Managing director of DSR Tax Claims David Redfern offers his advice on how to protect your retail business from money laundering

Legislation against money laundering was strengthened with the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

It placed additional emphasis on performing due diligence on potential clients.

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It isn’t just businesses within the accountancy sector which can be vulnerable to being targeted for money-laundering activities, those within the estate agency, property and legal sectors are also at risk of facilitating the laundering of the proceeds of crime and funding terrorist activity.

Small businesses and sole traders are particularly vulnerable due to their size and potential for their anti-money laundering procedures to be less vigorous but ignorance of the law is very rarely a valid defence.

 Money laundering includes concealing, converting or disguising the proceeds or crime, or assisting others to do so, including funds which are used to finance terrorist activity.

It is a key requirement to put a solid anti-money laundering procedure in place for your business. Until that procedure is in place, the business will always be at risk of high-risk clients slipping through the net.

Create a procedure

Your procedure should include designating a dedicated person to be responsible for maintaining and updating your anti-money laundering policy, a thorough risk assessment for your firm and your potential clients, as well as a solid policy of due diligence towards your potential clients.

Where is the potential risk to your firm? Where are the holes in your due diligence that could allow a high-risk client to slip under the radar?

A dedicated member of your organisation responsible for maintaining and upholding your anti-money laundering procedure is an essential first step to protecting your business.

A comprehensive risk assessment of the small business or sole trader’s activities is the next step.

Identifying the areas where your business is vulnerable to those who would wish to launder illegal proceeds is essential in protecting against them.

Does your company deal with clients from high-risk jurisdictions?

Do you deal with clients who could be described as politically exposed persons (PEPs)?

Are you likely to encounter clients with sources of income, which they cannot explain?

Identifying the areas where your business might be at risk is a crucial step in ensuring your business is secure.  

Politically exposed persons are individuals who have been entrusted with a prominent public position, making them more vulnerable than most to the possibility they could be involved in activities such as bribery or embezzlement.

Toughen due diligence

The 2017 legislation makes it clear that you have a legal responsibility to make sure that your clients are who they say they are, including clients which are companies or organisations as well as individual clients.

The onus is on you to ensure that you have performed rigorous identity checks on your clientele and potential clientele.

and if you have any knowledge or suspicion that their income is criminal in origin or will be used to finance terrorist activity, you are bound by law to report your suspicions to the National Crime Agency.

Businesses can face action when they are shown not to be complying with regulations, even where there is no evidence that they have been involved in money-laundering. 

In the past three years, HMRC has recovered over £31 million under the proceeds of Proceeds of Crime Act.

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