UK national risk assessment of money laundering and ...

1 UK national risk assessment of money laundering and terrorist financingOctober 2015UK national risk assessment of money laundering and terrorist financingOctober 2015 Crown copyright 2015 This publication is licensed under the terms of the Open Government Licence except where otherwise stated. To view this licence, visit or write to the Information Policy Team, The national Archives, Kew, London TW9 4DU, or email: Where we have identified any third party copyright information you will need to obtain permission from the copyright holders publication is available at Any enquiries regarding this publication should be sent to us at ISBN 978-1-910835-57-9 PU1851 1 Contents Page Executive summary 3 Chapter 1 Methodology 9 Chapter 2 Legal and regulatory framework 13 Chapter 3 Predicate offences 19 Chapter 4 UK law enforcement 23 Chapter 5 Supervision 29 Chapter 6 Regulated sectors 31 Chapter 7 Legal entities and arrangements 67 Chapter 8 Cash 75 Chapter 9 New payment methods 79 Chapter 10 International exposure 85 Chapter 11 Terrorist financing 89 Annex A Full list of AML/CFT supervisors 99 Annex B Glossary 101 3 Executive summary This is the UK s first money laundering and terrorist financing national risk assessment (NRA).

2 In conducting this assessment the aim is to identify, understand and assess the money laundering and terrorist financing risks faced by the UK. money laundering can undermine the integrity and stability of our financial markets and institutions. It is a global problem. The European Commission s 2013 impact assessment of the EU anti - money laundering /counter terrorist financing legislative framework points to global criminal proceeds potentially amounting to some of GDP; around US$ trillion in The best available international estimate of amounts laundered globally would be equivalent to some of global GDP or US$ trillion in Both money laundering itself, and the criminality which drives the need to launder money , present a significant risk to the UK. The laundering of proceeds of overseas corruption into or through the UK fuels political instability in key partner countries.

3 The NCA judges that billions of pounds of suspected proceeds of corruption are laundered through the UK each year. money laundering is also a key enabler of serious and organised crime, the social and economic costs of which are estimated to be 24 billion a Taken as a whole, money laundering represents a significant threat to the UK s national security. The government s 2013 Serious and Organised Crime Strategy set out plans to make it harder for criminals to move, hide and use the proceeds of There is a marked overlap between money laundering and terrorist financing both criminals and terrorists use similar methods to store and move funds. However, the motive for generating and moving funds differs. Terrorists ultimately need money to commit terrorist attacks. Unlike criminal gangs, terrorist groups involve disparate individuals coming together through a shared motivation and ideology.

4 Finance is an essential aspect of enabling terrorist groups to function, recruit and commit terrorist acts. A lack of funds can have a direct effect on the ability of terrorist organisations and individuals to operate and to mount attacks. There is evidence of terrorist financing activity in the UK and terrorist financing poses a significant threat to the UK s national security. The UK recognises that countering terrorist financing is important in protecting national security. Countering terrorist financing forms a key part of the UK s CONTEST counter-terrorism strategy with the aim being to reduce the terrorist threat to the UK and its interests overseas by depriving terrorists and violent extremists of the financial resources and systems required for terrorism-related 1 Impact assessment accompanying the document Proposal for a Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering , including terrorist financing and Proposal for a Regulation of the European Parliament and of the Council on information accompanying transfers of funds , European Commission, February 2013 2 Estimating illicit financial flows resulting from drug trafficking and other transnational organized crimes: Research report , UNODC, October 2011.

5 This estimate would be within the IMF s original consensus range , equivalent to some of global GDP ( 4%) or US$ trillion in 2009. 3 Understanding organised crime: estimating the scale and the social and economic costs , Home Office, October 2013 4 Serious and Organised Crime Strategy , HM government, October 2013 5 CONTEST: The United Kingdom s Strategy for Countering Terrorism , HM government, July 2011 4 The national risk assessment The objective of the NRA is to better understand the UK s money laundering and terrorist financing risks , inform the efficient allocation of resources and mitigate those risks . While this assessment should not be relied upon in isolation, the improved understanding it provides should assist the government, law enforcement agencies, supervisors and the private sector in targeting their resources at the areas of highest risk, ensuring that the UK s approach to preventing financial crime is risk-based and proportionate.

