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Last September, the Criminal Finances Act came into law, outlining a number of new powers for law enforcement to crack down on financial crime. One of those powers, Unexplained Wealth Orders (UWOs), came into force at the end of January. This provides law enforcement the power to request politically exposed persons (PEPs) or those suspected of financial crime to explain their source of wealth. Any assets unanswered for could then be seized. Now, the first UWO has been secured by the National Crime Agency (NCA), worth £22m.
For a while now, it has been thought that the UK property market was flooded with illicit funds. Transparency International has estimated that £4bn of UK property has been purchased with the proceeds of crime, and therefore it is no surprise that the UK’s first UWO includes two properties, whose ultimate beneficial owner is a PEP and whether they were bought legally. It is hoped that this first move will begin the crack down on overseas criminals laundering their proceeds of crime through the UK property market.
There have been concerns that the Criminal Finances Act would not produce such quick results, with David Green, Director of the Serious Fraud Office only recently stating that legal difficulties and costs, could lead to delays in the UK’s fight against financial crime. Securing the first UWO will be a major boost to UK law enforcement, as some have questioned why more has not been done to combat money laundering and organised crime, even though the UK has a string of powers to help fight it.
This will not only be a wakeup call for criminals looking to invest their ill-gotten gains into the UK, but also to regulated institutions across the UK. It is more than likely that if the PEP who had a UWO filed against him is found to have used illicit funds to buy the two properties, than questions may be asked of the financial institutions(s) who helped the individual manage their money. It seems reasonable to expect questions such as:
Why did they not ask sufficient relevant questions?
Why did they not uncover this criminal operation or identify any suspicions?
Who else have they provided financial services for?
It has the potential to lead to a long and lengthy legal and regulatory review. Therefore, firms need to ensure their due diligence processes are robust, including enhanced measures when a PEP, or other higher risk relationships, is identified. Ensuring that you have up to date KYC for all your clients is also required, whether you update information periodically or on a trigger event basis – this will help you combat financial crime.
Are you comfortable that your control framework is fit for purpose? How do you know your controls are working? Please get in touch if you need any assistance in defining, enhancing or testing:
- Processes and tools for identifying PEP relationships
- Risk based customer due diligence arrangements
- Education of front line staff on relevant risks, their responsibilities and how to raise concerns
- Enhanced monitoring arrangements including transaction monitoring and periodic / trigger based reviews.