Accountants will need to carry out more stringent checks into clients and financiers and face new company ‘rightholder’ rules as the Fourth Money Laundering Directive (4MLD) comes into force
The directive is introduced into the UK through updated money laundering regulations, enacted under a statutory instrument, Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, and includes changes in the way people with control over organisations are registered.
Almost all businesses supervised by HMRC for anti-money laundering purposes are subject either to fit and proper or approval requirements under the Regulations. These requirements are to ensure that businesses beneficial owners and senior management are appropriate people to undertake those roles. Key personnel must pass the relevant test before the business can register, and can remain registered, with HMRC.
The wide-reaching rules on politically exposed persons (so-called PEPs) will require much closer examination of links and potential risks. PEPs will have to undergo enhanced due diligence, including checks on family members or a known close associate. Systems must be in place to determine whether a customer is a politically exposed person or a family member or known close associate of one.
If the customer is a politically exposed person, family member or known close associate of one, then it is essential to put in place the following enhanced due diligence measures:
- obtain senior management approval before establishing a business relationship with that person;
- take adequate steps to establish the source of wealth and source of funds that are involved in the proposed business relationship or transaction; and
- conduct enhanced ongoing monitoring where you’ve entered into a business relationship.
When verifying a customer’s identity using documents, only originals can be accepted and not photocopies or downloads of bills, unless certified as described below:
- photocopied identity documents can be accepted as evidence provided that each copy document has an original certification by an appropriate person to confirm that it is a true copy and the person is who they say they are; and
for standard customer due diligence an appropriate person is, for example, a bank, financial institution, solicitor or notary, independent professional person, a family doctor, chartered accountant, civil servant, or minister of religion The documents must be from a reliable source not connected to the customer.
Trusts are not covered by the extended rules, but government bodies will be able to demand the same information if required.
Last year the register of people with significant control (PSC) was launched in the UK, with filings made through Companies House. The directive’s implementation sees separate forms introduced (PSC01 to PSC09) to notify Companies House when PSC register information is altered, and made within 14 days of the change’s occurrence.
Exemptions to the PSC register have also changed. Scottish limited partnerships and general Scottish partnerships (where all partners are corporate bodies) need to identify their PSC. Companies House states that businesses trading in the European Economic Area and covered by the EU Transparency Directive Review are exempt, but those not trading in the EEA will now sit in the PSC regime.
‘Businesses such as banks, estate agents, accountants and payment firms will have to carry out stringent and targeted checks to make sure that money changing hands is from a legitimate source and will not be used to fund terror acts,’ said a statement from the Treasury.
The Criminal Finances Act 2017 forms part of the UK’s strategy to clamp down on illicit funding of crime and terrorism. It has created a new offence for tax advisers, the ‘failure to prevent the facilitation of tax evasion’ in the UK or overseas.
HMRC Money laundering supervision: guidance for money service businesses guidance has been updated and is available here although it is still awaiting final approval from the Treasury.
HMRC has updated the guide on the fit and proper test, the approval process and who it applies to. It details the application process and what happens if anyone fails the test or is not approved. It also explains what to do when there are changes to the personnel of a business.
HMRC updated guidance Fit and Proper test issued 26 June 2017
Report by Sara White, Kevin Reed