UK issues guidance for MSBs imposing personal liability on directors / officers for terrorist financing and money laundering compliance failures

By Christine Duhaime | August 17th, 2014

Unlimited monetary fines at stake for compliance failures

The UK HM Revenue and Customs (“HMRC“) has issued revised guidance (the “Guidance“) for money services businesses (“MSBs“) that renders directors, officers, partners, managers, secretaries and members of the management committee of a MSB personally liable for money laundering and terrorist financing compliance failures.

On conviction, directors and officers are liable to a term of incarceration for up to two years and to an unlimited monetary fine.

Summary of Guidance

The Guidance explains to MSBs in a lengthy 65 pages what their obligations are in respect of anti-money laundering and counter terrorist financing law which include in brief:

  • Anti-money laundering training of staff including receptionists, administrative and finance staff,  nominated officer and senior managers.
  • Understanding beneficial ownership (the natural persons who own shares in private entities).
  • Undertaking CDD in respect of persons and companies.
  • Conducting non face-to-face CDD that requires taking additional steps such as obtaining verification by a bank or lawyer or using reputable, certified third party software.
  • Undertaking enhanced due diligence for high risk situations such as when dealing with politically exposed persons.
  • Record keeping.
  • Nomination of officer who has responsibility for reporting.
  • Filing of mandatory reports.
  • Preparation of internal reports on suspected or known instances of money laundering or terrorist financing.
  • Relying on 3rd parties for CDD only in cases where the 3rd party agrees to the reliance and is a lawyer, financial institution, auditor, accountant or other approved regulated person.
  • Having adequate procedures and controls in place to manage identified risks.
  • Identifying risks to the business and developing a risk profile.
  • Preparing a policy statement for the business on how it will prevent money laundering and terrorist financing.
  • Ensuring the enterprise has sufficient resources (people and financial) to effectively operate its compliance program.

In terms of personal liability, it is the senior managers of the MSB who are personally liable, not the nominee officer who reports transactions to the government, unless that nominee is also a senior manager of the MSB.

The Guidance took effect on August 8, 2014.

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