HMRC Money Laundering Guidance

The UK HMRC has published a list of non-financial services businesses that should be directly registered for anti-money laundering (AML) and have a mandated AML training requirement.

1. Money service businesses
2. High-value dealers
3. Trust or company service providers
4. Accountancy service providers
5. Estate Agency Businesses
6. Bill payment service providers
7. Telecoms, digital & IT payment service providers
8. Art dealers
9. Letting agency businesses (LABs)

Below, we examine each business type, explaining why they face additional risks and how these risks can be mitigated.

A. Money service businesses (MSBs)

Money service businesses (MSBs) are at risk of money laundering because they provide services that can be used to conceal the source and ownership of funds. MSBs typically offer services such as money transfer, currency exchange, and check cashing, which can be used to move and convert money quickly and easily.

Factors that make MSBs vulnerable to money laundering:

• High volume of cash transactions. MSBs often handle large volumes of cash transactions, which can make it difficult to track the origin and destination of funds.
• Anonymous transactions. Some MSBs allow customers to conduct transactions without providing identification, which can make it easy for criminals to launder money through these businesses.
• Cross-border transactions. MSBs often offer cross-border money transfer services, which can be used to move money out of the country where it was earned into a different jurisdiction where it is less likely to be detected.
• Lack of oversight. Some MSBs are subject to less oversight than traditional financial institutions, which can make them more attractive to money launderers.

In addition to these general factors, specific risks are associated with different types of MSBs. For example, check cashing businesses may be at risk of being used to launder money from drug trafficking and other illegal activities. Money transfer businesses may be at risk of being used to finance terrorism.

MSBs play an important role in the global financial system, but they also need to be aware of money laundering risks and take steps to mitigate them. MSBs can reduce their risk of money laundering by implementing strong anti-money laundering (AML) controls.

Steps MSBs can take to avoid money laundering

1. Know Your Customer (KYC): MSBs should verify the identity of their customers and collect information about their source of funds.
2. Transaction monitoring: MSBs should monitor customer transactions for suspicious activity.
3. Suspicious activity reporting (SAR): MSBs should report any suspicious activity to the appropriate authorities.

B. High-value dealers

According to money laundering regulations, a high-value dealer is any business or sole trader which accepts or makes high-value cash payments of 10,000 euros or more (or the equivalent in any currency) in exchange for goods. High-value dealers are at risk of money laundering because they deal in large amounts of cash, which is difficult to trace and can be used to conceal the origin of criminal proceeds. Additionally, high-value goods are often portable and easy to resell, making them attractive to criminals who need to move large sums of money quickly and easily.

Examples of high-value dealerships:

• Jewellery dealers
• Art dealers
• Luxury car dealers
• Real estate agents
• Casino operators
• Money transfer services

Factors that make high-value dealers vulnerable to money laundering:

• Acceptance of large cash payments. Criminals often use cash to launder their proceeds because it is difficult to trace and does not leave a paper trail. High-value dealers are particularly vulnerable to this because they often accept large cash payments for their goods.
• Deal in goods that are easy to transport and resell. High-value goods such as jewellery, art, and luxury cars are often portable and easy to resell, making them attractive to criminals who need to move large sums of money quickly and easily.
• Difficulty in identifying their customers. High-value dealers may sell their goods to a variety of customers, including tourists, cash buyers, and foreign nationals. This can make it difficult for them to identify and verify the identities of all of their customers, which can increase the risk of money laundering.
• Criminal organisations may target them. Criminal organisations often target high-value dealers because they are seen as a way to launder large sums of money quickly and easily.

Steps high-value dealers can take to avoid money laundering

It is important to note that all businesses and individuals have a responsibility to help prevent money laundering. However, high-value dealers are particularly at risk and should take steps to mitigate that risk.

1. Anti-money laundering (AML) controls: This includes implementing customer identification and verification procedures, transaction monitoring, and suspicious activity reporting.
2. Due diligence: As part of having internal controls in place, high-value dealers need to conduct due diligence on their customers and suppliers.
3. Staff AML training: High-value dealers should ensure that all their staff understand their roles and responsibilities in combating money laundering. They should also be aware of money laundering risks and how to identify and report suspicious activity.
4. Suspicious activity reporting: It is a legal requirement to report money laundering to the appropriate authorities, so high-value dealers should have mechanisms in place to allow for this.

