Avoiding dirty money


Before firms get bogged down in the detail of the Proceeds of Crime Act (PoCA) or the money laundering regulations, they should consider what the real risks are of finding themselves caught up in a money laundering transaction or acting for those who are engaged in criminal activities.


The sums involved in money laundering in Britain alone are considered to be anything between £19 billion and £50 billion. Given the size of the problem it is likely that at some time most firms handling money have dealt in dirty money, even if inadvertently. The risks are even greater since PoCA introduced such a wide interpretation of money laundering.


It is necessary for firms to consider the type of work they carry out and where the risks lie, and, as with all risk management, put the greatest resources and protective measures into those areas where there is the highest risk. Firms should also remember that the risk is not just that of being a money launderer or committing an offence, but of loss of reputation.


A solicitor may technically not fall foul of the Act, but what firm wishes to find itself embroiled in a money laundering scandal?


A useful way of breaking down the risk of money laundering used in the financial services industry is to look at attributes and activities. It is a combination of high risk in both of these areas that triggers attention and may lead to reporting.


Attributes are characteristics of the client such as country of residence or occupation, or even age and sex. Activities are what the client is engaged in doing. Thus a client from the former Soviet Union engaged in a claim for a road traffic accident is of low to negligible risk.


However, if he were to be purchasing a high-value property in the name of an offshore company, the activity indicates a high risk and it would become necessary to investigate the client's circumstances further.


Over-reliance on the procedures required under the money laundering regulations, rather than a real understanding of risk, can lead to a process-driven approach that fails to deal with the underlying problem.


Compliance with the regulations is of course important, but it should be regarded as the minimum required to manage the risk. Risk awareness among staff is critical to the implementation of the formal procedure; without it the firm is at risk, however well staff complete their anti-money laundering processes.



This column was prepared by AFP Consulting, a division of Alexander Forbes Risk Services UK