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Anti-Money Laundering Guide

One of the primary objectives of the FCA under the Financial Services and Markets Act is the reduction of financial crime, in all its forms.

Central to this objective is the fight against money laundering and consequently, the FCA has made rules, applicable to all regulated financial institutions, aimed at reducing the likelihood of the financial system being used for money laundering and increasing the likelihood of detection of laundered and other illegal funds in the financial system.

1 Objectives of the Manual

This manual is designed to help our staff understand the key anti-money laundering (AML) and counter terrorist financing (CTF) requirements, and to locate the detailed guidance available in the Joint Money Laundering Steering Group (JMLSG) guidance notes – which will be referred to throughout this document.

The JMLSG guidance notes can be accessed via the JMLSG website at jmlsg.org.uk

1.1 Anti Money Laundering Policy Statement

Hirett Ltd has a company AML policy statement which all staff must adhere to. This sets out our procedures and legal responsibilities.

2 What is Money Laundering and Terrorist Financing?

Money laundering / Terrorist Financing is the process by which criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities (e.g. illegal drugs dealing, tax evasion etc.) thereby avoiding prosecution, conviction and confiscation of the criminal funds.

The ultimate aim of this process is to convert such criminal proceeds into “clean” money.

The risks to the financial sector primarily involve being used to facilitate this process, whether knowingly or unwittingly.

3 Key Stages of Money Laundering

There are many ways of laundering money and these are deemed to be accomplished in three distinct stages:

  • Placement – this is the first stage in the money laundering operation and involves the physical disposal of the initial proceeds derived from illegal activity, e.g. placing cash in the conventional financial system
  • Layering – this second stage involves separating the illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity
  • Integration – the final stage involves providing an apparent legitimacy to the criminally derived wealth. If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing as normal business funds.

These three steps may occur as separate and distinct phases and occur simultaneously or, more commonly, they may overlap.

Generic examples of laundering money can range from the purchase and re-sale of vehicles to passing money through a complex international web of legitimate and bogus companies.

Often the proceeds take the form of cash, however criminals recognise cash payments into the financial sector often give rise to additional enquiries and therefore seek to convert illegally earned cash or to mix it with legitimate cash before it enters the financial system.

4 Money Laundering and Fraud Prevention

The FCA’s “prevention of financial crime” objective encompasses the prevention of financial fraud.

The procedures that financial sector firms adopt to combat money laundering should also serve to reduce the incidence of financial crime including fraud, dishonesty and corruption.

Our Financial Crime Prevention Manual must be read and adhered to by all staff. Our key policy is to have strong and practical anti-money laundering policies and procedures with fraud prevention measures.

5 Money Laundering Risk Assessment

In identifying the money laundering risk and establishing the extent and nature of systems and controls, we consider a range of risk factors which include:

  • Type of Clients we deal with, Clients categorisation, experience and their remittance activity profiles
  • Client ID verification
  • Remittance distribution channels – for example face to face meetings
  • The amount of Remittance and how it was derived by the Remitter
  • The country in which the Remitter is based in (i.e. their geographical location)
  • All staff are trained in Anti Money Laundering and are trained to identify and report any suspicious transactions to the MLRO

Risk is increased if the money launderer can hide behind corporate structures such as limited companies, offshore trusts and nominee arrangements.

As mentioned above, the geographical location affects the money laundering risk analysis, some examples of this is when the Remittance is to a country which:

  • Has inadequate anti-money laundering strategies
  • Has material deficiencies in their anti-money laundering strategies
  • Is a politically unstable regime with high levels of public or private sector corruption
  • Is known for drug producing or drug transit activities

Further information on countries or territories identified as higher risk is available from the Financial
Action Task Force (FATF) at fatf-gafi.org

6 Money Laundering – Regulatory Requirements

In compliance with the FCA’s rules we have:

  • Appointed a Money Laundering Reporting Officer (MLRO)
  • Senior Management who take on responsibility for AML
  • Systems to verify the identification of potential Remitters, stakeholders and persons of influence
  • Process where any knowledge or suspicions of money laundering will be reported
  • Training for all relevant staff on AML
  • Systems to monitor our controls
  • A process to retain adequate records

7 The Money Laundering Reporting Officer (MLRO)

The MLRO is allocated overall responsibility for oversight of our compliance with the FCA’s AML requirements. The MLRO could potentially be liable for failure of Hirett Ltd to comply with the rules; the penalty is up to two years in prison and an unlimited fine.