C. Trust or company service providers (TCSPs)

Trust or company service providers (TCSPs) are the backstage helpers for businesses and individuals. They handle tasks like forming companies, providing registered office addresses, and even acting as trustees for trusts. These services can be useful, but unfortunately, criminals can also misuse them to hide the ownership of money or assets. Due to the nature of their business, they are particularly vulnerable to money laundering. Unless supervised by another professional body, TCSPs need to register with HMRC.

Factors that make TCSPs vulnerable to money laundering:

• The nature of TCSP services. TCSPs offer services that can be attractive for criminals, such as company formation, registered office services, and acting as nominee directors or shareholders. These services can be used to create shell companies that obscure the true ownership of funds.
• Cross-border operations. Often, TCSPs operate in multiple jurisdictions. Inconsistencies in AML regulations across different countries mean that there are regulatory gaps. This creates loopholes that criminals can exploit.
• Complex ownership structures. TCSPs often deal with complex corporate structures involving multiple layers of companies. This complexity can make it difficult to identify the true beneficial owner (who ultimately controls the company) and the source of funds.
• TCSPs can be used to create a layer of anonymity for criminals. Incomplete Customer Due Diligence (CDD) by TCSPs leaves a gap, allowing criminals to exploit anonymity. By using nominee directors and shareholders, criminals can also distance themselves from their illegal activities.
• A lack of resources. Smaller TCSPs might lack the resources to implement strong AML controls, leaving them susceptible to money laundering.

Steps TCSPs can take to avoid money laundering

TCSPs should have a clear and well-documented AML policy and conduct independent audits of AML procedures.

1. Robust KYC and CDD processes: TCSPs need to strengthen these processes by verifying client identities, understanding their source of wealth and assessing the risk they pose.
2. Risk-based approach: TCSPs should tailor AML measures according to the client's risk profile, with higher-risk clients requiring more scrutiny compared to lower-risk ones.
3. Report suspicious activity: One of the main ways for TCSPs to prevent money laundering is for staff to raise an internal report if they suspect corrupt activity and for the nominated officer to raise a suspicious activity report to the National Crime Agency (NCA).
4. Transparency on ownership: TCSPs should maintain clear and up-to-date records of beneficial ownership for suspicious activity.

D. Accountancy service providers (ASPs)

Accountancy service providers (ASPs) are typically supervised by a professional body, but it depends on the provider's specific situation. ASPs are susceptible to money laundering activities due to the very nature of the services they offer. Accountancy service providers encompass a wide range of professionals who handle financial matters for businesses and individuals.

Examples of accountancy service providers:

• auditors who perform mandatory audits (statutory audits)
• accountants who provide general financial services
• tax advisors who consult on minimising tax burdens
• payroll agents who manage employee payments and taxes
• customs practitioners or freight forwarders if they offer tax or accounting services alongside their core business

Factors that make ASPs vulnerable to money laundering:

• Access to financial information.  ASPs have access to sensitive financial information about their clients, including bank account details, transactions, and business operations, which can be exploited for money laundering purposes.
• Financial transactions processing. Many ASPs handle client transactions, such as payroll or payments to vendors. Money launderers could attempt to infiltrate these processes to introduce illicit funds into the legitimate financial system. Any complex financial transaction can also make it difficult to detect money laundering activities.
• Lack of awareness. Not all ASPs, particularly smaller firms, may have adequate training or awareness of money laundering techniques. This can make them more vulnerable to being manipulated by criminals.

Steps ASPs can take to avoid money laundering

ASPs can significantly reduce their vulnerability to money laundering by implementing a robust AML programme.

1. Risk-based approach: ASPs need to tailor their AML measures based on their client's risk profile. Risk assessments are a useful way of identifying and understanding the money laundering risks associated with clients, services and geographic locations. Higher-risk clients require more stringent procedures compared to lower-risk ones.
2. CDD processes: It's important for ASPs to implement strong CDD measures, including ongoing monitoring of client activity for suspicious transactions or changes in behaviour that might indicate money laundering.
3. Suspicious activity reporting: ASPs should train their staff to identify red flags and have clear procedures for reporting suspicious activity internally, as well as mechanisms for reporting to the appropriate authorities, such as the National Crime Agency (NCA).
4. Training and awareness: ASPs need to provide ongoing training for staff on money laundering risks, red flags, and their reporting obligations.
5. Record keeping: Another way ASPs can prevent money laundering is to maintain accurate and up-to-date records of client identification, transactions, and risk assessments for a specified period. This helps to demonstrate compliance with AML regulations and facilitate investigations if necessary.

