Has Brexit Enabled The UK To Implement A Stronger Anti-Money Laundering Regime?
After the UK left the EU on 31 January 2020 (“Brexit”), the United Kingdom started following new rules under its own Sanctions and Anti-Money Laundering Act. No longer subject to EU directives related to anti-money laundering (AML), the UK gained a flexible margin that allowed legislators to create a domestic prudential framework. This was established following domestic political guidelines, intended to create a better sanctioning response against domestic financial crime and further monitoring on cross-border transactions. While the UK has adopted UN and EU guidelines regarding money laundering and counter terrorism, it has also included government foreign policy objectives into its domestic law. Such inclusion can be found in other areas of law and enforcement, such as human rights or international sanctions.
1. Post-Brexit Money Laundering Regulations
In 2019, the UK published its intention to opt out of the EU’s Sixth Money Laundering Directive, affirming that existing domestic legislation is greatly compliant with the proposed measures and in many cases goes beyond it.
The declaration of Temporary Transitional Power (TTP), effective from 1 January 2021, indicated a further point of distinction from the EU’s AML framework. Following HM Treasury’s Call for Evidence and Consultation to Review on the current UK AML and CTF publications in July 2021, the UK’s post-Brexit Anti-Money Laundering and Counter-Terrorist Financing regulations (“MLRs”) were set for modification. Using its newly-obtained regulatory autonomy, the UK government customised the AML/CTF strategy to specific dangers identified in the UK, while also conforming to the Financial Action Task Force’s (FATF) international criteria. The UK has also significantly deviated from the EU’s classifications for jurisdictions posing ‘high risk’ (known as ‘high risk’ countries). Instead, it has prescribed its own list aligning to FATF classifications.
The amendments to the MLRs indicate a further divergence from the EU’s approach to AML and CTF risks as a result of Brexit. However, changes were expected to be implemented on the assumption that the regime remained equivalent to the EU’s in order to reduce the burden of incompatibility on the industry. Instead, in late July 2021, the European Commission released “an ambitious package of legislative proposals” that included the creation of a new EU AML/CTF authority (the “AMLA”) and the creation of a single, harmonised, and directly applicable ‘rule book’ to replace and update the existing patchwork of legislation utilised across the EU. The EU is clearly further developing its domestic market without the UK, aiming to achieve both improved intra-coordination and better control and authority over financial transactions in the inner bloc.
2. Consequences in the UK’s AML framework
Brexit has entailed unavoidable obstacles in transactions that involve the UK and overseas participants. Under the Money Laundering and Transfer of Funds Regulations 2019, the definition of a “third country” becomes any country outside the UK as opposed to outside the European Economic Area (EEA). This means that EU nationals and companies now face stricter requirements for financial crime compliance during business relationships and transactions.
Across the Channel, the EU now compels EU credit and financial institutions with correspondent banking ties with UK institutions to adopt enhanced due diligence (EDD) steps to those arrangements. Those procedures were not previously required for intra-EEA correspondent contacts, but they are now indispensable as the UK is deemed a third nation. For money transfers, the EU’s Fund Transfer Regulation necessitates a bigger amount of data from payment service providers (PSP) in order to identify payers/payees for money transactions outside the EU.
However, subjecting transactions and business relationships involving EU individuals to third-country criteria has strengthened the domestic market as it is the only one exempt from the UK’s stricter requirements. It has also provided a great opportunity for the Financial Conduct Authority (FCA) to closely monitor and analyse transactions involving individuals from overseas. As a result, the FCA now has complete control over the surveillance of both international and domestic financial crime, as well as stronger reporting requirements for cross-border money transfers and credit operations. Brexit has provided legislators with a once-in-a-lifetime opportunity to polish and develop the UK’s own domestic prudential framework.
