UK FATF Mutual Evaluation - FATF-GAFI.ORG

1 LQDQFLDO $FWLRQ 7 DVN )RUFH . *URXSH G. DFWLRQ ILQDQFLqUH .. 7+,5' 0878$/ (9$/8$7,21 5(3257 . $17, 021(< /$81'(5,1* $1' . &20%$7,1* 7+( ),1$1&,1* 2) 7(5525,60 .. 7+( 81,7(' .,1*'20 2) . *5($7 %5,7$,1 $1' 1257+(51 ,5(/$1' .. -81( . 2007 FATF/OECD. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the FATF Secretariat, 2 rue Andr Pascal 75775 Paris Cedex 16, France Fax 33-1-44 30 61 37 or e-mail: . Table of Contents PREFACE - information and methodology used for the Evaluation of the United Executive Summary ..4. 1. General information on the United Kingdom ..13. General Situation of Money Laundering and Financing of Overview of the financial sector and designated non-financial businesses and professions ..16. Overview of commercial laws and mechanisms governing legal persons and Overview of strategy to prevent money laundering and terrorist 2.))))))))

2 Legal System and Related Institutional Criminalisation of Money Laundering ( & 2)..33. Criminalisation of Terrorist Financing ( ) ..41. Confiscation, freezing and seizing of proceeds of crime ( ) ..47. Freezing of funds used for terrorist financing ( )..64. The Financial Intelligence Unit and its functions ( , 30 & 32)..78. Law enforcement, prosecution and other competent authorities the framework for the investigation and prosecution of offences, and for confiscation and freezing ( , 28, 30 &. 32)..90. Cross Border Declaration or Disclosure ( ) ..102. 3. Preventative Measures Financial Institutions ..106. Risk of money laundering or terrorist Customer due diligence, including enhanced or reduced measures ( to 8)..112. Third parties and introduced business ( ) ..128. Financial institution secrecy or confidentiality ( ) ..131. Record keeping and wire transfer rules ( & ).

3 132. Monitoring of transactions and relationships ( & 21)..139. Suspicious transaction and other reporting ( , 19, 25 & ) ..143. Internal controls, compliance, audit and foreign branches ( & 22)..149. Shell banks ( )..155. The supervisory and oversight system - competent authorities and SROs; Role, functions, duties and powers (including sanctions) ( , 29, 17 & 25)..157. Money or value transfer services ( )..200. 4. Preventative Measures Designated Non-Financial Businesses and Customer due diligence and record-keeping ( )..204. Monitoring transactions and other issues ( )..213. Regulation, supervision and monitoring (R. 24-25) ..217. Other non-financial businesses and professions ( )..229. 5. Legal Persons and Arrangements & Non-Profit Legal Persons Access to beneficial ownership and control information ( )..230. Legal Arrangements Access to beneficial ownership and control information ( ).

4 237. Non-profit organisations ( ) ..240. 6. National and International Co-Operation ..245. National co-operation and coordination ( & 32) ..245. The Conventions and UN Special Resolutions ( & ) ..250. Mutual Legal Assistance ( , , ) ..252. -1- Extradition ( , 37 & ) ..265. Other Forms of International Co-operation ( , & ) ..274. 7. OTHER ISSUES ..282. Resources and statistics ..282. Table 1: Ratings of Compliance with FATF Table 2: Recommended Action Plan to Improve the AML/CFT System ..289. Annex 1: List of abbreviations and acronyms ..294. Annex 2: Details of all bodies met on the on-site mission: Ministries, other government authorities or bodies, private sector representatives and others ..295. Annex 3: List of laws, regulations and other guidance Annex 4: Copies of key laws, regulations and other measures ..299. -2- PREFACE - information and methodology used for the Evaluation of the United Kingdom 1.

5 The Evaluation of the anti-money laundering (AML) and combating the financing of terrorism (CFT) regime of the United Kingdom was based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF), and was prepared using the AML/CFT Methodology 20041. The Evaluation was based on the laws, regulations and other materials supplied by the United Kingdom of Great Britain and Northern Ireland (UK), and information obtained by the Evaluation team during its on-site visit to the UK from 27. November to 8 December 2006, and subsequently. During the on-site, the Evaluation team met with officials and representatives of all relevant UK government agencies and the private sector. A list of the bodies met is set out in Annex 2 to the Mutual Evaluation report. 2. The Evaluation was conducted by an assessment team, which consisted of members of the FATF.

