Feb 19 2008 Helen O'Gorman
HM Treasury's Money Laundering Regulations 2007 require money services businesses to re-register their company with HM Revenue and Customs. They must also pass a "fit-and-proper" test that the regulator set and implement the anti-money laundering systems and controls required of all regulated firms. This should offer banks some comfort that prospective MSB clients are under supervision and legally required to follow the regulations, although commentators are not yet convinced that HMRC has consolidated its approach.
As the sector supervisor, HMRC has the task of monitoring its charges' progress in developing, implementing and maintaining AML systems and controls. How well it will perform this duty is the subject of some consternation in the sector, as Dominic Thorncroft, chairman of the UK Money Transfer Association, told Complinet.
Thorncroft noted: "There may be question marks as to how well assurance officers [who will visit and inspect firms] are up to date with the new requirements imposed by the 2007 Money Laundering Regulations and the EU Payments Regulation. This all creates problems around the 'level regulatory playing field'. Conscientious companies may have gone a long way by now to comply with the new law, but will HMRC officers be able to spot and penalise those companies which are not even attempting to comply?"
Sources told Complinet that HMRC has employed around 50 assurance officers to monitor individual money transfer companies in the UK. Approximately 4,200 MSBs, including 3,000 money transfer firms, were on HMRC's MSB register for MLR 2003, the department confirmed, although it remained tight-lipped about the number of AOs that were employed to supervise them.
"HMRC [is] deploying the appropriate number of fully trained staff to ensure the correct level of supervision of the Money Laundering Regulations," the department said in a written statement to Complinet.
Other practitioners think that HMRC is not handling its newfound responsibility well. During a meeting in London at the end of last year, the audience received mixed messages from HMRC on non-face-to-face identification and some struggled to comprehend the new obligations. Although there is a general acceptance that the regulator and the assurance officers are going through a process of learning about the regime with the MSBs, some feel the regulator should offer more help.
Sanctions
Since December 15, 2007, practitioners have been exposed to the risks of sanctions and penalties for not complying with the regulations in the form of unlimited fines imposed by HMRC. MSBs also had to re-register with HMRC by February 1 by completing and returning two forms with up-to-date information on the company. Any firm that had not sent both forms back by February 1, 2008, would lose its licence and risk operating illegally, HMRC stated in November.
"A high percentage of MSBs have re-registered with HMRC and we continue to contact those that have not re–registered," a spokeswoman for HMRC said this month.
Businesses have to make sure they are not dealing with someone on the list.
The UK sanctions list is managed by HM Treasury, and no longer by the Bank of England. HMT's guidance on the sanctions list is clear: it is a criminal offence to transact funds for an individual or firm found on the sanctions lists, regardless of the amount to be remitted. The most recent list, from January 31, is available on the Treasury web site.
Regulated firms must check HM Treasury's sanctions lists as part of their ongoing monitoring obligations. The Treasury has put guidance on sanctions and about the penalties on its web site. HMRC's guidance makes it clear that sanctions checks need to be applied but in the absence of clear guidance, some money transfer firms might have to check all transactions.
If firms correctly apply the risk-based approach, the cornerstone of the new regulations, and the sector-specific guidance, then they could justify a sanctions check for any amount.
Smaller firms should not be daunted by the sanctions checking requirements, Zia Ullah, a solicitor at Pannone law firm advised. "Businesses have to make sure they are not dealing with someone on the list. Most use software checking for this. Smaller firms can [use an] Excel format list and check it. Checking and e-checking can be done on a budget."
Retail banks
Some retail banks that have attempted to enter the MSB market and provided business services to firms have little understanding of what the MSBs want and can actually do. It is far from a trade secret that retail banks are reluctant to take on the business accounts of money services businesses. Despite moves by retail banks to talk to the 4,000 money transfer firms in Britain, the risks posed by the smaller practitioners are too large for most retail banks to accept their business.
"For example, if an MSB has customers who regularly send money to Afghanistan or Iran then the banks make it difficult for remitters," he continued. This can leave transfer firms out in the cold and without an account through which to send money. "Retail banks need to have realistic expectations of what they can provide," Thorncroft said.
Reputational risk deters retail banks from accepting business from money transfer firms. If the company has remitted money for a terrorist and the case is made public the bank it has accounts with could suffer some reputational damage. Although this could be unquantifiable — UK banks in the past have not lost significant amounts of business or clients if they have been linked to a crime or regulatory failure — retail banks are not welcoming remitters with open arms.
