“Tough and targeted” new anti money laundering laws – what businesses need to know

On December 15 2007, the Government’s controversial new anti money laundering regulations became law. According to Ed Balls, Economic Secretary to the Treasury at the time the government announced its AML plans in January 2007, the aim of these “tough and targeted” measures is to "crack down further on illegal activity and help force criminals and would-be terrorists out of the shadows."

We’ve come a long way since the launch of the first anti-money laundering legislation in the United States in 1986, which was followed by the EU’s version in 1991. The main focus then was to combat illegal narcotics trafficking. The new rules, Money Laundering Regulations 2007, which came into force in December, are much more stringent. Businesses that are affected by the new legislation now have an increased responsibility to prevent, detect and report money laundering.

The new law affects financial institutions, law firms, external accountants, auditors and tax advisors as well as dealers in high value goods – essentially any business that might carry out a cash transaction greater than €15,000. These businesses need to have procedures and policies in place now to ensure they comply with the new laws. The law requires regulated businesses to assess the risk posed by the individual and commercial customers they deal with and then to take appropriate measures to verify their identity, the individuals that control a business as well as beneficial owners (whether individuals or other business entities) that own 25% or more of the business.

If the new laws affect your business you need to be complying now. Because what you need to know today is that police investigating a money laundering case in, say, five years time, will be at liberty to trace any AML regulated business or individual that has transacted with a suspected individual or business since 15 December 2007 – and to demand to see records of the anti-money laundering checks carried out at the time.

So exactly what kind of checks are we talking about? Specifically, you need to be able to answer the following questions regarding your customer:

1. What is the registered name and address of the individual or business you are dealing with, as well as the trading address if it is different?

2. What are the names of those with a controlling interest in the businesses, i.e. the directors, and what are their backgrounds?

3. How will you carry out checks against relevant sanctions or checklists e.g. official lists of known terrorists held by HM Treasury?

4. Who are the owners of the business, i.e. those with a beneficial interest of 25% or more?

5. How do you carry out the necessary checks on those with a controlling interest or beneficial stake?

6. What is the corporate structure of the business, i.e. is it a subsidiary of a multinational business or standalone? If it is part of a complex corporate structure, what wider checks can you make for the corporate hierarchy to establish beneficial ownership?

7. Are there any other credible third party sources you can use in order to triangulate the identification of the business, i.e. central registries equivalent to the UK’s Companies House, central regulators or stock exchanges, since the guidance is that you try to use multiple sources where possible, to verify the identity of your customers?

8. How will you document and archive the identity checks you carry out in order to be able to provide proof at any point that your checks meet the requirements of your risk based policies and procedures and you can demonstrate to the Financial Services Authority (the UK regulator) that you have taken appropriate measures?

9. Do you have in place a risk-based money laundering policy that outlines the extent of customer due diligence measures required, based on risk assessment and depending on the type of customer, business relationship, product or transaction?

The UK government has advised those affected by the new money laundering legislation to use online systems as well as ‘credible third-party sources’ in order to carry out these checks. At D&B we have been working alongside some the UK’s top financial institutions and law firms for 18 months to find out how best to alleviate the administrative burdens posed by the new law. These customers have helped us develop two reports specifically targeting the demands of the regulations.

The D&B AML Report provides all the essential client information a company with UK business customers needs in order to meet the requirements of the new legislation. For international compliance, businesses should use the D&B KYC Report.

Both reports capture data from multiple sources: Companies House or their international equivalent, global financial regulators, stock exchanges and sanctions lists as well as D&B’s own country risk assessments and database of 120 million businesses worldwide. By doing this D&B is able to provide a simple, concise, reliable, one-stop shop for compliance with money laundering legislation. Businesses no longer need to manage multiple data vendors and can, at the click of a button, select from D&B’s suite of Enterprise Risk and Compliance solutions to meet their own compliance requirements and save themselves considerable time and cost.