E. Estate Agency Businesses (EABs)

Estate agency businesses (EABs) in the UK need to register with HMCR if the business carries out any work defined as estate agent activity in accordance Estate Agents Act 1979. There are  currently two primary professional bodies that oversee estate agents in the UK: 

• National Association of Estate Agents (NAEA)
• Royal Institution of Chartered Surveyors (RICS)

EABs are susceptible to money laundering for several reasons, some related to the nature of the transactions they handle and others due to potential gaps in their processes. 

Factors that make EABs vulnerable to money laundering:

• High-value transactions. Real estate deals often involve significant sums of money, making them attractive to criminals seeking to launder illicit funds. Criminals can use property purchases to disguise the source of their wealth.
• Complex ownership structures. Real estate can be held through complex ownership structures involving multiple companies, making it challenging to identify the true beneficial owner and the origin of the funds used for purchase.
• Cash transactions. While less common these days, some estate agencies might still handle cash payments, which are difficult to trace and preferred by money launderers. EABs that accept cash payments without adequate scrutiny increase the risk of being used for money laundering purposes.
• Lack of awareness. Not all EABs may be fully aware of money laundering techniques or have adequate training to identify red flags. This lack of awareness can make them vulnerable to being manipulated by criminals.

Steps EABs can take to avoid money laundering

1. Staff training and awareness: EABs should provide regular training and awareness programs to staff members on AML regulations, red flags of money laundering, and the estate agency's internal policies and procedures. Encourage a culture of compliance and vigilance among employees.
2. CDD processes: EABs need to conduct thorough due diligence on all clients and beneficial owners involved in real estate transactions. Verify the identity of clients, assess the source of funds, and understand the nature and purpose of the transactions. Enhanced due diligence should be applied to high-risk clients or transactions.
3. Report suspicious activity: It's important for EABs to implement systems to monitor real estate transactions for signs of suspicious activity, such as unusual payment patterns, large cash transactions, or attempts to obscure the true ownership of properties. Once again, staff should be trained to identify red flags and have clear procedures for reporting suspicious activity to the authorities.

F. Bill payment service providers (BPSPs)

Bill payment service providers (BPSPs) provide a payment service for utility and other household bills. Their role is to act on behalf of the payer. HMRC guidance for Money Service Businesses applies to BPSPs.

Supervision for BPSPs in the UK isn't universally mandatory, but it's becoming increasingly likely, especially for those handling sensitive financial activities. This means that even basic BPSPs might require FCA supervision in the future.

Factors that make BPSPs vulnerable to money laundering:

• Multiple payment options. Some BPSPs may offer various payment options, such as prepaid cards or mobile wallets, which can be exploited by money launderers due to the anonymity and ease of use associated with these payment methods.
• Limited CDD.Some BPSPs, particularly those dealing with basic bill payments, might not perform thorough CDD on their clients. This allows criminals to exploit anonymity and avoid scrutiny. 
• Fragmented regulatory landscape. The supervision of BPSPs can vary depending on the jurisdiction, its regulatory requirements and the type of service offered. This lack of uniformity might create loopholes that criminals can exploit.

Steps BPSPs can take to avoid money laundering

1. KYC processes: It's important to implement strong KYC procedures, even for basic BPSPs. This involves verifying client identities, understanding their source of wealth and funding for transactions, and assessing the money laundering risk they pose.
2. Suspicious Activity Reports: BPSPs should train their staff to identify red flags associated with money laundering and have clear procedures for reporting suspicious activity to the authorities. Common red flags include frequent cash payments, unusually large bill payments, or payments to high-risk countries.
3. Transaction monitoring: BPSPs need to implement real-time transaction monitoring systems to detect any unusual or suspicious activities. This involves setting thresholds for transactions and monitoring any deviations from normal behaviour.