6 Secretariat and FATF experts in criminal law, law enforcement and regulatory issues: Mr. Alain Damais, Executive Secretary of FATF and Mr. Kevin Vandergrift (FATF Secretariat); Ms. Elisabeth Florkowski, Expert, Integrated Supervision, Financial Market Authority, Austria (financial expert);. Ms. Violaine Clerc, Head of the Legal Affairs Department, Commission Bancaire, France (financial expert); Mr. Pieter Smit, Head, Legal & Policy Division, Financial Intelligence Centre, South Africa (legal expert); Mr. Wayne Walsh, Deputy Principal Government Counsel, International Law Division, Department of Justice, Hong Kong,China (legal expert); and Mr. Alessio Nardi, Lieutenant Colonel, Guardia di Finanza, Italy (law enforcement expert). The experts reviewed the institutional framework, the relevant AML/CFT laws, regulations, guidelines and other requirements, and the regulatory and other systems in place to deter money laundering (ML) and the financing of terrorism (FT) through financial institutions and Designated Non-Financial Businesses and Professions (DNFBP), as well as examining the capacity, the implementation and the effectiveness of all these systems.

7 3. This report provides a summary of the AML/CFT measures in place in the United Kingdom as at the date of the on-site visit or immediately thereafter. It describes and analyses those measures, sets out the UK's levels of compliance with the FATF 40+9 Recommendations (see Table 1), and provides recommendations on how certain aspects of the system could be strengthened (see Table 2). 1. As updated in June 2006. -3- Executive Summary 1. Background Information 1. This report provides a summary of the AML/CFT measures in place in the United Kingdom of Great Britain and Northern Ireland (UK) as at the date of the on-site visit or immediately thereafter. It describes and analyses those measures, and provides recommendations on how certain aspects of the system could be strengthened. It also sets out the UK's levels of compliance with the FATF 40+9. Recommendations (see the attached table on the Ratings of Compliance with the FATF.)

8 Recommendations). 2. The UK has a comprehensive legal structure to combat money laundering and terrorist financing. The money laundering offence is broad, fully covering the elements of the Vienna and Palermo Conventions, and the number of prosecutions and convictions is increasing. The terrorist financing offence is also broad. The introduction of the Proceeds of Crime Act 2002 (POCA) has had a significant and positive impact on the UK's ability to restrain, confiscate and recover proceeds of crime. The UK has also established an effective terrorist asset freezing regime. Overall, the UK FIU. appears to be a generally effective FIU. The UK has designated a number of competent authorities to investigate and prosecute money laundering offences. Measures for domestic and international co- operation are generally comprehensive as well. 3. The effectiveness of current preventative measures for financial institutions varies; the situation will be improved with the implementation of the 3rd EU Money Laundering Directive later in 2007.

9 Currently, the main CDD deficiencies lie in the fact that certain requirements, such as beneficial ownership, are not laid out in law or regulation. Record-keeping and STR requirements are comprehensive and effective. The Financial Services Authority (FSA) has extensive powers to monitor and ensure compliance by the financial institutions it regulates. While the supervisory system is comprehensive for the larger firms, supervision of certain smaller firms (including some small banks, insurance companies, securities dealers, and investment managers) requires enhancement. 4. All designated non-financial businesses and professions (DNFBPs) as defined by the FATF are covered under the Money Laundering Regulations 2003. DNFBPs appear to be effectively complying with their STR obligations. There is generally comprehensive monitoring of casinos, and lawyers and certain accountants; the main deficiencies lie in the lack of monitoring for the real estate and company service provider sectors and certain unregulated accountants.

10 These sectors will be supervised once the 3rd EU directive is implemented. 5. The UK is a political union made up of four constituent countries: England and Wales (which for legal purposes counts as a single jurisdiction) and Northern Ireland are common law jurisdictions, and Scotland, which operates a hybrid system based on both common law and civil law principles. The UK is a constitutional monarchy, with executive power exercised on behalf of Her Majesty Queen Elizabeth II by a democratically elected Prime Minister and other Cabinet Ministers who head the departments of state. Although the Parliament at Westminster remains the seat of Government for the UK, Scotland, Wales, and Northern Ireland have a degree of devolved government. Official estimates in 2004 indicated a population of 59,834,300. Based on market exchange rates, the UK is the fifth- largest economy in the world, the second largest in Europe, and the sixth-largest overall by purchasing power parity (PPP) exchange rates.