’s verification of customer identities.
• Prohibition on entering relationships with shell banks.
• Measures to avoid relationships with institutions allowing shell bank account usage.
• Definitions provided for terms like “correspondent relationship” and “shell bank.”

Regulation 35

• Obligation to determine if a customer or beneficial owner is a PEP or closely associated.
• Appropriate risk management systems and procedures to be in place.
• If identified as a PEP, further assessments on risk level and due diligence measures are needed.
• Guidelines issued by FCA and other bodies to be considered.
• Specific requirements for business relationships with PEPs, such as senior management approval, understanding the source of funds, and ongoing monitoring.
• Obligations related to long-term insurance policies and their beneficiaries who might be PEPs.
• Requirements for payouts under insurance policies for PEP beneficiaries.
• Continuing requirements for former PEPs and exceptions for certain past PEPs are detailed.

Regulation 12(b)

Family Members of a PEP The family of a PEP includes:

• Spouse or civil partner of the PEP.
• Children of the PEP and their spouses or civil partners.
• Parents of the PEP.

Regulation 12(c)

Known Close Associates of a PEP refers to:

• An individual with joint beneficial ownership of an entity or arrangement or has other close business relationships with a PEP.
• An individual having sole beneficial ownership of an entity or arrangement established for the benefit of a PEP.

Terrorism Act 2000

An Act to make provision about terrorism; and to make temporary provision for Northern Ireland about the prosecution and punishment of certain offences, the preservation of peace and the maintenance of order emphasizing the anti-money laundering regulations.

Section 15

• Addresses the prohibition on the funding of terrorism. This provision makes it illegal to provide financial support or resources, whether directly or indirectly, to individuals, groups, or organizations involved in terrorist activities.

Sanctions and Anti-Money Laundering Act 2018

• One of the primary objectives of the act was to establish the legal framework for the UK to impose and enforce sanctions independently of the European Union. Prior to Brexit, the UK largely followed EU sanctions regimes. This act enables the UK government to create its own sanctions policies, targeting individuals, entities, and countries associated with various threats, including terrorism, human rights abuses, and international conflicts.
• While the primary focus of the act is on sanctions, it also includes AML measures to combat money laundering and terrorist financing. The act reinforces and enhances the UK’s AML regime, ensuring that it remains robust and effective.

References:

1. The National Archives UK
2. The National Archives UK