G. Telecoms, digital & IT payment service providers

A telecoms, digital, and IT payment service provider acts as an intermediary. Professional bodies generally don't have direct supervisory authority over telecoms, digital & IT payment service providers. HMRC guidance for Money Service Businesses applies to Telecoms, digital & IT payment service providers.

Factors that make telecoms, digital & IT payment service providers vulnerable to money laundering:

• Anonymity. Prepaid mobile phone plans and digital and IT payment services, in general, can offer a degree of anonymity, making it easier for criminals to disguise the source of funds used for mobile payments.
• Customer Due Diligence (CDD) challenges. Verifying the identity of customers in digital and IT payment services can be more challenging compared to traditional financial institutions, especially in cases of online or remote transactions.
• Technical complexity. The complex technical infrastructure behind online payments can create vulnerabilities that criminals can exploit to obscure the flow of funds.

Steps telecoms, digital & IT payment service providers can take to avoid money laundering

1. Strengthen internal controls: Telecoms, digital & IT Implement robust internal controls and governance frameworks to ensure compliance with AML regulations, including regular audits and reviews of AML procedures and controls.
2. Enhance Customer Due Diligence (CDD): It's important for telecoms, digital and IT payment service providers to perform thorough CDD, including verifying user identities, understanding their source of wealth, and assessing money laundering risks.
3. Educate employees: Telecoms, digital and IT payment service providers should provide ongoing training for staff on money laundering risks, red flags, the importance of AML compliance and reporting obligations.

H. Art dealers

Art market participants buying or selling works of art where the transaction value (or a series of linked transactions) is 10,000 euros or more need to register with HMRC. Art dealers are high-value dealers, which makes them targets for money laundering.

Factors that make art dealers vulnerable to money laundering:

• High-value transactions. Artworks can be worth millions, making them attractive for criminals seeking to launder large sums of illegal funds. A single transaction can move a significant amount of money with relative ease.
• Anonymity and secrecy. The art market often values confidentiality. Transactions can be private, with details about buyers and sellers kept undisclosed. This secrecy can be exploited by criminals to hide the source and destination of laundered money.
• Subjective valuation. The subjective nature of valuing art makes it easier to manipulate prices, allowing criminals to artificially inflate or deflate the value of artworks to facilitate money laundering.

Steps art dealers can take to avoid money laundering

Art dealers can take proactive steps to mitigate the risk of money laundering within their businesses. 

1. Transaction monitoring: Art dealers should monitor transactions for suspicious patterns, such as large cash payments, unusual buying behaviour, or frequent sales to high-risk countries.
2. Customer Due Diligence (CDD): Art dealers need to carry out CDD measures on all customers before they conclude a transaction.
3. Training and awareness: It's important for art dealers to provide training to staff on recognising and reporting suspicious activities related to money laundering.

I. Letting agency businesses (LABs)

Letting agency businesses (LABs) that rent property or land valued at the equivalent of 10,000 euros or more a month for rentals that are a month or longer need to register with HMRC.

Factors that make LABs vulnerable to money laundering:

• Cash transactions. While becoming less common, some rental payments might still involve cash deposits. Cash is difficult to trace and preferred by money launderers for the "placement" stage of laundering, where they introduce illicit funds into the financial system.
• High-value transactions. Renting luxury properties can involve substantial sums of money. Large rental payments, particularly in cash, could be attractive to criminals seeking to launder significant amounts of illicit funds.
• Lack of awareness. Letting agency staff might not be fully aware of money laundering techniques or red flags. This lack of awareness can make them more susceptible to being manipulated by criminals.

Steps LABs can take to avoid money laundering

1. Transaction monitoring:  LABs should implement robust systems for monitoring transactions and detecting suspicious activities such as large cash deposits (especially for short-term rentals), frequent changes in tenants and payments originating from high-risk countries.
2. Reporting suspicious activity: It's important for LABs to train staff to identify red flags associated with money laundering and have clear procedures for reporting suspicious activity to the authorities.
3. Record keeping: LABs need to maintain accurate and up-to-date records of client identification documents, tenancy agreements, rental payment records, risk assessments, and source of funds documentation for a specified period as required by regulations.

What money laundering training is needed?

The training provided needs to be relevant to the business's size, scale and complexity. Page 80 of the HMCR Guidance for Money Laundering Supervision outlines the training requirements for a Money Service Business; however, these are the same for the other types of business.

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