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Managing the rules

11 May 2010 / Paul Harmsworth
Issue: 4254 / Categories: Comment & Analysis , money laundering
PAUL HARMSWORTH offers eight keys to successful compliance with the money laundering regulations


  • Duties of the money laundering reporting officer.
  • Check clients’ identity.
  • Risk assessment.
  • Maintain accurate records.

The Money Laundering Regulations 2007 came into force in December 2007 and tax advisers and accountants are among those who must comply with them. It may not be obvious what this entails, so the following points should help advisers understand what they should already have done.

1 Appoint a money laundering reporting officer (MLRO)

For most accountancy service providers, the MLRO will normally be the practice owner, a partner or possibly a responsible employee. The duties of the MLRO are fairly broad and there are some serious fines and/or imprisonment waiting for the MLRO who does not ensure that the practice complies with the remaining parts of the legislation.

2 Provide a statement and manual

The policy statement will outline the measures taken in your practice to comply with regulations and specifically detail the risk-based approach adopted by the practice.

The manual (as an alternative to providing a copy of the 115 page Consultative Committee of Accountancy Bodies guidance) will provide detailed compliance and reporting procedures, levels of exposure to risk and a confidential list of ‘high risk’ clients, all of which must be available for staff to access and also at the time of an inspection.

3 Provide appropriate training for the MLRO and other staff

Regular training and tests must be carried out with all staff who come into contact with clients; this includes anyone who may answer the telephone e.g. casual or temporary staff, spouses etc. Training records, together with proof that the MLRO and staff have understood the training, must be retained for five years.

4 Verify clients’ identity

Customer due diligence has two elements. The first, client identification, has been extended in scope from the previous money laundering regulations under which a passport and utility bill were generally considered to be satisfactory evidence.

With the increase in completing business arrangements at a distance plus the possibility of forging evidence, it is now incumbent upon practices to carry out more thorough checks. The solution is to obtain a report that includes the electronic footprint details of the client. This is much easier to obtain than copies of documents.

Furthermore, as it includes reference to various Government files as well as bank accounts, etc., it shows that the practice has undertaken enhanced customer due diligence which replaces the ‘know your customer’ requirements as far as money laundering is concerned. It is probably the only satisfactory method to check regularly high risk clients – and, yes, you will have some, however well you think you know them.

5 Assess the risk of your clients being involved in fraudulent activity

Customer due diligence includes every client who must be assessed for the risk that they may be involved in money laundering or indeed any offence under the Proceeds of Crime Act 2002 and the Fraud Act 2006.

Clients who are ‘politically exposed persons’ are automatically regarded as high risk; other examples include clients who have knowingly provided incomplete data to enable the correct calculation of tax.

If your main area of expertise is, say, bookkeeping, and a client asks you to complete annual accounts for a limited company then because of your experience, the client will also be high risk.

6 File reports with the Serious Organised Crime Agency (SOCA)

The MLRO is responsible for registering (which you do immediately if not already registered) and reporting suspicious activity and potential offences to SOCA.

7 Keep records of all the above

Records must be kept of service provision, customer due diligence, MLRO and staff training and all internal and SOCA reports.

8 Ensure the business is supervised

Any practice (including part-time) must be supervised to ensure compliance with the money laundering regulations. There are 22 professional organisations that provide supervision for their members and if you are not supervised by one of these then you must register with HMRC.

Not so short

These eight requirements are a brief summary of the Money Laundering Regulations 2007. Its very brevity contrasts with the effect that compliance will have on your practice.

Every MLRO will need help, and HM Treasury has approved the following guidance and compliance with the content of these is therefore obligatory:

  • HMRC’s document MLR8 Preventing money laundering and terrorist financing;
  • HMRC’s document MLR9 Registration notice;
  • The CCAB guidance ‘Anti-money laundering guidance for the accountancy sector’.

These documents can all be downloaded from HMRC’s website.

It has been estimated that the average increase in practice overheads in complying with the money laundering regulations is about 2% to 3% of turnover, which is particularly unwelcome news in the middle of a recession.

However, the regulations are here to stay and accountancy service providers ignore them at their peril.

Paul Harmsworth is a director of the Anti-Money Laundering Compliance Company.

Issue: 4254 / Categories: Comment & Analysis , money laundering
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