7.1 Duties of the MLRO

The general responsibility given to the MLRO is:

  • Ensuring that Hirett Ltd takes steps to obtain/access any relevant “Know Your Client” (KYC) or “Know Your Business” (KYB) information prior to a Remittance
  • Preparing external reports on ML suspicions/knowledge to the National Crime Agency (NCA)
  • Obtaining and using national and international findings supplied by the Government of the UK and the Financial Action Task Force (FATF)
  • Adhere to the process for financial sanction requirements
  • Making reasonable steps to establish and maintain adequate arrangements for awareness and training of staff, and implementing disciplinary measures if staff do not comply with the requirements
  • Putting together annual reports based on Risk assessments which can be used by the firm to access their position and risk level
  • Keeping a record of our AML audits

The duties of the MLRO may be delegated to another responsible member of staff, but the direct responsibility remains with the appointed MLRO.

8 Senior Management Responsibility

Management have the ultimate responsibility for AML/CTF process and need to understand the ML risks.

All staff are expected to take ownership and assist the MLRO in the establishment and maintenance of effective anti-money laundering systems and controls.

9 Remitter and Customer Due Diligence

Hirett Ltd applies measures based on a risk-sensitive basis, identifying situations which can present a (higher than usual) risk of money laundering or terrorist financing.

As part of this, under our risk-based approach, if our standard method for evidence of identity is insufficient in relation to the money laundering or terrorist financing risk, we can obtain additional information about that particular Remitter. As a part of the risk-based approach, we hold sufficient information about the circumstances and business of the Remitter for two reasons:

  • To manage money laundering/terrorist financing risks effectively
  • Provide a basis for monitoring Remitter activity and transactions, thus detecting the use of our services for money laundering and terrorist financing

The extent of additional information needed i.e. the need for extra identification and of any monitoring carried out in respect of any particular client or class/category of client, will depend on the money laundering or terrorist financing risk that the client, or class/category of client, is assessed to present to Currency Tube

10 Identification of Remitters and Clients

Reasonable steps must be taken to check the client’s identity to show that they are who they claim to be and if applicable that they are trading for a legitimate business purpose.

All new clients must provide sufficient information for verifying their identity before any transactions are undertaken.

Formal identification will be completed the application on company website which required client contact information as following below,

  • Client Valid Passport
  • Client Proof Address in UK (No later than 90 day from the date of issue)
  • Above documents have to notarised by/from a professional if send it by post. (i.e. Doctor / Accountant / Solicitor)
  • Current Photo required by real time method if registration via website by none Face to Face (Zoom / Skype / Face Time / Webcam)
  • Client’s UK Bank Account required
  • Client’s Contact number and Email Required
  • Source of Original Funds and the propose of money remittance required

These may include but are not limited to the sections below and we reserve the right to periodically review their performance Acceptable forms of Identification for Individual Remitters

For Private Individuals, our ID requirements are to obtain a certified copy of:

  • Photo ID document showing full name and date of birth, an acceptable document to verify this is a valid passport (Primary ID)
  • Utility bill, to verify the Remitters current residential address showing their name, the bill should not be more than 3 months old (Secondary ID)

10.1 Corporate Clients

ID checks are required to establish the legal existence of a company from official documents or sources to ensure that any person purporting to act on its behalf is fully authorised to do so. Identity of a corporate entity can comprise of, for example:

  • Print out from “Companies House” website – Memorandum of articles and association which includes the company registration number and full address
  • Primary and Secondary verification of all the Directors or Controlling Partners
  • Primary and Secondary verification of owners and shareholders (holding over 25%)
  • Information as to the nature of the normal business activities that the company expects to undertake. Measures should be taken by way of company search and/or other commercial enquiries to check that the applicant company has not been, or is not in the process of being, dissolved, struck off, wound up or terminated.

