Anti-money laundering supervision: guidance for high value dealers

1. Money Laundering and high value dealers

2. Responsibilities of senior managers

3. Risk assessment, policies, controls and procedures

4. Customer due diligence

5. Reporting suspicious activity

6. Record keeping

7. Staff awareness

8. High value dealer risk

9. High value dealers

10. Where to find more information General Introduction Thank you for taking the time to study this guidance. It is designed to help you comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (referred to as “the Regulations” in this guidance) Meeting your legal obligations is important because it contributes to tackling the serious economic and social harm from organised crime, it also reduces the threat from terrorism in the UK and around the globe. If you would like to know more about some of the success of UK suspicious activity reporting (SAR) see the National Crime Agency SARs annual report. Almost all businesses supervised by HMRC for anti-money laundering purposes are subject either to fit and proper test or approval requirements under the Regulations. These requirements are to ensure that businesses’ beneficial owners and senior management are appropriate people to undertake those roles. Relevant persons must pass the relevant test before the business can register, and can remain registered, with HMRC. HMRC stresses that neither of those requirements test whether the business is professionally run or operated. Registration is a legal requirement to trade, it is not a recommendation or endorsement of the business. HMRC advises registered businesses to carefully avoid using language in this context that might give the impression that registration was a form of endorsement or recommendation. There is more detail about these requirements in the fit 2 March 2018 v3 Status of the guidance This guidance has been approved by HM Treasury. This guidance replaces HMRC’s guidance: “Anti-money laundering guidance for high value dealers” published on 13 August 2014 and MLR9b published 13 September 2013. This guidance is effective from 26 June 2017. Meaning of words In this guidance, the word ‘must’ denotes a legal obligation. Each chapter summarises the legal obligations under the heading ‘minimum requirements’, followed by the actions required to meet the legal obligations. The word ‘should’ is a recommendation of good practice, and is the standard that HMRC expects to see. HMRC will expect you to be able to explain the reasons for any departures from that standard. Further sources of guidance The Joint Money Laundering Steering Group (a group made up of trade associations in the financial services industry) also publishes free detailed guidance. The guidance is for members of the trade associations and firms supervised by the Financial Conduct Authority, for compliance with the Regulations. However, some of the sections in Part 1 of the guidance may be particularly relevant to high value dealers. They contain detailed coverage of how to do due diligence checks on different types of customers, report suspicious activity and do staff training and record keeping. The Joint Money Laundering Steering Group publishes more information about businesses’ obligations and the level of risk in other jurisdictions (Annex 4-1 of part 1) http://www.jmlsg.org.uk/industry-guidance/article/jmlsg-guidance-current The Financial Conduct Authority has published detailed guidance on the treatment of politically exposed persons for anti- money laundering purposes. The National Crime Agency (NCA) has published guidance on making Suspicious Activity Reports (SARs) suspicious activity on their website: How to report SARs. 3 March 2018 v3 1.

Money Laundering and high value dealers Money laundering

1.1 Money laundering is how criminals change money and other assets into clean money or assets that have no obvious link to their criminal origins.

1.2 Money laundering can take many forms, but in the high value dealers sector it can involve: ● exchanging cash for high value items that can be easily transferred and sold on, sometimes at a loss, such as jewellery or vehicles ● exchanging cash for large quantities of lower value items that can be sold onwards easily such as alcohol ● exchanging cash for high value assets that are then returned and clean cash refunded.

1.3 Tax evasion is a criminal offence that can lead to money laundering. For example, sale or purchase of high value goods for cash can be underreported to avoid paying VAT or corporation tax.

1.4 There are a number of sub-sectors for high value dealers that cover a number of different types of goods that might be bought to launder money. Terrorist financing

1.5 Terrorist financing involves dealing with money or goods that you’ve reasonable cause to suspect may be used for terrorism. The funds and goods may be obtained from either legitimate or criminal sources. This may be small amounts. Legislation

1.6 The main UK legislation covering anti-money laundering and counter-financing of terrorism is: ● Proceeds of Crime Act 2002 ● Terrorism Act 2000 ● Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulations) ● Criminal Finances Act 2017 ● Terrorist Asset-Freezing etc. Act 2010 ● Anti-terrorism, Crime and Security Act 2001 ● Counter-terrorism Act 2008, Schedule 7 Information on Sanctions can be found through: 4 March 2018 v3 ● HMT Treasury Sanctions Notices, Guidance and News Releases

1.7 The Proceeds of Crime Act sets out the primary offences related to money laundering: ● concealing, disguising, converting, transferring or removing criminal property from the UK ● entering into or becoming involved in an arrangement which facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person ● the acquisition, use and/or possession of criminal property.

