UK Government publishes updated National Risk Assessment of Money Laundering and Terrorist Financing
11 January 2021
On 17 December 2020, HM Treasury and the Home Office published the 2020 UK National Risk Assessment (“NRA”) of Money Laundering and Terrorist Financing. This is the UK’s third National Risk Assessment and a key component in its ongoing commitment to combat economic crime. Since the previous NRA in 2017, the Financial Action Task Force (“FATF”) found the UK to have a robust understanding of its money laundering and terrorist financing risks. The NRA acknowledges that although the UK’s knowledge of the money laundering and terrorist financing risks has improved greatly since 2017 and has in turn led to a strengthened approach, the Government has not yet seen sufficient evidence to support a reduction of risk in any sector. Nevertheless, the Government remains hopeful that continued improvements and reform programs, such as those in respect of Companies House and the Suspicious Activity Reporting (“SAR”) regime, should drive a reduction in risks.
- The NRA found that new methods continue to emerge within the typical high risk areas of money laundering (including financial services, money service businesses, and cash). Ever developing financial technology firms provide criminals with new opportunities and methods. For example, as online banking continues to advance, criminals can increasingly take advantage of the growth of faster customer on-boarding, an increase in the outsourcing of CDD to non-UK companies unfamiliar with the UK risk landscape, greater reliance on technology, and less face-to-face interaction
- The assessment found that, alongside the continued abuse of legitimate UK services, there has been an increase in the abuse of cash-related services, such as cash deposit services in Post Offices, and the use of cash couriers and cash & valuables in transit companies
- Since the 2017 NRA, the development of the cryptoassets has increased both money laundering, and terrorist financing risks from low, to medium. The Government attributes the increased risk to the continued evolution and development of the cryptoasset ecosystem which over the last 3 years has allowed criminals to increasingly use and incorporate them. This increase in risk resulted in and was reflected by the transposition of the Fifth EU Anti-Money Laundering Directive (“5MLD”) into the Money Laundering and Terrorist Financing (Amendment) Regulations 2019
- The NRA notes that UK property purchases remain an attractive method to launder illicit funds due to the large amounts that can be moved and the low levels of transparency of ownership or source of funds, particularly when complex corporate structures are involved. Due to the increase in activity since 2017, the risk of money laundering within the property sector has increased from medium to high risk
- Art Market Participants (“AMPs”) are a newly regulated sector and therefore are, for the first time, separately assessed within the 2020 NRA. The Government notes that ability to conceal the beneficial owners and final destination of art, as well as the wide-ranging values involved, the size of the market and the international nature of the market make it attractive for money laundering. The money laundering risk of the AMP sector has therefore been assessed as high
- Recent developments have enhanced the understanding of the risks that professional services carry for criminals to use legitimate layers within complex corporate structures to disguise the origin of illicit funds. In particular, the risks associated with Trust and Company Service Providers (“TCSPs”) have risen from medium in 2017, to high in 2020. This is due to TCSPs offering services which can enhance the attractiveness of companies and partnerships to criminals, without fully understanding the risk involved, for example increasing anonymity or creating complex structures, or the sale of ‘shelf’ companies
- The terrorist financing threat continues to involve the raising of low level funds, the majority of which are collected through legitimate means such as salaries and benefits, by UK individuals to fund lifestyle and low sophistication attacks. A small growth in additional methods including cryptoassets has been identified
- The impact of COVID-19 saw spikes in virtual money movements through remote transactions, online commerce, payments, and transfers to different regions. These spikes are attractive for criminals to disguise movements of cash-based criminal activity online. Additionally, increases in mobile banking, e-payments and cash stockpiling linked to suspicious activity by OCGs have been observed. Travel restrictions have affected traditional methods to verify customer’s identity and to carry out face-to-face customer due diligence (“CDD”). This is likely to further accelerate the shift towards greater online customer interactions that was already taking place across all sectors.
What does this mean for you?
Your own firm’s risk management framework should be considered in light of the findings and changes within the latest NRA. For example, you should consider:
- Whether your customer risk assessment methodology needs to be updated to take account of changes to the inherent money laundering and terrorist financing risks of certain sectors, or the addition of new sectors (such as AMPs)
- Whether the changes to the money laundering and terrorist financing risks of certain sectors mean that the inherent risk of any of your customers has changed. If so,
- is a trigger-event review of the due diligence information held on such customers required
- are such customers still within the Firm’s overall risk appetite and tolerance; and
- How you should incorporate the findings of the 2020 NRA into your own business-wide money laundering and terrorist financing risk assessment.
How can we help?
BDO’s Economic Crime Advisory team work in close partnership with clients, obtaining a deep understanding of their business and the specific environment they operate in. We act as a strategic partner, providing clear advice which is both balanced and constructive. We have experience in reviewing and helping firm’s to enhance their risk management frameworks, including business wide risk assessments, customer risk assessments, and risk appetite statements. Therefore, please do not hesitate to contact a member of the BDO Economic Crime Advisory team if you have any questions.