The Financial Action Task Force (FATF) released its 2018 Mutual Evaluation report on the UK’s anti-money laundering and counter terrorist financing (AML/CTF) measures in December.
The report is a positive outcome for the UK, with FATF describing the UK as having a robust understanding of our money laundering and terrorist financing risks and a leading role in promoting globally effective AML/CTF regimes.
The UK’s scores compare well with those of other countries on investigations, prosecutions, the imposition of sanctions for terrorism financing, understanding of risk and corporate transparency.
Key highlights are:
- the legal framework used to conduct customer due diligence (CDD) is comprehensive, applies to all regulated entities and is in line with FATF requirements
- the UK is a global leader in promoting corporate transparency and understands the potential money laundering risks posed by legal persons and arrangements
- the implementation of targeted financial sanctions which relate to terrorism and proliferation and those which protect the non-profit sector from terrorist abuse is a of a high standard
- outreach activities by AML supervisors are strong. Legal and accountancy professional body supervisors have seen a positive impact on members’ compliance with AML/CFT requirements and have identified a sharp decrease in the amount of repeat offences
- annually, the UK achieves 7900 investigations, 2000 prosecutions and 1400 convictions for money laundering offences or where money laundering is the principle offence
FATF have stated that the UK’s Financial Intelligence Unit (UKFIU) is in need of more human and technological resources due to growing number of suspicious activity reports (SARs) - currently around 400,000 a year from all reporting sectors. UKFIU’s capacity to analyse them needs to be improved.
In issuing this recommendation, FATF did not take into account possible future changes that are already being considered to the regime.
Reform of the SARs regime is already under way, with the Law Commission having issued a consultation last year on changing the legal framework contained in the Proceeds of Crime Act 2002. It is due to issue findings in March.
The government is also working with the private sector to develop a new IT system which could be used to improve the process for submitting SARs. But an increase in the speed at which these changes are being considered would be welcome.
FATF have also picked up on inconsistent supervisory standards in AML supervision. The launch of the Office of Professional Body AML Supervision in January 2018 happened too late to be taken into account by FATF, and the UK continues to build high standards across the 22 accountancy, legal and other sector supervisors listed in Schedule 1 to the Money Laundering Regulations 2017.
FATF want to see consistency in ML/TF risk understanding by the regulated population, a risk-based approach to supervision and the implementation of effective and dissuasive sanctions where necessary.
The FATF process for the UK is not over. Two more reviews are expected within the next five years - a technical compliance review in 2021 and an effectiveness review in 2023.
Given the UK’s positive results, neither review is likely to be strenuous, but focus will be placed on the weaknesses identified last year, primarily UKFIU resourcing and the supervisory regime.
In addition to SARs reform and changes to AML supervision, the UK has announced several initiatives that it believes will strengthen the AML/CTF regime.
The 5th Money Laundering Directive (5MLD) (the colloquial name for the Directive amending the Fourth Money Laundering Directive) will be implemented into UK law by January 2020, and changes to transparency provisions will be made through, for example, the coming into force of the new Register of Overseas Entities in 2021. Further changes may well be on the way.
Access the full FATF report
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