PRESENTATI ON TO AAT Practice Managem ent Event 2 2 March 2 0 1 - - PowerPoint PPT Presentation

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PRESENTATI ON

TO

AAT Practice Managem ent Event 2 2 March 2 0 1 4

BY

Richard F Sim m s FCA

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OVERVI EW

• Risk Assessm ents
• Custom er Due Diligence
• Eight steps to com pliance
• Sum m ary

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RI SK ASSESSMENTS

• I dentify
• Assess
• I m plem ent
• Monitor
• Record

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RI SK ASSESSMENTS

• I dentify the ML & terrorist financing

risks

• Assess the risks
• I m plem ent controls to m anage risks
• Monitor the operation of controls
• Appropriate recording keeping

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RI SK ASSESSMENTS

• I dentify
• Size and structure of business
• Business activities
• Products and services

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RI SK ASSESSMENTS

• Assessing the risks ( 1 )
• Types of clients
• Geographical area of clients
• How you engage your clients

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RI SK ASSESSMENTS

• Assessing the risks ( 2 )
• Client’s business activities
• Paym ent processes – is it cash based?
• Movem ent of client’s funds

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RI SK ASSESSMENTS

• Clients w ho pose a risk ( 1 )
• Clients w ho carry out large one-off

transactions

• Clients w ho are not local to your business
• Clients w ho handle large am ounts of cash

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RI SK ASSESSMENTS

• Clients w ho pose a risk ( 2 )
• Com plicated ow nership structure
• Regular transactions to the sam e

group/ individual

• Unw illing to provide evidence of I D

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RI SK ASSESSMENTS

• I m plem ent the risk
• Apply Custom er Due Diligence
• Ongoing m onitoring

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RI SK ASSESSMENTS

• Monitoring the risk
• Sudden increase in business
• Unusual transactions
• Untypical types of custom er

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RI SK ASSESSMENTS

• Record Keeping
• Dem onstrate to Supervisory Body that

procedures are in place

• Records – w hat has been done and w hy

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RI SK ASSESSMENTS

• Sum m ary
• Regular assessm ents
• Appropriate m onitoring procedures
• Regularly review and test procedures

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CUSTOMER DUE DI LI GENCE

• From 1 5 Decem ber 2 0 0 7 , you m ust

carry out custom er due diligence on a risk sensitive basis

• CDD required on both new and

existing clients

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CUSTOMER DUE DI LI GENCE

• Establishing a relationship
• I dentify and verify client’s identity
• I dentify the beneficial ow ner( s) and

control structure

• Obtain inform ation on the purposes and

intended nature of the business relationship

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CUSTOMER DUE DI LI GENCE

• Establishing a relationship
• Details of the client’s business activity
• Understand the source and origin of the

funds

• Beneficial ow ners

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CUSTOMER DUE DI LI GENCE

• I dentifying & verifying clients
• Governm ent issued docum ents – e.g.

passport

• I nform ation held by credit reference

agencies

• Bank statem ents, utility bills etc.

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CUSTOMER DUE DI LI GENCE

• CDD Rules include concept of:
• ‘Simplified’ due diligence (Lower risk)
• ‘Normal’ due diligence

(Normal risk)

• ‘Enhanced’ due diligence (Higher risk)

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CUSTOMER DUE DI LI GENCE

• ‘Sim plified’
• Credit or financial institution subject to MLR
• Listed com panies ( excludes AI M and PLUS)
• UK Public Authorities
• ‘Enhanced’
• Client not physically present
• Politically exposed persons ( PEPs)
• PEP – individual w ho has been entrusted w ith a

prom inent public function or is closely related

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CUSTOMER DUE DI LI GENCE

• ‘Prohibited’
• Shell Banks – financial institutions w ith

no physical presence and no real business is conducted

• Countries w ith deficiencies in their anti-

m oney laundering regim es – refer to FATF non-cooperative countries

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CUSTOMER DUE DI LI GENCE

• ‘Prohibited’
• Refer to HM Treasury’s publication –
• https:/ / w w w .gov.uk/ governm ent/ publications

/ m oney-laundering-and-terrorist-financing- controls-in-overseas-jurisdictions-advisory- notice

• HM Treasury em ail service
• http:/ / engage.hm -treasury.gov.uk/ fin-sanc-

subscribe/

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CUSTOMER DUE DI LI GENCE

• ‘Sim plified’ CDD Measures
• Reduce the on-going m onitoring based on a

reasonable m onetary threshold

• Reduce the frequency of custom er identification

updates

• Sim plified CDD m easures are NOT acceptable if

there is suspicion of m oney laundering

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CUSTOMER DUE DI LI GENCE

• ‘Enhanced’ CDD Measures
• Obtain additional inform ation
• Obtain inform ation on the reasons for

transactions

• Request 1 st paym ent from account in the

custom er’s nam e w ith a bank sim ilar to CDD standards

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W HAT ELSE COULD I NDI CATE HI GH RI SK?

• Other reports in the past
• Cash based business
• Adverse press coverage
• Purpose of business not clear
• Previous HMRC investigations

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BENEFI CI AL OW NER

W hat is a beneficial ow ner?

• Corporate bodies
• I ndividual w ho ow ns or controls m ore than 2 5 % of

shares or voting rights

• Partnerships
• I ndividual w ho controls/ entitled to m ore than 2 5 %
• f the capital or profits
• Charities
• Usually trustees

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BENEFI CI AL OW NER

W hat is a beneficial ow ner?

