Assessing the risk of money laundering in your business

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.

On this page:

The risk-based approach
How to carry out a risk assessment
What to do when you've carried out your risk assessment

The risk-based approach

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:

identify the money laundering risks that are relevant to your business
carry out a detailed risk assessment of your business, focusing on customer behaviour, delivery channels and so on
design and put in place controls to manage and reduce the impact of these risks
monitor the controls and improve their efficiency
keep records of what you did and why you did it

Advantages of the risk-based approach

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.

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How to carry out a risk assessment

You can decide for yourself how to carry out your risk assessment. It might be quite simple or very sophisticated depending on:

the size and structure of your business
the range of activities your business carries out and the nature of the products and services it supplies

When you assess the risks of money laundering that apply to your business you need to consider:

the types of customer you have
where you and your customers are based
your customers' behaviour
how customers come to your business
the products you sell or the services you offer
your delivery channels and payment processes, for example cash over the counter, cheques, electronic transfers or wire transfers
where your customers' funds come from or go to

What type of customers pose a risk?

Your business might be at risk of money laundering from:

new customers carrying out large, one-off transactions
a customer who's been introduced to you - because the person who introduced them to you may not have carried out 'due diligence' thoroughly
customers who aren't local to your business
customers involved in a business that handles large amounts of cash
businesses with a complicated ownership structure that could conceal underlying beneficiaries
a customer - or group of customers - who makes regular transactions with the same individual or group of individuals

What type of customer behaviour might suggest a risk?

Customer behaviour that may indicate a potential risk includes:

not wanting to give you identification, or giving you identification that isn't satisfactory
not wanting to reveal the name of a person they represent
agreeing to bear very high or uncommercial penalties or charges
entering into transactions that don't make commercial sense
being involved in transactions where you can't easily check where funds have come from

What risks are associated with your products and services?

Depending on your business type there may be:

a risk that inappropriate assets could be placed in your business, or moved from or through it
a risk from a product or service which allows the ownership of assets to be disguised
a risk when you supply services without meeting your customer face to face

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:

resold through the black market - these are generally luxury items
returned to the retailer in exchange for a legitimate cheque from them

You can find more guidance on carrying out your risk assessment in the HM Revenue & Customs leaflet MLR8, 'Preventing money laundering and terrorist financing'. Appendix 3 includes a risk assessment template and Appendices 6-10 give further information for certain types of business.

Download MLR8, 'Preventing money laundering and terrorist financing' (PDF 653K)

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What to do when you've carried out your risk assessment

Once you've completed your risk assessment you need to:

put in place controls and systems to reduce any risks of money laundering that you identified
monitor your business on an ongoing basis to make sure your controls are effective
identify and report any suspicious transactions or activities

Your everyday responsibilities under Money Laundering Regulations

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