The government has now completed its plans to make the UK’s anti-money laundering (AML) regime more effective and proportionate. With the proposed changes expected to save larger professional services firms around £3 million a year, enhanced due diligence is clearly worth it.
Given modern businesses are working in an accelerated culture and increasingly virtual world, it is vital they are confident that they have the right measures in place to cut the risk of money laundering.
On the face of it, verifying a new customer is relatively straight forward with one proof of identity and one proof of name at the address from two independent sources provided at an initial meeting. But for remote or online instructions, checks ensuring the client is who they say they are becomes more critical and more stringent – depending on the risks presented – a key policy that will be set by Money Laundering Reporting Officers (MLRO).
Clearly it is illegal to trade with any individual that appears on any Sanctions Lists and it is therefore a mandatory requirement that all new clients get checked against the UN, US and HM Treasury lists, along with the Specially Designated Nationals (SDN), Terrorists, Deceased and Politically Exposed Persons (PEPs) lists.
The final outcome of these checks is an AML Certificate detailing the number of identity and address matches, confirmation that the subject is not on any critical lists. Along with additional added value the data searches may reveal, the certificate is also proof needed to satisfy regulators that AML obligations were correctly completed and compliance was maintained.
Law firms are also obliged to verify businesses as well as the individuals at the top of the companies they may be acting for.
The first stage is to verify the business and get evidence that the business actually exists at the given location – and it can be anything from a sole trader to a large multi-national corporate group with a complex subsidiary structure.
Crucially, different rules apply to different styles and levels of businesses.
For instance, a FTSE-listed company needs no AML verification against its directors, once its status on the London Stock Exchange has been satisfied. While, at the other end of the spectrum, much smaller private limited companies must be shown to be in existence and be legitimate businesses. Their directors, shareholders and any beneficial owners also need to be identified. Given beneficial owners are any individuals own more than 25 per cent equity in a company, or more than a 25 per cent share of capital or profits in a partnership, they should also be the subject of individual AML check and certification.
A sizeable effort in business AML checks goes in to researching who owns and controls the business. But accurate AML checks hinge on being able to quickly and correctly identify the key directors, shareholders or beneficial owners.
At the moment, many professional services firms simply rely on wading through an avalanche of sources including Companies House Records, Public Records, Online Directory Publications and Look-up Services, to name but a few.
The information is often collated from a host of disparate sources to so that the various proprietors, directors, shareholders and beneficial owners can be verified ahead of any AML checks. But often the real and most costly challenge is in establishing the home addresses of controlling directors or partners.
Staying clear of dirty money is critical and professional services firms are urged to sign up with a partner that can deliver fast and accurate match and verification pass rates via either a web browser or a platform that can be integrated into existing decisioning systems. At the same time, systems that can issue high risk alerts are vital to help ensure enhanced due diligence is maintained and suspicions can be flagged with the money laundering reporting officers or specific compliance team members.
The likelihood is that AML and Know Your Customer (KYC) legislations and regulations will only get stricter as the speed and volume of electronic transactions increase, so investing in this area now is likely to be worth every penny.
Earlier this year, the Law Society named Experian’s 192business as preferred identity supplier of electronic identity verification tools for anti-money laundering purposes.
Experian acquired 192business in March 2012, to provide organisations with an added range of identity verification tools, including personal data verification, fraud screening and document verification.
They are already used by nearly half of the UK’s top 100 law firms to help meet client due diligence obligations under the Money Laundering Regulations 2007, as well as mitigate the risks of making payments in contravention of the UK financial sanctions regime.
Nigel Spencer, Chief of Commercial Affairs at the Law Society, said Experian and 192business have been working closely with the Law Society to ensure that its identity verification services were tailored to the specific needs of the legal sector. He added: “Accurate and efficient identity verification are vital for meeting the evolving challenges of complying with financial crime prevention rules.”
Nick Mothershaw, UK director of identity & fraud services at Experian, added: “Firms across the legal profession have successfully managed money laundering and payment risks working in partnership with 192business. Since 192business became part of Experian earlier this year we have further strengthened our position amongst the legal community and are delighted that the Law Society has chosen to endorse our range of identity verification tools.”