1.8 The primary money laundering offences apply to everyone.

1.9 The Proceeds of Crime Act also creates offences of failing to make a report about suspicious activity, and tipping off any person that you’ve made, or intend to make, such a report. This applies to nominated officers and employees of businesses in the regulated sector, such as high value dealers. This obligation extends across the whole business, so a high value dealer should also report any suspicious activity not related to a high value payment.

1.10 The Terrorism Act sets out the primary offences relating to terrorist funding. Regulated businesses, like high value dealers, must report belief or suspicion of offences related to terrorist financing, such as: ● fundraising for the purposes of terrorism ● using or possessing money for the purposes of terrorism ● involvement in funding arrangements ● money laundering – facilitating the retention or control of money that’s destined for, or is the proceeds of, terrorism.

1.11 The Criminal Finances Act 2017 make important amendments to the Proceeds of Crime Act, Terrorism Act and the Anti-terrorism Crime and Security Act. It extends the powers of law enforcement to seek further information, recover the proceeds of crime and combat the financing of terrorism.

1.12 The Regulations set out what relevant businesses such as high value dealers, must do to prevent the use of their services for money laundering or terrorist financing purposes. This guidance focuses mainly on the Money Laundering Regulations.

1.13 It also gives information on risk indicators within the sector and information in relation to different types of high value dealers.

1.14 The regulations apply to the following businesses when carried on in the UK: ● estate agents, that is businesses carrying on estate agency work ● credit institutions ● financial institutions ● auditors, insolvency practitioners, external accountants and tax advisers ● independent legal professionals ● trust or company service providers ● high value dealers 5 March 2018 v3 ● casinos

1.15 The Terrorist Asset-Freezing etc. Act 2010 gives HM Treasury power to freeze the assets of individuals and groups reasonably believed to be involved in terrorism, whether in UK or abroad, and to deprive them of access to financial resources.

1.16 The Anti-terrorism, Crime and Security Act 2001 is to ensure the security of dangerous substances that may be targeted or used by terrorists and allows for freezing orders to be made against national security threats and the civil asset seizure regime for terrorism.

1.17 Counter-terrorism Act 2008, Schedule 7 gives powers to HM Treasury to issue directions to firms in the financial sector in relation to customer due diligence, ongoing monitoring, systematic reporting and limiting or ceasing business.

1.18 HMT Treasury Sanctions Notices, Guidance and News Releases, the Office of Financial Implementation (OFSI) publishes a list of all those subject to financial sanctions imposed by the UK. OFSI helps to ensure that these financial sanctions are properly understood through sanction notices, guidance and news releases.

1.19 High value dealers must comply with the regulations. They must not make or accept high value cash payments for goods unless they register with HM Revenue and Customs (HMRC). This is explained in more detail later in this guide.

1.20 As a supervisory authority HMRC is responsible for monitoring your compliance with the UK anti-money laundering regime. In its capacities as a supervisory authority and a law enforcement authority HMRC may also use this regime to gather information for tax purposes. Financial sanctions

1.21 EU financial sanctions (including where they implement UN sanctions) apply within the territory of the EU and to all EU persons, wherever they are in the world. UK financial sanctions apply within the territory of the UK and to all UK persons, wherever they are in the world. All individuals and legal entities who are within or undertake activities within the UK’s territory must comply with the EU and UK financial sanctions that are in force. All UK nationals and UK legal entities established under UK law, including their branches, must also comply with UK financial sanctions that are in force, irrespective of where their activities take place. All EU nationals and legal entities established under EU law must comply with the EU financial sanctions that are in force, irrespective of where their activities take place. 6 March 2018 v3

1.22 OFSI works closely with the EU Commission and other member states in implementing sanctions. The UK imposes sanctions applied by the UN and EU as well as a limited number of its own sanctions (e.g. Terrorist Asset-Freezing etc. Act 2010). You must report to OFSI as soon as practicable if you know or have reasonable cause to suspect that a designated person has committed an offence. You should report any transactions carried out for persons subject to sanctions or if they try to use your services. You can report a suspected breach, sign up for free email alerts and obtain Information on the current consolidated list of asset freeze targets and persons subject to restrictive measures at: https://www.gov.uk/government/organisations/office-of-financial-sanctionsimplementation Data Protection

1.23 The Data Protection Act 1998 (DPA) governs the processing of information relating to individuals, including obtaining, holding, use or disclosure of information. Personal data obtained by a business under the Regulations may only be processed for the prevention of money laundering and terrorist financing. You must inform your customers of this and the information specified in paragraph 2(3) of schedule 1 to the DPA. This use is necessary in order to exercise a public function that is in the public interest and to carry out a function permitted by legislation. No other use may be made of the information unless you have consent of the customer or it is allowed by other legislation. Penalties

1.24 If a person or business fails to comply with the Regulations, they may face a civil financial penalty or criminal prosecution that could result in an unlimited fine and/or a prison term of up to 2 years.