The Fourth EU Money Laundering Directive (4MLD) requires Firms to have a more robust risk based approach to the prevention of Money Laundering and terrorist Financing.
Working alongside your internal compliance resource we can provide:
- Assistance in establishing anti-money-laundering procedures in compliance with the Money Laundering Regulations, 4MLD, BBA guidelines and FCA regulations.
- Written risk assessment – a new requirement (4MLD) placed on Firms to take appropriate steps to identify and assess potential risks.
- In-house training for all relevant permanent and temporary staff.
- One on one training for Money Laundering Reporting Officers (CF11).
- Guidance and support on Sanctions checking – CDD and EDD.
- Drafting of annual Money Laundering Report to the Board.
- Dealing with Hits – Suspicious Activity Reporting (SAR).
Please contact us for further assistance.
The rules set out in the FCA Money Laundering Sourcebook and The Money Laundering Regulations 2007 do not apply to insurance intermediaries. It is however required by law to comply with The Proceeds of Crime Act 2002 (POCA) and The Terrorism Act 2000 (TA). It is also compulsory under SYSC 6.1 to establish and maintain effective systems and controls that counter the risk that a firm might be used to further financial crime. There are three primary offences under POCA and they apply to all insurers and intermediaries, including those involved in general insurance business.
Where someone knows or suspects that property is a benefit from criminal conduct or it represents such a benefit (in whole or in part, directly or indirectly), then they commit an offence if they conceal, disguise, convert, transfer or remove that criminal property from England and Wales, Scotland or Northern Ireland.
2. Arranging (s.328)
An offence is committed by a person if they enter into or become concerned in an arrangement, which they know or suspect, facilitates (by whatever means), the acquisition, retention, use or control of criminal property by or on behalf of another person.
3. Acquisition, use and possession (s.329)
An offence is committed if someone, knowing or suspecting that property is a person’s benefit from criminal conduct (in whole or in part, directly or indirectly), acquires, uses or has possession of the property.
Although general insurance intermediaries are not subject to the Money Laundering Regulations 2007, the primary money laundering offences and tipping off offence still apply to all individuals and businesses. If a person knows or suspects that one of the above primary offences is happening and does not make a proper disclosure they will not be able to rely upon their “unregulated status” as a Defence in a Court of Law, if they are charged with a primary offence.
It is therefore, recommended that all firms make an authorised disclosure to the National Crime Agency, which assumed responsibility for such disclosures from the Serious Organised Crime Agency in October 2013. Disclosure is made through Suspicious Activity Reports (SARs) that may be logged both manually and online.
NCA will analyse any report it receives and check it against its database for possible related information, prior to passing details on for investigation. The information is then forwarded to the Police or to Customs or another appropriate agency.
If a firm makes an authorised disclosure in relation to a suspicious transaction that has not yet been carried out, then the firm should obtain consent to proceed with the transaction from NCA. Firms should only proceed with a transaction where disclosure has been made to the NCA and:
- NCA consent has been obtained; or
- seven working days have expired without a response being received from NCA; or
- consent was refused by NCA but a thirty one day period has expired without notification that law enforcement has taken further action to restrain the transaction.
The receipt of a suspicious report will be acknowledged by NCA and in the absence of any instruction to the contrary, a firm will be free to operate the customer’s account under normal commercial considerations. This acknowledgement however, does not indicate that the suspicion has been investigated or that it is unfounded.
If the enquiries uncover a crime, the investigation will serve a Court Order on the firm to provide the records needed as evidence. NCA will make their own discreet enquiries and their investigation will be confidential. A firm cannot be sued for breach of confidentiality for making a report to NCA.
Where NCA give consent following a disclosure, this provides the staff involved with a defence against a charge of money laundering. It is not intended to over-ride normal commercial judgement and a firm is not committed to continuing the relationship with the customer if such action would place the reporting firm at commercial risk. However, before terminating a relationship the firm should liaise with NCA or the investigating officer to ensure they do not inadvertently “tip off” the customer or prejudice the investigation.
A person guilty of the offence of failure to disclose is liable to a fine or to imprisonment or both. They could also be found guilty of money laundering itself, which has a maximum imprisonment of fourteen years.
It is an offence for any person if they know or suspect a disclosure has been made, to take any action likely to prejudice the investigation, such as “tipping off”.
Recognising suspicious transactions
Firms need to be able to recognise and report suspicious transactions. A person who considers a transaction to be suspicious would not be expected to know the exact nature of the criminal offence or that funds are definitely arising from the crime.
A firm’s knowledge of their customers should help them to decide, taking into account what they know about them and their background, whether the transaction is something unexpected or unusual. This in itself does not necessarily mean it is suspicious, if there is a legitimate explanation.
Examples of factors which may give rise to suspicion:
- A new corporate/trust client where there are difficulties and delays encountered in obtaining copies of accounts or other documents of incorporation, where required.
- A personal lines customer for whom verification of identity proves unusually difficult or who is reluctant to give full details.
- A client using numerous offshore accounts, companies/structures, in circumstances where the client’s needs do not support such economic requirements.
- Any transaction using an undisclosed third party.
- A client who does seem interested in the performance or terms of the contract, but is more interested in early cancellation of the contract.
- Transactions that have no apparent purpose and make no obvious economic sense.
- A request to insure goods in transit to or situated in countries where terrorism, the production of drugs, drug trafficking or organised crime may be prevalent.
- Payment of very large premiums with cash.
- Client purchases a policy which is considered beyond his apparent means.
- Over payment of a premium with a request to pay the excess to a third party.
- Payment in cash when the business transaction would typically be made by cheque, direct debit mandate (DDM) or credit card.
- A client who has always paid by cheque, credit card or DDM suddenly offering payment by cash.
- Unemployed or low paid customers arranging insurances with substantial premiums.
- Assignment of a policy to an unrelated third party.
- Early cancellation of policies in circumstances which generate a large return premium, particularly where they appear unusual or occur for no apparent reason.
- Cancellation and request for the refund to be paid to a third party, especially where cash was tendered.
- Customers who regularly insure against a common risk and make a number of small claims.
- Cancellation of a number of policies taken out by an insured, especially where the premium refund is made to a third party.
- Customers who make a practice of early cancellation.
- Claims paid to persons other than the insured.
- Change of ownership on a policy just before a loss occurring.
In addition to the above, firms should also be able to recognise and report any matters concerning employee fraud.