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7 AML problem areas identified by the 2022 Economic Crime report

The 2021-22 Economic Crime report delivered a sobering reality with a lot for the anti-money laundering (AML) industry to improve upon.

Napier AI
March 9, 2022

With the new economic crime bill pushed through recently, we took a look at the suggestions for improving the UK's effectiveness at combating economic crime, which were made by the Treasury Committee earlier this year.

The 2021-22 Economic Crime report, ordered by the House of Commons and conducted by the Treasury Committee, delivered a sobering reality with a lot for the anti-money laundering (AML) industry to improve upon.

While progress and efforts in tackling money laundering are acknowledged, and credit given when due, the resounding message is clear: there is still a lot to be done to tackle money laundering in the UK. Progress has been frustratingly, even inexplicably, slow and economic crime has continued on an upward trend as a result.

Here, we summarise 7 of the most pressing areas the Treasury Committee put forward as crucial to more effectively combating money laundering in the UK:

1. Law enforcement needs to level up

The Committee opened the report by setting a fairly damning scene: “economic crime seems not to be a priority for law enforcement”, and added that the UK’s response to the threat of money laundering “seems slow and inadequate given the scale of the threats it poses.”

There are signs that the UK’s AML regulatory and enforcement systems fall short of being robust enough. Three years ago, the Financial Action Task Force (FATF) found room for improvement in the FCA’s enforcement and compliance, and since then money laundering in the UK has grown.

Recommended action: The Government should consider a single law enforcement agency with clear responsibilities and objectives to fight economic crime. It must also ensure law enforcement agencies have enough resources to tackle the scale of money laundering in the UK.

2. Suspicious Activity Report (SARs) reform needs to happen

The much-needed SARs reform programme, which includes replacing IT, reviewing legislation and regulations, and increasing staffing in law enforcement and the UK Financial Intelligence Unit (UKFIU), is not yet complete. Moreover, exactly what the SARs reform programme has achieved so far, what is still to be done and when it is expected to end, is unclear.

Significantly, the Committee highlighted that the effectiveness of SARs may also be increased if banks can share information with the National Crime Agency and other law enforcement agencies, even before suspicion thresholds are reached.

Recommended action: The Committee called for a timeline showing when the milestones for the SARs reform programme are expected to be met, and an annual progress report on the programme. It also emphasises that law enforcement agencies must have the resources to tackle the criminal activity indicated by SARs.  

3. Cryptoassets should be regulated

Turning the spotlight on the Financial Conduct Authority (FCA), the Committee argued that it is unacceptable that so many cryptoasset firms remain unregistered in the UK. It emphasised how, despite the introduction of AML regulations in 2020, many of these firms have not even applied for registration, and that it is unclear what sanctions they face for not doing so.

Recommended action: The AML registration process has clearly been too slow; the Government and the FCA need to work together to speed it up. What’s more, the FCA should not exceed the deadline for registration beyond March 2022.

4. Office for Professional Body Anti-Money Laundering Supervision (OPBAS) is underperforming

The Committee has voiced serious concerns about the limited forward steps in compliance that OPBAS has so far achieved, reporting that OPBAS is “still encountering poor performance from a large proportion of the professional bodies it supervises”.

Recommended action: The Government review of the regulatory and supervisory regime for AML/CTF, expected to conclude by June 2022, should “not shy away from considering radical reforms, including a move away from the self-regulatory model and the creation of a new supervisory body, potentially independent of the FCA, which takes more direct responsibility for policing professional body compliance with anti-money laundering regulations”.

There also needs to be a plan to ramp up compliance amongst professional bodies. Additional resources, for example, would allow OPBAS to do more checks.

5. Companies House makes economic crime cheap and easy

While welcomed, the pace of change of the reform of Companies House is slow and remains incomplete, despite the problems with UK company structures being first identified by the Government in 2014.

The Government has not yet implemented reform of corporate criminal liability, and corporate criminals continue to be able to escape prosecution for economic crimes.

It’s significant that the low costs of company formation and other Companies House fees provide cheap and easy access to corporate structures to those who wish to abuse the system for criminal purposes.

Recommended action: The Committee urged that the Law Commission’s review of the law on corporate criminal liability needs to proceed speedily, and the Government needs to act quickly in bringing forward any legislation that follows.

Urgent reform of Companies House is also essential if UK companies are no longer to be used to launder money and conduct economic crime. This includes substantially increasing the costs of incorporation and reviewing other Companies House fees to bring them closer to international standards. Higher fees would deliver an additional benefit of increasing the funding available for the fight against economic crime.

6. HMRC needs to be more proactive

There are signs that HM Revenue and Customs (HMRC), which is responsible for AML supervision in risky sectors, such as Trust or Company Service Providers (TCSPs), could improve its supervisory performance. What’s more, the fact that HMRC’s self-assessment of its performance in supervising AML is not truly independent needs to be addressed.

Recommended action: The Committee suggested that HMRC should seek to be more proactive in preventing TCSPs facilitating the use of UK companies for money laundering. HMRC should further aim to significantly increase the numbers of SARs from TCSPs.

While gaining independent assurance about HMRC’s AML performance should be a priority, the Treasury’s review of the regulatory and supervisory regime for AML should also consider HMRC’s role as a supervisor.

7. Beneficial ownership of property and the Registration of Overseas Entities Bill need to be finally brought in

The Registration of Overseas Entities Bill is still awaiting introduction, more than five years after it was promised. The Committee made it clear how disappointing this is, “given that improving transparency of ownership of UK property is an important step that needs to be taken in order to improve defences against misuse of UK assets and companies by criminals and kleptocrats.”

Recommended action: The Government should include a Registration of Overseas Entities Bill in the Queen’s Speech for the next Parliamentary session.

While the Registration of Overseas Entities Bill is yet to be introduced, there has, however, been progress made towards greater transparency of UK property ownership with the recent introduction of the Economic Crime Bill. The Bill has been promised since 2016, but showed no signs of materialising until the Russian invasion of Ukraine, which put pressure on the government to push it through.

The new economic crime bill will:

  • Create a register of overseas ownership of UK land and property - with punishments for withholding details
  • Overhaul Unexplained Wealth Orders
  • Make it easier to prosecute anyone involved in sanctions-busting

You can read the Economic Crime report in its entirety here.

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