ATT/CIOT Supervisory Risk Assessment for Money Laundering and Terrorist Financing (ML/TF)

Introduction

The purpose of this document is to:

  • Comply with our requirements under Regulation 47 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017).
  • Provide our members with relevant information from the supervisory risk assessment required under Regulation 17 of MLR 2017.  A Regulation 17 assessment identifies and assesses the international and domestic risks of ML/TF to which our supervised members are subject.  It is used to inform and prioritise our compliance and supervisory activity.
  • Provide a resource for our supervised members in informing their own ML/TF risk assessments and assist them in detecting and deterring ML/TF thereby contributing to public confidence in the tax sector.

The risk of ML/TF is constantly evolving and as such this risk assessment will be updated as and when further information emerges on risks and trends.

This document sets out information on money laundering and terrorist financing risk that we consider relevant to those we supervise. It should form the basis for firms' own risk assessments along with the national risk assessment and a comprehensive knowledge of customers, services, transactions and delivery channels.

Areas of Risk

Based on our supervisory work and analysis, we consider that the following may pose a high risk of ML/TF. They are not exhaustive and are illustrative in nature.

Customers

  • undue client secrecy (e.g., reluctance to provide requested information);
  • unnecessarily complex ownership structures (e.g. nominee shareholders or bearer shares or trusts);
  • business activities:
  • cash based businesses;
  • cryptocurrency;
  • crowd funding;
  • money service bureaux;
  • arms dealers;
  • property transactions with unclear source of funds;
  • politically exposed person;
  • new clients carrying out one-off transactions;
  • rapid rate of turnover (e.g., trades for a short period of time, close down and then starts up as a new company)
  • clients taking on work which is outside their normal range of goods and services;
  • clients involved in transactions that do not make commercial sense or involved in transactions where the source of funds is unusual or unknown;
  • high net worth individuals/expatriates, especially where investing in UK property;
  • un-cooperative clients;
  • clients who:
  • have known criminal convictions relating to the proceeds of crime;
  • are on the sanctions/terrorist list or have links to those on the sanctions/terrorist lists;
  • clients whose life style and/or transactions are inconsistent with known business and personal information;
  • clients with multiple bank accounts or foreign accounts with no good reason; or
  • clients who have changed professional advisers a number of times in a short space of time without legitimate reasons, the service being requested was refused by another professional adviser without legitimate reasons or clients which are prepared to pay substantially higher fees than usual without legitimate reasons.

Countries or geographies

The money laundering or terrorist financing risk is high for customers operating from or connected with countries or geographies on the following lists:

Products or services

  • investigations work where there might be a criminal element
  • aggressive tax planning potentially resulting in tax evasion
  • property advice including VAT and SDLT
  • insolvency services
  • investment business, including investing in cryptocurrencies
  • raising income through crowd funding
  • trust and company services, in particular company formation
  • payroll services, e.g. fictitious employees or retaining PAYE/NIC/pensions contributions
  • probate and estate management
  • tax and accounting services where there are concerns that the underlying books and records may have been falsified
  • products that may favour anonymity

Transactions

Most tax adviser services do not involve the facilitation of transactions. However, client money bank accounts may be at high risk of being used for ML/TF.

Delivery channels

Providing services to clients online, without meeting them, may increase the risk of being used for money laundering or terrorist financing.

Conclusion

Having a risk assessment does not prevent firms from engaging in transactions/activities or establishing business relationships with higher-risk customers. Instead, it should help to effectively manage and prioritise their response to ML/TF risks in their firm’s policies and procedures.

In the 2017 National Risk Assessment stated that accountancy and tax services remain attractive to criminals due to the ability to use them to gain legitimacy, create corporate structures or transfer value and that the areas judged to be most at risk of being exploited for money laundering were the creation and operation of companies, facilitating financial transactions (including through client accounts) and tax evasion.

Criminals are increasingly looking for alternative ways to launder criminal proceeds, and as a sector, we need to be alert to this. Therefore, members should be cautious not to be negligently or unwittingly involved in ML/TF.