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MONEY LAUNDERING – GUIDANCE FOR MEMBERSBack

MoneyBusinesses are subject to a number of restrictions when taking cash for payment for goods and services. This is due to Money Laundering Regulations that have been enacted both in the UK and Europe as part of a series of measure to prevent crime and terrorism. The regulations particularly affect businesses that deal in high value goods such as Auctions and Vehicle dealers as these are particularly at risk from money laundering by criminals. Below we detail out the legislation and how businesses can be compliant, however businesses can avoid being caught by the legislation of they avoid taking large sums of cash in payment.

Legislation

Currently UK law reflects the EC Third Money Laundering Directive and can be found in the following:

• The Money Laundering Regulation 2007.
• The Proceeds of Crime Act (POCA) 2002 Part 7.
• The Terrorism Act 2000 (as amended by the Anti-terrorism Crime and Security Act 2001).
• The Counter Terrorism Act 2008.

High Value Payments

Businesses who want to take a High Value Payment (HVP) and are classified as High Value Dealers (HVD) need to be registered with a regulator or HMRC.

A high value payment is classified as:

• A single payment of €15,000 or more euros.
• A series of cash payments totalling €15,000 plus.
• Cash paid by a customer into a business’s account that total €15,000 in any 90 day period.
• Cash payments totalling €15,000 or more which appear to be broken down into small amounts to come below HVP limit.

High Value Dealers

A high value dealer is a business prepared to take high value payments and deals in high value goods such as cars. Therefore vehicle dealers and motor auctions are caught by the rules.

Registration as a High Value Dealer

High value dealers need to register with an authority. If a business is authorised by the Financial Conduct Authority then your registration will be with them. Other businesses will need to register with HMRC. In both cases there will be fees to pay and you will be expected to undertake a number of obligations.

Obligations Under Money Laundering Regulation

If a business is registered as a High Value Dealer there are a number requirements placed on them by law. This includes:

• Customer Due Diligence – A requirement to identify who a customer is, usually by checking photo identification such as a passport in conjunction with utility bills or other official documents. HMRC also advise credit reference checks. In certain circumstances the ‘beneficial owner’ of a good needs to be established. This would be the case if a third part is selling the good for someone else. Due diligence needs to be done when establishing a business relationship and at regular intervals for existing customers.

In some circumstances due diligence checks may need to be enhanced. This is particularly the case if the customer is not physically present.

Internal Controls – A business must ensure adequate internal controls and monitoring systems for cash transactions. This is to be able to alert the business of any potential issues such as criminals trying to use the business for laundering money. Controls should include:

– Appointing a ‘nominated officer’ and ensuring employees know who this is in order to report suspicious activity.
– Ensuring senior managers know their responsibilities under money laundering regulations and are briefed regularly about money laundering risks.
– Training relevant employees on their anti-money laundering responsibilities.
– Introducing measures to make sure the risk of money laundering is taken into account in the day-to-day running of your business.

Policy Statement – A registered business needs to have a policy statement. This is a document that details a business’s anti-money laundering policies and procedures and should include:

o Details of the business’s approach to money laundering including named individuals and their responsibilities.
o Details of procedures to identify and verify customers including due diligence measures and monitoring checks.
o A commitment to training staff so they are aware of their responsibilities.
o A summary of monitoring controls in place to ensure policies and procedures are carried out.
o Recognition of importance of staff promptly reporting any suspicious activity to the nominated officer.

Record Keeping Requirement – Records must be kept of all customer due diligence measures that are carried out. This is important to show that the business is complying with the Money Laundering Regulations. Records that should be kept are:

o Daily transaction records.
o Receipts.
o Cheques.
o Paying in books.
o Customer correspondence.

These can be kept in a variety of formats including originals, photocopies, microfiche, scanned or electronic/computerised.

Records must be kept for 5 years from the date a business relationship ends and data transaction is completed.

Penalties for Non-Compliance

If a business does not comply with the regulations they will be subjected to onerous penalties. These penalties start at £5000 but can be substantially higher. Also in some circumstances a business and it directors could face criminal charges.

Do Dealers and Auctions have to be Registered as High Value Dealers

Dealers and auctions can avoid being registered by not taking large cash amounts. Providing a business only takes cash for payment of under €15,000 (approx. £9,000) then there is no need to register. Payment received may be a single transaction or made up of several.

It is not uncommon for businesses to set up cash limits for customer payments in cash. Payments above this limit would then be taken by cheque, debit/credit card or electronic payment.

However, even if a dealer or auction decides not to take large sums of cash, it is still important to be aware of the Money Laundering Regulations and regularly monitor your business to manage risks in this area.

The RMI advised when the rules were brought in during 2003 that members considered the payment methods they accepted and where possible reduce the amount of cash they were taking. Since then many members have put in cash limits which allow them not to register as high value dealers.

What Next?

There is a new Money Laundering Directive (4th) which came into force in June 2015. This will need to be transposed into Member State law including the UK within 2 years. The new Directives makes a number of changes:

• Cash limits to be reduced to €10,000 for both single and linked transactions.
• New customer diligence checking requirements and reporting obligations.
• Businesses will be required to keep detailed records of payments and instigate internal controls to combat money laundering and illegal activity.
• Financial penalties will be increased with a ceiling of £5 million or 10% of turnover.

We are currently awaiting the UK’s proposals and are expecting a consultation in due course laying out how they intend to implement.

For more information

Please contact us on 01788 538336 or via our website www.nfda-uk.co.uk

In addition the HMRC website www.HMRC.gov.uk and the FCA website www.fca.org.uk has detailed guidance on money laundering.

Posted by Sue Robinson on 24/07/2015