16 Aug 2016 03:32pm

Where next for anti-money laundering regulation?

The UK’s actions surrounding the EU’s Fourth Anti Money Laundering Directive will be a key indicator of its planned approach in the period following the referendum

When it comes to anti-corruption legislation, the United Kingdom is considered a world leader. Its tough UK Bribery Act is viewed as one of the ultimate global standards for tackling bribery. Indeed, in relation to anti-money laundering (‘AML’) regulation, the UK has a reputation of going above and beyond the recommended standards. For example, it has adopted an ‘all crimes approach’ to current European AML governance meaning there is no minimum level of predicate offence below which acts need not be reported.

Yet in a post- Brexit world, it is fundamental that the ability and will of the UK to maintain such tough standards doesn’t waiver, with the country eager to attract new foreign investment and sustain current levels of growth. As the European Commission urges member states to bring forward the implementation of the Fourth Money Laundering Directive (‘4MLD’) to the end of 2016, this could prove a significant test for exactly which direction the UK will head once it exits the EU. Will the UK introduce the Directive given that Prime Minister, Teresa May, has indicated that she’s unlikely to trigger Article 50 until 2017, or will it press pause and take a completely new stance?

Tackling terrorist financing

As part of a series of Anti-Money Laundering Directives, the EU 4MLD aims to tackle tax evasion, terrorist financing and money laundering. This fourth directive introduces several key changes to the 2007 UK Money Laundering Regulations and includes provisions to introduce a Beneficial Ownership Register for legal entities, trusts and companies. The 4MLD also implements harsher requirements for both Simplified and Enhanced Due Diligence and advocates bigger responsibilities for senior managers as well as extending the definition of politically exposed persons (‘PEPs’). While until recently EU member states were given until June 2017 to introduce the 4MLD into national legislation, the European Commission in its action plan against terrorist financing, urged member states to bring forward the date of implementation to the end of 2016 and improve the exchange of information between countries.

Of course, post referendum it remains unclear whether the UK will continue to implement new EU regulation, particularly once Article 50 has been triggered and latterly the European Communities Act repealed. While it may eventually still choose to maintain equal standards, any reluctance to implement similarly strict principles in the next two to three years could prove problematic. Hesitancy from the UK to continue to be part of any enhanced practices implemented by EU member states could have a knock on effect on the success of the 4MLD and significantly hinder the ability to investigate international money laundering.

Whether the 4MLD is adopted or not, it will be vital that the UK maintains its tough stance and does not feel commercial pressure to relax its financial controls in order to encourage investment in the UK. Continuing its membership of organisations formed to combat financial crime, such as the FATF (Financial Action Task Force), will play a fundamental role in ensuring this is the case, as will continuing to follow guidance and standards set by such organisations.

A champion against economic crime?

There is hope, at least in the short term, that the UK is unlikely to make any significant deviations from its current course. During her time as home secretary, Theresa May championed combating economic crime and announced the government’s action plan for anti-money laundering and counter-terrorist finance. She has already reaffirmed her position on tax avoidance since her announcement as the country’s new Prime Minister. Against this backdrop it seems fairly likely the UK will continue to hold its tough stance on economic crime and corruption. The UK Bribery Act is considered by Transparency International as ‘among the strictest legislation internationally on bribery’. There have already been several prosecutions under this act, including the conviction of the British construction surveyor Sweett Group which expended nearly £1.4million on fines and legal costs. With the Serious Fraud Office continuing bribery investigations into several other companies, the UK may see the announcement of further bribery charges in the upcoming months.

The newly introduced Small Business Enterprise and Employment Act equally already somewhat mirrors the 4MLD in requiring companies to maintain a register of ‘persons with significant control’, arguably suggesting the UK has no immediate plans to alter its tough AML stance.
Maintaining standards

While a number of the 4MLD measures have already been voluntarily implemented, as the UK begins the untangling of existing EU regulation over the coming years, the country’s stance in relation to its adoption of the remaining required procedures in a more uncertain, economically independent world will pose a delicate balancing act. Clearly the UK government will want to avoid putting unnecessary pressures on British businesses by ramping up compliance measures for coveted new customers in potential economically challenging times. However implementing anything other than the recommendations of FAFT and the 4MLD will put the UK behind the remaining EU member states in terms of AML regulation - potentially impacting UK business in falling behind best practice.

As the UK feels the economic pressures that will likely develop in the short term whilst it negotiates its exit from the EU, it will be essential that British corporations and financial institutions continue to follow best practice and sustain robust compliance programmes. Undertaking due diligence and Know your Customer (KYC) checks on incoming funds, suppliers, representatives and consultants in particular will remain a crucial part in preventing economic crime and protecting British businesses for the long term.

Mia Wellfare is director of compliance, forensics and investigations at Control Risks



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