Blog: Paul Harmsworth gives his guide to managing Money Laundering Regulations
In order to comply with the Money Laundering Regulations you must:
1. Appoint a Money Laundering Reporting Officer (MLRO).
For the majority of estate agents, this 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 the Money Laundering Regulations (MLR) and specifically will detail the risk-based approach adopted by the practice. The manual 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 that come into contact with clients (and this includes anyone who may answer the telephone including any casual or temporary staff, spouses etc). Training records, including proof that the MLRO and staff have understood the training, must be retained for five years.
4. Verify clients’ identity.
Client Due Diligence procedures (CDD) should include two elements and the first, client identification, has been extended in scope from the previous MLR under which a passport and utility bill were generally considered to be satisfactory evidence. With the increase in doing business at a distance plus the possibility of forging evidence, it is now incumbent upon practices to carry out more thorough checks. The recommended solution is to obtain a report that includes the electronic footprint details of the client. This is far easier than copies of documents and as it includes reference to various government files as well as bank accounts etc demonstrates enhanced CDD. It is satisfactory for all clients but must be supported with further verification for clients that the practice has rated as ‘High Risk’ (and, yes, you will have some, however well you think you know them!). Remember too, that when you accept an offer on behalf of a vendor, the buyer becomes a client and must therefore be subject to CDD.
5. Assess the risk of your clients being involved in fraudulent activity.
CDD 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 and other examples will include clients who have asked for reduced fees if paid in cash (i.e. seeking to avoid payment of VAT).
6. File reports with the Serious Organised Crime Agency (SOCA).
The MLRO is responsible for registering (NOW 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, CDD, MLRO and staff training and all internal and SOCA reports.
8. Ensure you have registered for supervision.
All practices (including part-time) must be supervised by the Office of Fair Trading (OFT) and again, if the practice has not yet registered, then it is vital that registration is completed immediately to avoid a substantial penalty arising from non-compliance with MLR.
SUMMARY
These eight requirements are a brief summary of MLR2007 which itself is relatively short, bearing in mind the effect that compliance will have on your practice. Every MLRO will need help and H M Treasury has appointed OFT to supervise your practice. If your practice fails to register for supervision there will be an automatic penalty. The OFT has started a programme of compliance visits and these will be increased now that firms have had adequate time to register and discover the requirements of MLR as outlined above.
CONCLUSION
Don’t wait for contact from OFT – that will be too late! The practice is required under the Regulations to make appropriate arrangements for compliance as detailed above.
Paul Harmsworth is CEO of AMLCC, a company with four years’ experience in supporting accountants. AMLCC has now released a program specifically for estate agents.
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