• Trusts
• I ndividual w ho is entitled to a specified

interest in at least 2 5 % of the capital or trust controller

• Estates of deceased persons
• Executor or adm inistrator of the estate

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W HAT I S KNOW LEDGE OR SUSPI CI ON?

• Not defined in legislation
• Actual know ledge that som ething is

the case

• Suspicion is m ore definite than

speculation

• Falls short of know ledge based on

evidence

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W HAT I S KNOW LEDGE OR SUSPI CI ON?

• Must be crim inal conduct – proceeds of

innocent errors are not crim inal property

• Reasonable grounds
• Not yet tested by Courts
• W ould an ‘honest’ and ‘reasonable’ person in

your position have had know ledge that m oney laundering w as taking place?

• Cannot turn a ‘blind eye’

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W HAT I S KNOW LEDGE OR SUSPI CI ON?

• “He is a scrap dealer, all scrap dealers are

crim inals, he is a crim inal”

• This is not suspicion!
• Do not need to identify the crim e or gather

sufficient evidence to enable it to be proved in a court of law

• I f unsure….report the suspicion

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TI PPI NG OFF

• Do not tip off the relevant person
• Do not tell anyone that a report has

been m ade

• Asking norm al questions is not tipping
• ff
• Asking unnecessary questions or

investigating further m ay m ake you liable

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CONFI DENTI ALI TY

• SAR to NCA can have adverse effects on

client relationship

• NCA – National Crim e Agency replaced

SOCA as from 7 October 2 0 1 3

• w w w .nationalcrim eagency.gov.uk
• Maintaining the confidentiality of SARs is

im portant to NCA

• Agencies that are involved have a duty to

keep source confidential

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CONFI DENTI ALI TY

• MLROs should take steps to protect

confidential source

• Only refer to source’s nam e once in the

source I D field but now here else

• Do not refer to nam es of staff that m ade

internal report

• Highlight any particular concerns about

safety ( physical, reputational etc.)

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CONFI DENTI ALI TY

• Cannot be sued for breach of

confidentiality w hen report to NCA provided

• Report is m ade properly and prom ptly
• You acted in good faith

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RECORD KEEPI NG

• Clients’ identity
• Supporting evidence of verification
• Business relationship
• Occasional transactions
• Kept for 5 years after term ination
• f business relationship

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CONTI NUI NG CUSTOMER DUE DI LI GENCE

• Must be on an on going basis
• Regular m onitoring
• Significant changes in business
• Changes in appointm ents of senior

m anagers / shareholders require checks

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NON-COMPLI ANCE

• Client refusal –
• Do not proceed w ith relationship
• Term inate existing relationships
• Consider if report is appropriate

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EI GHT STEPS TO COMPLI ANCE ( 1 )

Appoint MLRO

• Senior position
• I nternal reports
• Appoint DMLRO

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EI GHT STEPS TO COMPLI ANCE ( 2 )

Com pliance Manual

• Best practice
• Reference tool
• I nclude policy statem ent

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EI GHT STEPS TO COMPLI ANCE ( 3 )

Training

• ‘Relevant em ployees’
• Annually
• Can be tailored

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EI GHT STEPS TO COMPLI ANCE ( 4 )

Verify clients

• Part of CDD
• Manual or electronic
• Beneficial ow ners

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EI GHT STEPS TO COMPLI ANCE ( 5 )

Risk based approach

• Understand risk client poses
• Obtain inform ation on client
• Use m anual form s
• Existing clients – separate list

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EI GHT STEPS TO COMPLI ANCE ( 6 )

Reporting

• Reporting procedures in place
• Staff to MLRO
• MLRO to NCA
• Docum ent decisions

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EI GHT STEPS TO COMPLI ANCE ( 7 )

Record keeping

• Be able to prove com pliance
• Training, risk assessm ents, reports

etc.

• Manual or electronically

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EI GHT STEPS TO COMPLI ANCE ( 8 )

Be supervised

• Register
• 2 2 professional bodies
• HMRC

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SOURCE OF I NFORMATI ON

• The Consultative Com m ittee of

Accountancy Bodies ( 1 1 5 pages)

• W ith ML Regulations 2 0 0 7 , POCA 2 0 0 2 & CTA

2 0 0 0

• HMRC Notice MLR8 ( 7 9 pages)
• Com pliance departm ents at your

Supervisory Body

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SUMMARY

1 . Appoint MLRO 2 . Com pliance m anual 3 . Training 4 . Verify clients

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ML OFFENCES

• Standard Chartered Bank - £ 7 .6 m

fine for failure to com ply

• TV Boss jailed for insurance scam
• 1 2 4 false claim s linked to com pany ow ned by TV

boss

• Doorstop fraud
• Cold calling contractors charged £ 1 6 ,4 0 0 for w ork

assessed at £ 5 9 0

• Builder jailed for 7 years for overcharging for

poor w orkm anship – w ife guilty for handling bank affairs

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ML OFFENCES

• Fam ily jailed and ordered to pay back

£ 4 2 3 ,9 4 2

• Sale of counterfeit goods and drug trade
• Fam ily of 8 arrested in £ 5 1 M ML probe

connected to tax evasion

• HMRC encourage tax fraud to be reported to

Custom s Hotline

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PRESENTATI ON

TO

AAT Practice Managem ent Event 2 2 March 2 0 1 4

BY

Richard F Sim m s FCA

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CONTACT DETAI LS

w w w .fasim m s.com Em ail: jm air@fasim m s.com