Comments from ACCA
Our interest in this area is based on the fact that we are a supervisory body under the Regulations and actively supervise the work of our practising members in the UK and around the world. By virtue of our ethical statement on money laundering matters, which forms part of our Members’ Handbook, all of our members in practice, wherever they are based, are expected to follow guidelines which are based on the FATF Recommendations.
We set out our comments on those consultation questions which are of most concern to us a supervisory body.
Q1. Should the existing criminal sanctions be wholly or partly repealed?
Removing the criminal penalties in the Regulations would no doubt be popular with many businesses and would be consistent with the Government’s present commitment to curtailing statutory burdens. But the provisions which have by now been in place for several years are well understood and have arguably had a galvanising effect on regulated businesses in terms of encouraging compliance. It could also be argued that they have served to reinforce those elements of the requirements which are subject to discretion, viz those which are covered expressly by the risk-based approach.
We would not agree that the existence of criminal sanctions necessarily mitigates against the adoption of a fully risk-based approach on the part of regulated entities. Under this approach, firms are expected to make a considered and informed assessment of what measures are likely to be appropriate in the light of the particular circumstances of a case, and to act on that assessment. The position is clear that, under the risk-based approach, proportionate controls are all that the law requires. If the circumstances warrant it, minimal compliance controls may be all that is necessary, while if firms consider that the most cost-effective approach for their purposes is to apply a standard range of controls in all cases they will be entitled to do that. It is also clear that the sanctions in the Regulations are to be applied in the light of an entity’s legitimate use of judgement and discretion as to what measures are appropriate in the circumstances of the case.
If the rationale for the proposed removal of criminal sanctions is that it would facilitate adoption of the risk-based approach, therefore, we do not believe that this is a step which is necessary to achieve the desired outcome. Rather, removal of the sanctions could be viewed by some as encouraging a more relaxed approach to compliance. Given the very wide range of entities which are now covered by the regulations, that consequence must be avoided. While we would not like to see any heavy-handed application of the penalties available under the current regime, we think that the sanctions continue to serve a useful regulatory purpose.
Q2. Should new powers be granted to supervisors allowing them to order or require actions by businesses to mitigate the potential negative impacts from the loss of criminal sanctions?
As stated above, we believe that the current regime of criminal sanctions should be retained.
Q3. Do you agree that the current distinction between Parts 1 and 2 of Schedule 3, eg for reliance purposes, should now be removed?
In principle, expanding the number of bodies whose members can lawfully be relied upon for CDD purposes must be welcomed. But since regulated entities remain ultimately responsible for ensuring that the checks are carried out, they will need to be reasonably confident that the members of those other bodies can be relied upon to have carried out the initial checks and that they are monitored with a view to ensuring that they do what they should. Before making the proposed extension, the Government will need to carry out its own investigations as to whether the members of Part 2 bodies have comparable levels of understanding of their AML responsibilities, and whether they are supervised to a comparable level, as members of Part bodies.
Q5. Should there be a general de minimis exclusion for very small businesses (eg those with below €15,000 turnover) or a reduction in the requirements placed on such businesses?
Regulatory burdens of all kinds always impact proportionately higher on small firms as opposed to large firms. A small regulated entity under the Money Laundering Regulations can, accordingly, expect to incur proportionately higher costs than a larger firm. It is reasonable to pose the question of whether the regulatory cost incurred by these firms is justified by reference to the value to wider society.
From the perspective of the integrity of the whole AML regime, however, the framework of controls is only as strong as its weak links, and it is by now well understood that criminals systematically seek to exploit such weak links wherever they can find them. If exception were made for entities with less than an arbitrary level of turnover, the prospect would arise of such firms being targeted by money launderers, and that would create its own problems for the firms concerned.
It would be advisable in our view to avoid creating a loophole of this kind and, instead, to focus attention on encouraging the understanding of and adoption by small firms of the risk-based approach in respect of CDD, ongoing monitoring and policies and procedures.
We would also query whether the exemption of small firms from the standard requirements would be consistent with the provisions of the Directive.
With regard to the proportionate application of the AML requirements to smaller firms, however, we would encourage the Government to consider whether there is scope to modify the current indiscriminate requirement for regulated entities to report suspicions under the Proceeds of Crime Act, bearing in mind the UK’s very broad definition of money laundering and the experience of SOCA and the law enforcement agencies of the intelligence value of disclosures which relate to comparatively trivial offences.