If your business is regulated by the Money Laundering Regulations you must assess the risk that it could be used for money laundering, including terrorist financing. By using what's known as a 'risk-based' approach, you can decide which areas of your business are at risk and put in place measures to prevent money laundering occurring.
This guide gives an overview of the risk-based approach and helps you to carry out a risk assessment of your business. It also outlines your day-to-day responsibilities under the Money Laundering Regulations.
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Businesses that are covered by the Money Laundering Regulations have to use a risk-based approach to prevent money laundering. This involves following a number of steps.
You have to:
By following the steps involved in the risk-based approach, you're able to decide on the most cost-effective way to control the risks of money laundering. This allows you to focus your efforts and resources where the risks are highest.
You can decide for yourself how to carry out your risk assessment. It might be quite simple or very sophisticated depending on:
When you assess the risks of money laundering that apply to your business you need to consider:
Your business might be at risk of money laundering from:
Customer behaviour that may indicate a potential risk includes:
The way customers present themselves and the source of their funds are key indicators of potential risk.
Through your risk based approach you should be able to show that you have taken all reasonable steps to satisfy yourself that the transaction is not suspicious, including, where appropriate, identifying the source of funds.
This is best done through independent documents or data provided by the customer, for example, a payslip or bank statement. The documentation required and the level of checks will depend on the risks to your business.
Where a person is sending money for someone else and information such as a wage slip or bank statement is not available you should consider obtaining and keeping a signed certificate/declaration by the customer about the source of funds – checked against a proof of ID document, such as a passport.
Example 1 - if a customer claims he is transmitting money on behalf of a group of friends you should consider writing down details of the names and addresses of the friends and the amounts to be transmitted.
Where you have to accept a declaration it is sensible to include details of something that can itself be checked. This could be contact details for each person named in the declaration, but every case will be different.
Example 2 - the customer claims the cash is from the sale of a car. You should include details of the car, its registration number and the date of sale. This will provide you with protection, as you will be able to show that you have undertaken sufficient checks and will allow law enforcement agencies who can use such details to follow up on transactions after the event if they need to.
The essential point is that the customer has provided you with information that can be checked. Whether you do any additional checks on that information will depend on your view of the risk.
HMRC expects that businesses should have an operating risk based system in place, which is fully documented. However, if a business does not apply its own risk based approach to 'source of funds' checks, then HMRC will expect the business to use the following approach in deciding if a transaction needs additional verification:
On payments below €15,000 you should seek evidence on the source of funds when:
By average transaction we mean the total value divided by the number of transactions over a given period. For your business we mean calculated by each branch (where your business has more than one premises including the premises of any agents who act on your behalf).
Example 3 - if you have transmitted £100,000 over 100 transactions in the given period then the average value of your transactions is £1,000, so you should check the source of funds on any cash transaction for £5,000 or more and any non cash transaction for £10,000 or more.
The length of time you use to decide the size of an average transaction for your business is not fixed, although we recommend it should be at least one month. Ideally, the average transaction value will relate to a single set of premises. If you have more than one set of premises within your registration you may decide to fix the transaction level either by individual location or by reference to all the transactions across the whole of your business, being aware of the transaction levels between different locations.
Where the number of transactions to be checked exceeds 5% of your total transactions, you may limit the source of funds checks to the top 5% of transactions by value.
Where funds have come from a bank account, you can take some re-assurance that the customer’s identity and personal details may have been checked by another regulated business in the UK or another country which is prepared to provide the customer with account facilities. However, you should not be satisfied just because the money has come from the customer’s bank account that the source of funds is lawful.
You should take a risk based approach, so that you are content with and establish how the money got into the bank and where the money came from, for example wages, a cheque from a family member, payment from the sale of personal items, etc. An indication of higher risk might be if funds in the bank account had been paid in cash only recently before the transaction. Just because the funds have been through a bank does not mean that you can always assume that you do not need to check the source for them, especially if they seem unusual.
Where you have any suspicion that the transaction relates to money laundering and/or terrorist financing you must send a suspicious activity report (SAR) to the Serious Organised Crime Agency (SOCA) and get consent from them to continue with the transaction. If your suspicion is raised after the transaction is completed you must send a SAR at the earliest opportunity. Reporting before or reporting after the event, are not equal options which businesses can choose between.
Depending on your business type there may be:
The types of risk you need to identify will depend on the nature of your business. For example, 'High Value Dealers' need to be aware of the risk associated with cash sales of high value goods that can be either:
You can find more guidance on carrying out your risk assessment in the following HM Revenue & Customs leaflets.
Once you've completed your risk assessment you need to: