Money laundering is the process of disguising illegally obtained earnings to make them appear legitimate. In the UK, Anti-Money Laundering (AML) Regulations are in place to detect, prevent and prosecute these activities.
This is a global issue which undermines the economy, while often linking to:
- Drug trafficking
- Fraud
- Bribery
- Corruption
- Tax evasion
When criminals illicit funds through legitimate businesses, it distorts fair competition and enables further criminal activity. Even if a business becomes involved unknowingly, the consequences are severe which range from large fines to the loss of licences and even imprisonment.
Compliance with Anti-Money Laundering Regulations
Several sectors must absolutely follow the UK’s Anti-Money Laundering Regulations due to the nature of their transactions. These include:
- Banks and building societies
- Accountants, bookkeepers and auditors
- Estate and letting agents
- Solicitors and legal professionals
- Art dealers, auction houses and high-value or art-market participants, including antique traders where applicable
You must register with the appropriate supervisory authority if your business operates in any of these sectors, such as the Financial Conduct Authority (FCA) or HMRC. These regulatory bodies have wide-ranging powers to enforce compliance and also penalise violations. Therefore, choosing to ignore AML obligations can lead to:
- Substantial monetary penalties
- Criminal charges and prosecutions
- Imprisonment of up to 2 years for breaches of the Money Laundering Regulations
- Imprisonment of up to 14 years for money laundering offences
- Suspension or revocation of business licences
- Long-lasting damage to your firm’s reputation and client trust
So, to manage your AML compliance effectively, your business should:
- Conduct frequent risk assessments on clients and services
- Maintain detailed and secure records
- Provide continuous training for staff
- Review and improve AML procedures regularly
- Ensure proper registration with the relevant supervisory bodies
- Submit “Suspicious Activity Reports” (SARs) without delay when needed
Responsibilities under Anti-Money Laundering Regulations
To comply with Anti-Money Laundering Regulations, businesses must take the following actions:
1. Customer Due Diligence
Verify the identity of your customers using full names, addresses, dates of birth and official photo identification such as passports or driving licences. You must perform Customer Due Diligence in the following situations:
- When establishing a new business relationship
- For occasional transactions worth €15,000 or more (€10,000 for high-value dealers)
- When there is suspicion of money laundering or terrorist financing
- When previously gathered identification information is in doubt
You must perform Enhanced Due Diligence in the following high-risk situations:
- Customers not present during ID checks
- Politically Exposed Persons (PEPs)
- Customers from high-risk countries
- Transactions involving luxury goods, cultural artefacts or precious materials
In these cases, businesses must collect additional information and conduct deeper scrutiny.
2. Transaction Monitoring and Reporting Suspicious Activity
Regularly review transactions to ensure they align with expected behaviour and question anything unusual or inconsistent. Then report any suspicious transactions or behaviours promptly to the National Crime Agency (NCA).
3. Record Keeping and Employee Training
Retain identification documents and financial records for a minimum of 5 years from the end of the business relationship. Then erase or anonymise these documents once that period ends unless another law requires longer retention.
Also ensure all relevant staff receive regular training on identifying red flags and understanding their AML duties. Professional bodies such as the Association of Certified Anti-Money Laundering Specialists (ACAMS) and the International Compliance Association (ICA) provide resources and training courses.
AML Checks Accountants Must Complete
Accountants must perform Anti-Money Laundering checks. While every case differs, most clients will experience a similar process.
1. Customer Due Diligence
Accountants must also verify their client’s identity and control. This forms the foundation of AML compliance.
For individuals, accountants may request:
- Full legal name
- Date of birth
- Current residential address
- Photo ID (such as a passport or driving licence)
- Proof of address (such as a utility bill or bank statement)
For businesses, accountants may request:
- Company registration details
- Names of directors or partners
- Ownership and control information
- Details of authorised signatories
Accountants can only proceed once your identity is clear.
2. Beneficial Owner Checks
Criminals often hide behind complicated ownership structures. Therefore, accountants must identify beneficial owners. A beneficial owner usually:
- Owns a significant share of a business
- Controls decision-making
- Ultimately benefits from the activity
Accountants may also request ownership charts or shareholder registers. These checks help reveal who truly sits behind the business.
3. Knowledge of Business Relationship
Identity alone does not explain behaviour. Accountants must also understand purpose. They typically ask:
- Why the client requires services
- What the business does day to day
- Where funds originate
- What level of activity the client expects
4. Suspicious Activity Reports (SARs)
When suspicion arises, accountants must submit a report to the National Crime Agency. They must also avoid “tipping off”. This means they cannot alert a client to the report. This is a requirement by law.
Governing Legal Framework
The following laws form the backbone of the UK’s Anti-Money Laundering regime:
- The Proceeds of Crime Act 2002 which defines money laundering offences and outlines the penalties
- The Terrorism Act 2000 which focuses on preventing and punishing terrorist financing
- The Money Laundering Regulations 2017 which specifies operational requirements for businesses (Due diligence, risk assessment, etc)
Revisions in 2019 and 2020 expanded high-risk categories and altered thresholds for electronic money use. Businesses must therefore keep up with such updates to remain compliant.
Who needs to register for money laundering supervision – GOV.UK
Your responsibilities under money laundering supervision – GOV.UK
Risk assess your business for money laundering supervision – GOV.UK
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.