UK’s Second National Money Laundering (“ML”) and Terrorist Financing (“TF”) Risk Assessment

• United Kingdom

• Fraud and financial crime

27-10-2017

On 26 October 2017 Her Majesty’s Treasury (“HMT”) and the Home Office published the UK’s second ML/TF national risk assessment (the “2017 NRA”).  The 2017 NRA fulfils the UK’s obligation to conduct a risk assessment prior to 26 June 2018, as required by the EU Fourth Money Laundering Directive and the UK’s Money Laundering, Terrorist Financing and Transfer of Fund (Information on the Payer) Regulations 2017 (“MLR 2017”).

The 2017 NRA builds upon the 2015 National Risk Assessment (“2015 NRA”) and identifies key ML and TF risks faced by the UK, as well as detailing changes implemented by the UK government to tackle ML/TF (following on from the Government’s 2016 Action Plan) and how risks have changed since the 2015 NRA.

Some key points arising from the 2017 NRA include:

• Cash and high-end ML remain the greatest areas of ML risk to the UK. The UK’s TF threat typically arises as a result of low values of cash being raised within the UK to be sent abroad to support terrorist organisations.  Retail banking and money service businesses (“MSBs”) are used as a primary method of moving cash for terrorist purposes;

• The distinction between typologies are becoming increasingly blurred with criminal proceeds being laundered through lower level typologies before larger sums are laundered overseas via more sophisticated methods;

• Intelligence gaps remain in respect of how professional services are used for the purposes of ML, although a greater understanding has been obtained since the 2015 NRA;

• The Office for Professional Body AML Supervision is expected to be up and running by the end of 2017, with its aim being to ensure standards are consistent across AML supervisory authorities and to promote better information and intelligence sharing at a supervisory level;

• A number of significant steps have been taken to address ML and TF risks in the financial services sector and they have started to result in improvements. However, the risk profile of the financial services sector has not shifted substantially and the banking sector remains vulnerable to a wide range of ML tactics.  Retail banks remain at high risk of ML/TF, whilst both wholesale banking and wealth management/private banking are assessed as being at a high risk of ML and a low risk of TF;

• There is little evidence of digital currencies being used for ML/TF purposes and as such, the risk remains assessed as low. However, the link between digital currencies and cyber-crime suggests that the ML risk is likely to increase; and

• In the 2015 NRA, the ML risk of MSBs was addressed to be medium (with high risk elements in the sector). The number of principal MSBs registered with HMRC has decreased from c. 3,000 in 2015 to just over 2,000 at the time of the 2017 NRA.  Due to the persistence of risks in the sector, the MSB sector is now assessed to be high risk for ML and continues to be assessed as high risk for TF.  In recent years, MSBs have suffered restricted access to formal banking services and the 2017 NRA concludes that this has likely increased the risks in the sector.

The 2017 NRA acknowledges that it comes “amidst the most significant period for the UK’s anti-money laundering/counter terrorist financing (“AML/CTF”) regime for over a decade”.  2017 has seen a number of significant changes in the UK’s AML/CTF landscape, most notably with the introduction of the MLR 2017, publically accessible registers of people with significant control in companies and the Criminal Finances Act 2017 (which is partly in force, with the remainder due to come into force on 31 October 2017). 

The Government continues to stress its commitment to tackling ML and TF and believes that the reforms made during 2017, along with the 2017 NRA, provide a strong foundation in preparation for the UK’s mutual evaluation by the Financial Action Task Force (“FATF”) which is due to take place and be published by December 2018.  FATF’s 2018 mutual evaluation will be the UK’s first peer review since 2007 and will provide a strong indication of how the UK’s AM/CTF regime is performing against global standards.