10.2 Public registered companies – UK or non-UK

Corporate clients that are quoted on a recognised stock exchange are considered to be publicly owned and generally accountable.

Consequently, there is no need to verify the identity of the individual shareholders. Similarly, it is not necessary to identify the Directors of a quoted company.

It is important to check that the Individuals have the authority to act for the company.

10.3 Privately owned companies

When the Remittance applicant is an unquoted UK company, the following documents should be obtained to verify the business:

  • Copy of the certificate of incorporation/certificate of trade or the equivalent
  • Evidence of the company’s registered address and the list of shareholders and directors  Print out of the company’s own webpage (if available)
  • Conduct KYB check on Credit Safe

The principal requirement when dealing with private companies is to look behind the corporate entity to
identify those who have ultimate control over the business and the company’s assets.

Particular attention should be paid to principal shareholders or others who inject a significant proportion of the capital or financial support.

11 Politically Exposed Persons (PEPs)

Individuals who have, or have had, a high political profile, or hold, or have held, public office, can pose a higher money laundering risk to Hirett Ltd as their position may make them vulnerable to corruption.

This risk also extends to members of their immediate families and known close associates. PEP status itself does not, of course, incriminate individuals or entities. It does, however, put the client, or the ultimate beneficial owner, into a higher risk category. A PEP is defined as “an individual who is or has, at any time in the preceding year, been entrusted with prominent public functions and an immediate family member, or a known close associate, of such a person”.

This definition only applies to those holding such a position in a state outside the UK, or in a Community institution or an international body.

This risk also extends to members of their immediate families and known close associates. PEP status itself does not, of course, incriminate individuals or entities.

It does, however, put the Remitter, or the beneficial owner, into a higher risk category. On a risk-sensitive basis we will:

  • Identify using our KYC process to identify whether a Remitter is a PEP
  • Within our KYC procedure we will gather, and record details related to their income
  • Obtain appropriate senior management approval prior to any Remittance being carried out by a PEP
  • Establish and record the source of the funds which are being used for the Remittance
  • Implement routine PEP checks of existing Remitters that may fall into this category at a later date  Maintain a PEP register for Remitters who fall into this category

12. Financial Sanctions Policy

As part of the AML procedure, we will check to ensure that Remitters are not on the Financial Sanctions register as published by HM Treasury from time to time.

Employees discuss any customer appraisal with the MLRO, if either the prospective customer or remitter or its assets originate from a “high risk country” or are present in the Financial Sanctions Register.

It is a criminal offence to make funds or financial services available to individuals or entities on the sanctions list.

We will complete checks on clients to ensure that they are not on the financial sanctions register

The obligations under the UK financial sanctions regime apply to all firms, further information can be found by contacting:
Asset Freezing Unit HM Treasury
1 Horse Guards Road London
TEL. 020 7270 5454 or email: AFU@hmtreasury.gsi.gov.uk

13 Employees Legal Responsibility and the Statutory Offences

Criminal law imposes a mandatory obligation on all management and staff within the regulated financial sector to report as soon as is practicable, where they have knowledge or suspicion of money laundering or where there are reasonable grounds to know or suspect that this is the case, and the information is gained within the course of their regulated business activities.

The Proceeds of Crime Act (2002) requires that persons within the financial sector must report their knowledge or suspicion to the MLRO.

The potential consequences for Hirett Ltd, its management, its employees and its clients are of a very serious nature, involving fines, imprisonment or both. Please note the following breaches:

13.1 Assisting

It is an offence for any person to provide assistance to a money launderer to obtain, conceal, retain, or invest funds if that person knows or suspects that the funds are the proceeds of serious criminal conduct (‘criminal conduct’ includes any conduct wherever it takes place, which would constitute a indictable offence if committed in the UK – i.e. an offence serious enough to be tried in a Crown Court).