6 The Financial Action Task Force (FATF) sets international standards on anti - money laundering and counter financing of terrorism (AML/CFT).6 Conducting a NRA is an obligation under the FATF recommendations,7 and the UK is committed to the FATF standards. This NRA is the product of extensive consultation with law enforcement agencies, UK intelligence agencies, the UK Financial Intelligence Unit, supervisors and private sector representatives. It serves as a stock-take of the collective knowledge of money laundering and terrorist financing, the current intelligence gaps, and the effectiveness of the current response across government, law enforcement agencies and the regulated and private sectors. The relative weight given to each of the areas covered in this report is reflective of the extent of that collective knowledge in relation to the area, and the scale of current intelligence gaps, as well as the availability of information which is not too sensitive for publication.

7 The volume of information provided on an area or sector is not reflective of the government s view of the relative risk within that area. The findings of the NRA will shape the government s response to money laundering and terrorist financing, and will inform the risk-based anti - money laundering Action Plan that the Home Office and HM Treasury have committed to The UK is a global financial centre. Trillions of pounds worth of transactions are made each year, and UK banks, and their subsidiaries, operate around the globe. The same factors that make the UK an attractive place for legitimate financial activity its political stability, advanced professional services sector, and widely understood language and legal system also make it an attractive place through which to launder the proceeds of crime. In response to this the UK has developed its anti - money laundering and counter financing of terrorism (AML/CFT), regime over a number of years.

8 This regime is well developed in a number of respects, although areas for improvement remain. Key findings The UK s law enforcement agencies know most about cash-based money laundering , particularly cash collection networks, international controllers, and money service businesses, although some gaps in knowledge remain. This is a result of the resources that law enforcement agencies have invested over a number of years in tackling cash-based money laundering and the drugs trade (which largely generates proceeds in the form of cash) which has long been recognised, and continues to be recognised, as posing a high money laundering risk. The size and complexity of the UK financial sector mean it is more exposed to criminality than financial sectors in many other countries, including abuse enabled by professional enablers in 6 The Financial Action Task Force (FATF) is an independent inter-governmental body that develops global standards to protect the financial system against money laundering , terrorist financing, and the financing of the proliferation of weapons of mass destruction.

9 7 2012 FATF Recommendation 1 and its interpretative note 8 The UK anti -Corruption Plan , HM government, December 2014 5 the legal and accountancy sector. There are significant intelligence gaps, in particular in relation to high-end money laundering . This type of laundering is particularly relevant to major frauds and serious corruption, where the proceeds are often held in bank accounts, real estate or other investments, rather than in cash. UK law enforcement agencies want to know more about the role of the financial and professional services sectors (banks, legal, accountancy and trust and company service providers) in money laundering . They judge the threat in these sectors to be significant, and are still establishing the strength of understanding needed in this area. The intelligence picture in other areas such as high value dealers, gambling, and new payment methods is mixed.

10 This NRA has found that, while in some cases individual agencies or supervisors have a good understanding of the risks in these areas, the collective understanding of law enforcement agencies, supervisors and the private sector is limited. On the basis of what is known, the risks in these areas appear to be lower relative to those posed by cash-based money laundering and high-end money laundering through the financial and professional services sectors. The effectiveness of the supervisory regime in the UK is inconsistent. Some supervisors are highly effective in certain areas, but there is room for improvement across the board, including in understanding and applying a risk-based approach to supervision and in providing a credible deterrent. The large number of professional body supervisors in some sectors risks inconsistencies of approach.