With money laundering

coming under ever-closer scrutiny, Aziz Rahman explains why you need to make

sure your preventative measures are good enough.

The legislation relating to money laundering has become

tighter over the years as the authorities seem increasingly determined to

tackle the problem.

A number of incidents in recent months that we detail here have

illustrated the need for those in business to have anti-money laundering

procedures in place. But they also indicate that those introducing and

maintaining procedures must make sure they are fit for purpose. If they don’t

do what they are supposed to – prevent money laundering - they are worthless.

Recently, Deutsche Bank, the Bank of Ireland and BNP Paribas

were all punished for failing to do everything possible to prevent money

laundering.

The US Federal Reserve fined Deutsche Bank $41 million and criticised its “unsafe and unsound

practices’’ for failing to maintain money laundering controls – just months

after the bank was fined $629 million for failings that allowed wealthy

Russians to allegedly launder $10

billion.

Bank of Ireland was fined 3.15 million euros by the

country's central bank for “significant failures” in its anti-money laundering

controls; including 12 breaches of Irish anti-money laundering laws, not

reporting six suspicious transactions and failing to carry out sufficient

checks on a politically exposed person.

Similarly, French authorities fined BNP Paribas 10 million

euros for inadequate anti-money laundering controls, after a 2015 inspection

showed shortcomings in the bank’s prevention procedures.

Adequate Procedures

It is worth noting that all three banks had anti-money laundering

procedures: they were punished because those measures were not good enough.

It is an outcome that everyone in business can learn from.

If your preventative measures are not adequate they will provide no protection

against the money launderers – or the investigating authorities.

Foreign authorities are making more money laundering enquiries

in the UK than ever before. The National Crime Agency (NCA) believes that more than

£90 billion is laundered each year through the UK and European Union ministers are

improving cooperation between its countries to boost the prosecution of money

laundering.

Such factors prove that money laundering is coming under

greater scrutiny. Those found to have inadequate anti-money laundering

procedures will find little scope for escaping punishment.

The Fourth EU Money Laundering

Directive (4MLD) came into force in June 26, 2015 and places more obligations

on banks and other financial institutions. It removes the automatic right to

exempt certain customers or investors from due diligence checks, demands more

transparency on beneficial ownership and imposes an obligation to carry out risk

assessment and monitoring on customers. It also requires more due diligence on

people or organisations from what are deemed to be high-risk countries and on

politically exposed persons (PEP’s), their relatives and close associates.

So what needs to be done to ensure your procedures are fit

for purpose?

Prevention

The quick answer is be alert, aware and proactive regarding

prevention. If you take the right steps to prevent money laundering, it almost

goes without saying that your business is unlikely to be affected by it.

Money laundering is the disguising of the origins of money

that is the proceeds of crime. A person can launder their own criminal proceeds

or have it done for them by another person. Both of these are offences under

the Proceeds of Crime Act 2002 (POCA).

If you implement adequate procedures that deny the

opportunity for a person to launder money, you will not face problems in the

future. And even if you do, you have a valid defence if you can demonstrate

that you had taken all possible precautions to prevent it.

Let’s make this clear. This does not mean setting up a

review of working procedures, drafting some rules on preventing money

laundering and telling staff about them. That is simply not enough. If you

don’t believe this, ask the three banks I mentioned earlier: they had all done

that and yet paid the penalty for not doing enough.

We do not know exactly how or why those banks got it so

wrong. But preventing money laundering means scrutinising a would-be client or

trading partner’s identity and background, as well as that of anyone else who

wants to move money in or out of a business. It means checks on who exactly

benefits from a transaction and the relationships between everyone involved.

Indicators of money laundering can include a vagueness or

reluctance to talk about the people and amounts involved in a transaction,

strange conditions being insisted upon (especially regarding the movement of

money) and a company being asked to be party to a deal “out of the blue’’, with

no clear reason given for this.

Your procedures have to recognise and be a response to all

of this.

Assistance

Specialist legal help is available for those requiring

assistance when devising and introducing anti-money laundering procedures.

Limits on the size of cash-only deals, appointing certain staff to examine

transactions and restrictions on access to company accounts can all reduce the

potential for laundering.

Yet such procedures need to be monitored and tested

regularly and, if necessary, revised. A failure to ensure your procedures are

at their maximum effectiveness means a greater risk of money laundering. Again,

specialist help can be hired to assess the ongoing strength of compliance procedures

and make the necessary changes.

Random sampling of firms covered by the Money Laundering

Regulations was announced last year by the Financial Conduct Authority (FCA).

While such a measure is limited to firms considered to be high risk, such an

approach could bring extra security to any company looking to design out the

risk of laundering.

Regular and intensive auditing, both by staff and external

bodies, will also go a long way to identifying a firm’s weaknesses to money

laundering. But this is only if they are conducted with an awareness of the

potential risks associated with that company’s size, type of business and the

trade sector and geographical area it works in.

Just as poorly-devised and badly-run prevention procedures

will do little to stop money laundering, weak or non-existent checks on any procedures

introduced will not ensure those measures are doing what they are supposed to.

Creating the procedures is only the first part of a

commitment to preventing money laundering. Making sure they are doing what they

are supposed to do is an ongoing commitment.