Money Laundering

Money Laundering, we have all heard about it, but do we all understand the ramifications of it and how, as a company, we should be dealing with our customers whilst  keeping on the right side of the HMRC.
Are you a “High Value Dealer” ?

So, what is a High Value Dealer?

A High Value Dealer (HVD) is any business prepared to accept high value
payments. A high value payment (HVP) is a payment of at least €15,000 (or
equivalent in any currency, at the time of going to print approximately £12,000) in cash for goods, whether it be in a single transaction or in several instalments. It should be noted that an individual company could chose to agree a lower figure with HMRC although this of course would cause more cases to be reported.

Examples of HVDs may include auctioneers, car dealers, jewellers, antique dealers etc.
If you intend to accept such payments (this includes circumstances where
your customer deposits cash directly into your bank account), then you will
need to register as such with HMRC. You must not carry on business as a HVD unless you are included on their register.
If you do not intend to accept HVPs, you should consider having a written policy to that effect and ensure that your employees are aware of this policy.

If your business is regulated by the Money Laundering Regulations you have certain day-to-day responsibilities. These include carrying out 'customer due diligence' measures to check that your customers are who they say they are.
You must also put in place internal controls and monitoring systems. The nature of these controls will depend on the size and complexity of your business, including the number of customers you have and the number and type of products and services you provide.

Customer due diligence means taking steps to identify your customers and checking they are who they say they are. In practice this means obtaining the following from a customer:

Their name.
Their photograph on an official document which confirms their identity.
Their residential address or date of birth.

The best way to do this is to ask for a government issued document like a passport, along with utility bills, bank statements and other official documents. Other sources of customer information include the electoral register and information held by credit reference agencies such as Experian and Equifax.
In situations where it's relevant, you also need to identify the 'beneficial owner'. This may be because someone else is acting on behalf of another person in a particular transaction. Or it may be because you need to establish the ownership structure of a company, partnership or trust.
As a general rule, the beneficial owner is the person who's behind the customer and who owns or controls the customer. Or it's the person on whose behalf a transaction or activity is carried out.
If you have doubts about a customer's identity, you mustn't continue to deal with them until you're sure.

You must apply customer due diligence measures:

When you establish a business relationship.
When you carry out an 'occasional transaction' worth 15,000 euros or more.
When you suspect money laundering or terrorist financing.
When you have doubts about a customer's identification information that you obtained previously.
As and when it's necessary for existing customers - for example if their circumstances change.
Even if the amount to be paid in cash is beneath the threshold but you are suspicious of the customer then due diligence must apply.

A business relationship is one that you enter into with a customer where you both expect that the relationship will be ongoing. It can be a formal or an informal arrangement.
When you establish a new business relationship you need to obtain information on:

The purpose of the relationship
The intended nature of the relationship - for example where funds will come from, the purpose of transactions, and so on.
The type of information that you need to obtain may include:
Details of your customer's business or employment.
The source and origin of funds that your customer will be using in the relationship.
Copies of recent and current financial statements.
Details of the relationships between signatories and any underlying beneficial owners.
The expected level and type of activity that will take place in your relationship.

You need to keep up-to-date information on your customers so that you can:

Amend your risk assessment of a particular customer if their circumstances change.
Carry out further due diligence measures if necessary.
Changes of circumstance may include:
A big change in the level or type of business activity.
A change in the ownership structure of a business.

You must carry out customer due diligence measures when your business carries out occasional transactions. These are transactions where the value is 15,000 euros (or the equivalent in sterling) or more, that aren't carried out within an ongoing business relationship. This applies whether it's a single transaction or a linked transaction.
Linked transactions are individual transactions of 15,000 euros or more that have been deliberately broken down into separate, smaller transactions to avoid customer due diligence checks. Your business must have systems in place to detect potentially linked transactions.
Once a potentially linked transaction has been identified, you need to decide if it has been deliberately split. Some issues to consider are:
Whether a number of transactions have been made by the same customer in a short period of time.
Whether it's possible that a number of customers have carried out transactions on behalf of the same person.
Whether a number of customers have sent money transfers to the same person.
In certain circumstances, you also have to carry out customer due diligence measures for occasional transactions that are worth less than 15,000 euros. For example, you must do this when the nature of a transaction means that there's a higher risk of money laundering.

In some situations you must carry out 'enhanced due diligence'. These situations are:

When the customer isn't physically present when you carry out identification checks.
Any other situation where there's a higher risk of money laundering.
The enhanced due diligence measures for customers who aren't physically present and other higher risk situations are broadly the same and include:

Obtaining further information to establish the customer's identity.
Applying extra measures to check documents supplied by a credit or financial institution.
Making sure that the first payment is made from an account that was opened with a credit institution in the customer's name.
Finding out where funds have come from and what the purpose of the transaction is. (higher risk situations only)
Carrying out stricter ongoing monitoring of the business relationship.

You must make sure that your business has adequate internal controls and monitoring systems. These should alert you and other relevant people in your business if criminals try to use your business for money laundering. Once you've been made aware of a potential threat, you can take steps to prevent it and report any suspicious activity.
Your controls should include:

Appointing a 'nominated officer' and making sure that employees know to report any suspicious activity to them.
Identifying the responsibilities of senior managers and providing them with regular information on money laundering risks.
Training relevant employees on their anti-money laundering responsibilities.
Documenting your anti-money laundering policies and procedures.
Introducing measures to make sure that the risk of money laundering is taken into account in the day-to-day running of your business.

And finally, under no circumstances should a company accept a cash transaction from anyone that appears on the “sanctions list” on the HMRC website.

Completing a policy statement for your business

A policy statement is a document that includes your anti-money laundering policy and the procedures your business will take to prevent money laundering. The document provides a framework for how your business will deal with the threat of money laundering. It should name relevant individuals and set out their responsibilities. Even if your business is small, it's a useful tool for focusing your mind and those of your employees, if you have them, to make them constantly aware of the risks.
What should a policy statement include?
The exact contents of your policy statement will depend on the nature of your business. But it's likely to include:
Details of your approach to preventing money laundering, including named individuals and their responsibilities
Details of your procedures for identifying and verifying customers, and your customer due diligence measures and monitoring checks
A commitment to training employees so they're aware of their responsibilities
A summary of the monitoring controls that are in place to make sure your policies and procedures are being carried out.
Recognition of the importance of staff promptly reporting any suspicious activity to the nominated officer.

It's very important that you keep a record of all customer due diligence measures that you carry out, including customer identification documents that you've obtained. By keeping comprehensive records you'll be able to show that your business has complied with the Money Laundering Regulations. This is crucial to protect your business if there's an investigation into one of your customers.
The types of record you keep may include:

Daily records of transactions.
Receipts.
Cheques.
Paying-in books.
Customer correspondence.

You can keep your records in any of the following formats:

Originals.
Photocopies.
Microfiche.
Scanned.
Computerised or electronic.

You must keep your records for five years beginning on either:

The date a business relationship ends.
The date a transaction is completed.

This all looks like a major task, however compared to an investigation into one of your customers and all of the problems that this will entail it makes the task pale into insignificance.