April 2016 is shaping up to be the month that just keeps on giving when it comes to new developments around financial secrecy and crime.
First we had the International Consortium of Investigative Journalists’ Panama Papers, sending out shock waves and triggering official responses round the world, and not just of the ministerial resignation variety, as in Iceland and Spain.
The New York Department of Financial Services has requested details from foreign banks mentioned in Panama Papers articles, UK financial regulator the Financial Conduct Authority has asked banks to check whether they have any links with Mossack Fonseca, the Panamanian law firm at the heart of the expose – which denies any wrongdoing – and the Organisation for Economic Co-operation and Development has hosted a meeting of senior tax officials from around the world to discuss enhancing ways to work together following the revelations.
Now the UK government has published, on 21 April 2016, the Action Plan for anti-money laundering and counter-terrorist finance (AML/CTF), which could herald some significant changes for the current regime, from potential new powers and legislation to shake-ups for suspicious activity reports (SARs) and AML/CTF supervision. Here’s a quick overview of some key points.
There’s some eye-catching ideas for potential legislative change in the action plan, including the possibility of introducing a power that obliges individuals or entities to reveal the sources of their wealth by serving them with an unexplained wealth order.
And if they don’t provide a satisfactory explanation? Then they won’t be off the hook because powers could also be introduced so that they forfeit the assets or even commit a criminal offence.
In the same legislative ballpark is the potential for a new offence of illicit enrichment, criminalised under the United Nations Convention against Corruption and defined as ‘a significant increase in the assets of a public official that he or she cannot reasonably explain in relation to his or her lawful income.’
A UN study in 2012, when 44 countries had criminalised illicit enrichment, said the offence generated debate and controversy but that it could also provide a ‘useful anticorruption and asset recovery tool’.
Also on the cards is enabling entities to be designated as of primary money laundering concern, which would mean banks and other firms taking special regulatory measures to protect themselves. The UK will be looking at the way the system works in the US where the action plan says it has been a powerful tool, able to effectively freeze those affected out of the international financial system.
Spotlight on SARs
Following a consultation on SARs in 2015, the action plan also has the regime in its sights, starting with looking at whether to scrap consent SARs, where organisations filing reports seek permission from the National Crime Agency (NCA) to carry out activities that could be a money laundering offence, giving them a defence. The plan says the regime is ‘inefficient’ and could be replaced by an intelligence-led approach. If it were to go, legal protections would be put in place for reporters to replace the existing statutory defence.
Other SARs-related measures include developing a replacement for the ageing SARs IT system that is currently in place and improving analysis of reports. Better information sharing and the upgraded JMLIT will also reinforce the regime, under which the NCA would be able to ‘oblige’ reporting bodies to give further information on SARs where necessary.
Shake-up for supervision?
As part of the action plan, the government is asking for views on shaking up the supervisory regime, identified in last year’s National Risk Assessment of Money Laundering and Terrorist Financing as having inconsistent effectiveness and being rather overcrowded, with 27 different supervisory bodies.
In a consultation that closes on 2 June, the government is looking for responses to more than 30 questions, ranging from whether smaller supervisors should pool AML/CTF resources and improving the ability of supervisors and law enforcement to share information and intelligence through to whether supervisors should be required to keep registers of supervised businesses or carry out thematic reviews of particular activities.
Of course, there’s also the big question – are there just too many players to deliver effective, consistent supervision? If there are, how could the number be slimmed down? And if the answer is yes, what would be the optimum number?
Clearly, some of the actions above are going to take time to implement – and, as can be the case when legislation is involved, some may be modified along the way – but there are others for filing under the quick wins heading.
One is to move the Joint Money Laundering Intelligence Taskforce Taskforce, or JMLIT – the body that brings together the financial sector and law enforcement agencies to share and analyse information – from a pilot to a permanent footing.
Given that since it was set up in February 2015, it has contributed to 11 arrests, the closure of 261 accounts thought to be linked to criminal activity and restraint of more than £550,000 in criminal funds, it certainly seems to be having an impact. This could well be enhanced further as the action plan calls for JMLIT to boost its membership with representatives from a broader range of banks and financial institutions.
The action plan wants to further boost JMLIT’s resources by creating a register of financial services firms’ specialisms, increasing its access to expertise around money laundering and terrorist financing typologies.
There are also actions around stepping up the UK’s international reach, including developing a new approach for co-operation between law enforcement and prosecutors in international corruption cases and working with overseas partners to develop their ability to tackle terrorist financing.
Reaction to the plan
Well, Transparency International UK is giving credit where it’s due. It says that parts of it are ‘bold and imaginative’ (like unexplained wealth orders, the illicit enrichment offence, supervisory reform) but is concerned about watering down of some of its most innovative ideas, saying: ‘The Plan would work best as a package, and chipping away at the package would risk substantially weakening the whole structure.’
It also points out that the plan fails to address continuing secrecy in the Overseas Territories and Crown Dependencies.
The Financial Action Task Force (FATF) is due to assess the UK around this time in 2018, so how far it has come in implementing the action plan by then will be a significant factor in the FATF evaluation. The financial crime experts at the Royal United Services Institute suggest that the government ‘has a lot to get right’ before the visit, which will reveal whether the plan ‘is more than just ambition’.
With the spotlight at home and internationally remaining firmly focused on issues around financial transparency and integrity, it’s crucial for professionals in AML, compliance and financial crime prevention to maintain and develop their knowledge, skills and expertise.
ICA offer a comprehensive range of qualifications in these fields around the world and hold regular open days for an insight into what we do and how it can benefit you. The next event will take place in Kuala Lumpur on 26 May and ICA have others scheduled in Hong Kong, Singapore, Guernsey, Jersey, London, Dublin, the Isle of Man and Spain over the coming months – click here to find out more and register your place.
To stay updated on the latest developments in governance,risk and compliance, anti money laundering and financial crime prevention, please follow us on either LinkedIn, Facebook and Twitter where you are guaranteed to be notified when our next blog post goes live!