This includes drug trafficking, terrorism, major thefts, fraud, robbery, forgery, counterfeiting, blackmail, extortion and fiscal offences.

Penalties can include a maximum of 14 years imprisonment or a fine or both.

13.2 Tipping off a Remitter

It is an offence for anyone to prejudice an investigation by informing the subject of a suspicion, or any third party, that a disclosure has been made or that the authorities are acting or proposing to act or investigate.

Penalties can include a maximum of 5 years imprisonment or a fine or both.

A tipping off offence cannot arise unless the person concerned knows or suspects that a suspicious transaction report has been made either internally, or to the National Crime Agency (NCA) or alternatively knows or suspects that the Police or HM Revenue & Customs are carrying out, or intending to carry out a money laundering investigation.

13.3 Failure to Report

It is an offence for any person who acquired knowledge or suspicion of money laundering in the course of their employment not to report the knowledge or suspicion as soon as practicable.

Penalties can include a maximum of 5 years imprisonment or a fine or both.

The Anti-Terrorism Crime and Security Act 2001 strengthens the test of disclosure in respect of terrorist funding from subjective to objective by making it an offence not to make such a report wherever information received in the course of business in the regulated sector provides “reasonable grounds” to suspect terrorist funding.

It should be noted that the requirement to report also covers situations when the business or transaction has been turned away, or has not been proceeded with, because the circumstances were suspicious.

13.4 Acquisition

This offence is committed where a person, who knows that any “property” is, or in whole or in part directly or indirectly represents another person’s proceeds of criminal activity, acquires or uses that property or has possession of it.

Penalties can include a maximum of 14 years imprisonment or a fine or both.

13.5 Concealing

This offence will be committed where a person disguises or conceals any “property” which, in whole or in part directly or indirectly represents proceeds of his own criminal activity or converts or transfers that property or removes it from the jurisdiction for the purpose of avoiding prosecution or the making or enforcement of a Confiscation Order.

In addition, this offence will be committed where a person knows, or has reasonable grounds to suspect, that any property, in whole or in part directly or indirectly, represents another person’s proceeds of criminal activity and conceals or disguises it or converts or transfers it and removes it from the jurisdiction for the purpose of assisting any person to avoid prosecution or making or enforcement of a Confiscation Order.

Penalties can include a maximum of 14 years imprisonment or a fine or both.

13.6 Non-compliance

If we have a weak or ineffective policies and procedures, then penalties can include a maximum of 2 years imprisonment or a fine or both.

13.7 What is meant by ‘reasonable grounds’ to suspect?

The Proceeds of Crime Act (2002) introduced criminal liability on firms for failing to gather enough information prior to a transaction.

Firms need to demonstrate that they have AML/CTF knowledge and took all reasonable steps in a particular circumstance to know the client and the rationale for the transaction or instruction.

13.8 Reporting

By making a report as soon as you know or suspect that a transaction involving Hirett Ltd or its customers may involve money laundering, you will comply with the legal requirement to report a suspicious transaction. Reports should be made direct to the MLRO using the Internal Report form.

If there is any doubt whether something is suspicious or not then it should be discussed with the MLRO.

The MLRO will, where appropriate, report the matter to either the National Crime Agency (NCA) for ML issues or the Asset Freezing Unit (AFU) if it is a financial sanction.

The MLRO will report back to the person making the report whether or not a report has been made to NCA/AFU.

This information should be kept strictly confidential and not disclosed to anyone else (whether another member of staff or otherwise).

14 AML Record Keeping

Where applicable the following records are retained in a log by MLRO for anti-money laundering purposes:

  • Identification of clients – full details of evidence of identity for 5 years from the end of the relationship
  • Transactions – client files containing the full details of the transaction for 5 years from the date the transaction was completed
  • Internal and external reporting – full details of action taken by MLRO for 5 years from the creation of the record
  • Information not acted upon – full details of the information considered by the MLRO, but not reported externally (i.e. to NCA) for 5 years from the date the information was obtained