What businesses need to know about money laundering and how Directors can be at risk personally if you don’t have the correct procedures in place.
Money laundering is not just a risk for banks and financial institutions. Businesses in every sector can be exposed to money laundering, often without realising it. SMEs are particularly at risk due to lower levels of audit control, smaller value transactions and a perception by criminals that smaller businesses have a lower awareness of the risks.
Risk can arise through customers, suppliers, acquisitions, investments, international trade and other third-party relationships. A business may become involved in a transaction linked to criminal property without intending to facilitate criminal activity.
The consequences can be serious. Businesses may face regulatory investigations, financial losses, reputational damage and disruption to their operations.
Effective anti-money laundering (AML) controls are an important part of good governance and risk management.
Why money laundering matters to legitimate businesses
Criminals seek to disguise the proceeds of offences such as fraud, tax evasion, corruption, cybercrime, drug trafficking and organised crime by introducing illicit funds into the legitimate economy. Businesses may become involved without any intention of facilitating criminal activity.
Where can money laundering risks arise?
Businesses can face risks in several areas, including:
- accepting payments from unknown or high-risk customers
- engaging suppliers or intermediaries without carrying out appropriate due diligence
- mergers, acquisitions and investments
- cross-border transactions and complex corporate structures
- property and other high-value transactions
- handling money or assets on behalf of others
The risks will vary depending on the size, structure and sector of your business. It is important to understand where your exposure lies and whether your existing controls are proportionate. Even where a business has acted honestly, inadequate systems and controls can expose it to regulatory investigation and significant financial loss.
Increasingly, regulators and enforcement agencies expect businesses to demonstrate that they understand their money laundering risks and have taken reasonable steps to mitigate them.
The scale of economic crime in the UK
Economic crime represents one of the most significant threats to the UK economy. Government estimates suggest that hundreds of billions of pounds of illicit funds pass through or affect the UK each year, making the country an attractive target for sophisticated criminal networks.
The UK’s enforcement agencies – including the National Crime Agency (NCA), Serious Fraud Office (SFO), HM Revenue & Customs (HMRC) and the Financial Conduct Authority (FCA), continue to increase their focus on identifying businesses that facilitate or fail to prevent financial crime.
The direction of travel is clear: businesses are expected to play an active role in protecting the integrity of the UK financial system
Reputational damage can be more costly than financial penalties
Money laundering issues can affect more than your legal or regulatory position.
An investigation or allegation of financial crime can affect relationships with:
- customers
- suppliers
- lenders
- investors
- regulators
- employees
- business partners
- Shareholders
Even where no criminal charges follow, an investigation can cause significant disruption. Your business may need to respond to requests for documents, provide information to regulators and manage the impact on employees and commercial relationships. Money laundering allegations or a failure to conduct due diligence can also result in the withdrawal of your banking facilities.
The costs can include legal advice, compliance work, forensic accounting and management time. Early advice can help you understand your position, respond appropriately and reduce unnecessary disruption.
Criminal liability for business owners and directors and senior managers
Businesses and individuals can face criminal liability for certain money laundering offences under the Proceeds of Crime Act 2002, whether intentionally or through failures in governance and compliance. Directors and senior managers are expected to ensure that appropriate governance, oversight and internal controls are in place to identify and manage financial crime risks. In serious cases individuals may face criminal prosecution.
These offences can include:
- concealing, disguising or transferring criminal property
- entering into arrangements involving criminal property
- acquiring, using or possessing criminal property
- failing to disclose knowledge or suspicion of money laundering in certain circumstances
Depending on the circumstances, businesses may also face allegations relating to fraud, false accounting, sanctions breaches and other financial crime offences.
The consequences can include significant fines, confiscation of assets, restrictions on trading and loss of regulatory permissions.
Shareholder and investor expectations
Investors increasingly assess businesses through an environmental, social and governance (ESG) lens, with financial crime compliance forming an important element of corporate governance.
Institutional investors, private equity firms and lenders routinely undertake due diligence on a company’s compliance framework before investing or extending finance.
Weak AML controls may reduce investor confidence affecting company valuations and barriers to future growth or succession planning.
Conversely, businesses with strong governance and effective compliance procedures are often viewed as lower-risk investments.
What should your business do?
Your AML controls should reflect the size, structure and risk profile of your business.
Practical steps may include:
- carrying out regular risk assessments
- completing appropriate customer and supplier due diligence
- monitoring higher-risk transactions
- having clear internal reporting procedures
- training staff so they understand the risks and what to do if concerns arise
- reviewing your policies and controls regularly
- taking legal advice when a concern arises
The right approach will depend on your business and the risks it faces. A system that works for one organisation may not be appropriate for another.
How Tees can help
Our business crime and regulatory lawyers advise businesses on money laundering risks, financial crime compliance and regulatory investigations.
We can help with:
- AML risk assessments
- reviewing policies, procedures and controls
- internal investigations
- regulatory enquiries
- advice for directors and senior managers
- responding to law enforcement agencies
- crisis management
- defending criminal and regulatory proceedings where appropriate
Money laundering issues are rarely limited to legal compliance. They can affect your reputation, commercial relationships and ability to operate effectively.
Whether you need preventative advice, support with an investigation or guidance on a specific concern, we can help you understand the risks and decide what to do next.