3. Financial Penalties and Cryptocurrency Money Laundering
At present, the UK is imposing some of the highest criminal sentences against money launderers in the OECD countries, with UK legislators taking the opportunity to lead their own way after Brexit. For instance, in December 2021 HSBC was fined GBP 64 million by British regulators for failures in anti-money laundering processes spanning eight years; the financial authorities found that three key parts of HSBC’s transaction monitoring systems in Britain showed serious weaknesses over a period from 31 March 2010 to 31 March 2018. NatWest was also fined in December 2021, accepting a GBP 265 million fee from a British court for failing to prevent the laundering of nearly GBP 400 million.
Individuals have also faced the stricter new AML penalties. In December 2021, a UK court sent two men to prison for a total of 33 years for laundering the equivalent of nearly US$95 million and fraudulently claiming US$13.44 million in COVID-19 Bounce Back Loans for their non-existent companies. The National Crime Agency (NCA) stated their sentences are believed to be some of the largest ever handed down in the UK for money laundering. Andy Tickner from the Organised Crime Partnership reported: “… (those) men and their network played a vital role in enabling other criminals to conceal and access their illicit earnings. The removal of this service will have been a massive blow to organised criminals in the UK and globally.”
New forms of money laundering are also being tackled with great severity. For instance, in June 2021, the Metropolitan Police’s Economic Crime Command seized a record-breaking haul of cryptocurrency worth almost GBP 180 million in London. The Metropolitan Police stated that this case was the largest amount of cryptocurrency ever seized by police domestically, and possibly one of the largest-ever seizures of cryptocurrency globally. Graham McNulty, the Metropolitan Police’s Deputy Assistant Commissioner, said in a press release that new technologies were helping criminal operations to evolve: “(…) as digital platforms develop we are increasingly seeing organized criminals using cryptocurrency to launder their dirty money”. UK authorities have consequently adopted a stricter position against the fraudulent use of digital currencies, globally leading the condemning of this malpractice and establishing a stronger domestic financial market.
The consequences of leaving the EU are a double-edged sword. Domestically, the legislator has both implemented a stricter corrective regime for those entities and individuals that pose acute danger to UK’s economy and taken advantage of the unlimited power enjoyed by British financial authorities post-Brexit. That said, the UK’s new position as a third country has led to unprecedented challenges and enhanced monitoring over cross-border financial activity. The EU is also shaping a stronger AML prudential regime without the UK as a Member State, creating new financial authorities and increasing internal coordination.
The protection of the domestic market from cross-border criminal activity is now in the hands of UK’s financial and judicial authorities. The appropriate strategy must therefore be one of enhanced control over cross-border transactions, effective adaptation to new forms of money laundering (e.g. financial crime in the form of cryptocurrencies), exemplary enforcement against money laundering crimes, and cooperation with international authorities and organisations to establish a stronger and safer domestic financial market.
Anti-Financial Crime Support – How can Complyport Help?
Our experienced Financial Crime and Forensics team led by Martin Schofield—one of the world’s leading specialists in the field—brings a wealth of experience to every project we are engaged in. Our highly experienced financial crime professionals and forensic experts, in subjects such as anti-money laundering, counter terrorist financing, anti-bribery and corruption and fraud and regularly help our clients navigate the complexities of the financial crime and money laundering environment. Services offered by Complyport include:
- Financial crime health checks and audits,
- Implementation of financial crime, AML, CTF, ABC, Fraud and market abuse controls and frameworks,
- Ongoing advice on financial crime, AML, CTF, market abuse and fraud prevention,
- Authoring/reviewing financial crime policies,
- Outsourced MLRO support
- Outsourced KYC and CDD support,
- Assistance in identifying Politically Exposed Persons (PEPs),
- Assistance in navigating international sanctions,
- Support with preventing market abuse and insider dealing,
- Expert Witness in Financial Crime cases
- Forensics and Investigations
- Design and/or delivery of online or face to face financial crime training
If this article has raised any questions, or you think your firm may require assistance, please contact either Martin Schofield via firstname.lastname@example.org or Jan Hagen via email@example.com to book in a free consultation.
Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.
We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.
Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.
Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Our clients tell us we live our values; we are driven, agile and collaborative.