Fighting money laundering in the UK and beyond
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Professional Insights

Fighting money laundering in the UK and beyond

Oct 19, 2022 · 4 min read

Management accountants play a key role in uncovering economic crime, which costs the U.K. at least £88 billion yearly.

London has long been an appealing destination for global elites with deep pockets. Since the 1980s, the United Kingdom’s relaxed regulations, world-renowned capital markets and thriving real estate market have created a welcoming environment for foreign investors.

While many elites want to invest their wealth legitimately, others have historically leveraged London’s financial ecosystem to conceal dirty money. Following the Soviet Union’s collapse, for example, Russian kleptocrats used ‘professional enablers’ in the U.K. to avoid taxes and acquire assets, according to the Chatham House. This is known as money laundering or making illegally gained funds appear legitimate or ‘clean’.

Financing criminal enterprises

Credas, an identity verification service, estimates that at least £88 billion is laundered through the U.K. yearly. Fraud and tax evasion are the most common source of criminal proceeds, along with bribery, cybercrime, human trafficking and illicit drugs.

Money laundering generally involves three steps:

  • Placing dirty money in a legitimate financial institution

  • Layering dirty money with proceeds from a legitimate business, which conceals its origins

  • Integrating the now cleansed money by withdrawing it for personal use

A joint report by the Treasury and Home Office cites Serious and Organised Crime (SOC) as the country’s top security threat. Money laundering bankrolls criminal enterprises, undermines governments, widens inequality and erodes public trust in financial institutions.

Despite recent attempts to crack down, dirty money continues to be funnelled through the U.K., accelerated, in part, by the COVID-19 pandemic. Unable to move cash effortlessly during lockdowns, criminals increasingly used cryptocurrency to facilitate money laundering and sell illegal goods online. According to the National Crime Agency (NCA), revenue from the dark web increased by about 14% in 2020.

Of course, London is not alone in the fight against illicit finance. The U.K. ranks second among money laundering hotspots, surpassed only by the United States. Troves of leaked documents, including the 2021 Pandora Papers and 2016 Panama Papers, have demonstrated that all economies, regardless of size or relative sophistication, are at risk for money laundering.

A history of light-touch regulation

Recognising the growing threat of money laundering, the U.K., part of the G–7, helped form the Financial Action Task Force (FATF) in 1989. The inter-governmental body was tasked with setting international standards to prevent organised crime, corruption and terrorism — which it continues to do today. Money laundering became criminalised in 1994 with the first Money Laundering Directive, which required financial institutions to verify the identity of new customers, among other practices.

Starting in the 1990s, the confluence of globalisation, light-touch regulation and the Soviet Union’s fall attracted thousands of kleptocrats to Britain and other jurisdictions. Notably, “golden visas” fast-tracked residency for applicants to the U.K. with at least £2 million in investment funds. Although the program ended in early 2022, half of the 12,000 visas issued were under investigation for possible security risks, according to the watchdog Spotlight on Corruption.

Notably, Parliament’s 2002 Proceeds of Crime Act (POCA) introduced the U.K.’s principal anti-money laundering framework and allowed for the confiscation of criminal assets. Unlike in the U.S. and much of Europe, this framework later provided law enforcement with greater flexibility, as virtually any offences related to “criminal property” count as money laundering. Since then, anyone who works in a regulated industry — such as banking, accounting, law and real estate — must submit a Suspicious Activity Report (SAR) if they suspect money laundering. New Money Laundering Regulations in 2007 and 2017 required higher levels of due diligence for politically exposed persons (PEPs), such as government officials and their families, who are more susceptible to bribery or corruption. Relevant businesses (such as accountants, financial institutions, lawyers and real estate professionals) must also appoint a Money Laundering Reporting Officer who becomes responsible for overseeing anti-money laundering (AML) policies and procedures and reporting suspicious activity.

According to the Chatham House, the current regulatory climate has created a risk-based system where the onus falls on private sector professionals and whistleblowers. Firms must establish internal controls and perform customer due diligence, a process that confirms a client’s identity and the origin of funds. One problem is that banks tend to overreport suspicious activity, resulting in a mounting backlog for understaffed government agencies. During 2019–20, the U.K. Financial Intelligence Unit received over 570,000 SARs, a 20% increase from the previous year.

Prevention and the way forward

The landscape shifted dramatically following the Russian invasion of Ukraine. In March 2022, Parliament rushed an economic crime bill to tackle corruption and money laundering. Key measures of the Act include increasing transparency into foreign investors who own U.K. property, expanding the use of Unexplained Wealth Orders (UWOs) that allow law enforcement to confiscate criminal assets and strengthening the government’s ability to impose fines and sanctions.

Management accountants, many of whom work at banks, are an integral part of the U.K.’s AML efforts. An internal auditor, for instance, is well-placed to uncover red flags while reviewing a company’s processes and controls. Common warning signs include secretive client behaviour, large cash transactions, third-party funding and businesses with complicated ownership structures.

CIMA® members, as gatekeepers for the financial system, are bound by rigorous ethical standards. Accountants must comply with AML requirements outlined in local regulations and the CIMA Code of Ethics, and pass a certification exam that covers identifying and addressing economic crime.

To help members comply with these obligations, the Association has developed several customisable resources:

In addition to guiding members, CIMA plays a significant role in fighting money laundering. Under U.K. law, CIMA supervises AML and counterterrorist financing regulations. All members in practice must comply with relevant U.K. laws (or the equivalent if practising abroad) and submit an annual AML return as part of their application and renewal process.

As co-chair of the Accountancy AML Supervisors’ Group, the Institute works closely with government agencies and professional bodies to identify emerging risks, such as countries subject to sanctions. Through this group, CIMA provides feedback on the U.K.’s forthcoming Economic Crime Plan, which outlines strategic priorities related to AML efforts. CIMA also responded to a government review of the current regulatory regime, advocating for tighter regulation of who can use the “accountant” title and “a more streamlined agency response to fighting financial crime and protecting victims”.

The U.K. government’s second economic crime bill will be heard in Parliament later this month. The Economic Crime and Corporate Transparency Bill will provide greater consumer protections, empower authorities to seize cryptocurrency assets and enable accountancy firms to share information more easily.

Through continued due diligence, compliance with standards and regular training, management accountants can be a key asset in the fight against money laundering.

Together, CIMA and the AICPA form the Association of International Certified Professional Accountants®. As the world’s most influential body of accountants, the Association also provides anti-money laundering and fraud resources to U.S. CPAs.

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