HMRC issues amended AML risk assessment guidance for TCSPs
Guidance to help TCSPs recognise and minimise the risk of being used by money launderers was first issued by HMRC in August 2020, under Money Laundering Regulation 17(9). However, HMRC's perception of the risks changed with the publication of an updated National Risk Assessment (NRA) in December 2020. The new guidance reflects these changes.
The NRA assessed TCSPs as posing a high risk, especially those who provide their services along with other financial, legal or accountancy services. However, HMRC continues to regard the TCSP sector as a whole as only medium risk, because the TCSPs it supervises do not normally provide financial or legal services and are regarded as a low risk for terrorist financing.
Because the risk for a particular TCSP increases when it provides other financial, legal or accountancy services as well, such businesses need to appraise the risk presented by each business activity, customer or class of customer and properly reflect this in their risk assessment. HMRC thus breaks down its risk assessment guidance by activity, listing the highest risk factors for each such activity.
Company formation agents that form companies for UK-based owner managers and established professionals may well be judged as low risk. However, the supply of a large number of companies at the same time, or in close succession, could indicate a higher level of risk as the companies could be used to open a large number of bank accounts across different jurisdictions to facilitate the movement of funds.
Director or shareholder services provision can be high-risk if it involves confidentiality to protect the identity of an actual owner or controlling interests. In such cases, the TCSP needs to know on whose behalf they are acting and who the beneficial owner of the business is. Providing such services for multiple companies with common owners may also present the risk in that the beneficial owners may not wish their business relationships to be open to scrutiny.
Providing virtual office facilities to companies that are not physically present has several risks, especially where there is minimal face-to-face contact, regular forwarding of large volumes of mail, multiple addresses supplied to the same or connected businesses and where the service is supplied to off-shore intermediaries or non-UK resident persons.
According to HMRC, there is ‘little evidence of UK trusts being used for money laundering or terrorist financing purposes, though there is some evidence of offshore trusts being used for money laundering purposes.’ HMRC says that professional trustees working for a trust service provider must assess the extent to which they are free to act in the best interest of the beneficiaries and without undue influence of the settlor or other third party. They should have proper oversight of the assets to prevent bank accounts being used for non-trust purposes. Acting as the professional trustee of a charity is generally low risk, but appropriate measures should be in place to confirm the nature and purpose of the charity, and if a newly established charity, evidence that it can meet its objectives, the source and control of its funds and that appropriate decision-making processes are in place.
The guidance offers more detailed advice to multi-service providers, in view of the NRA's conclusion that the more services a TCSP is asked to provide, the higher the level of risk. If a beneficial owner is seeking to use the TCSP to provide a range of services that distances them from the legal entity, the risk assessment needs to reflect the increased level of risk that this may bring, says HMRC.
Corruption or money laundering may be indicated if there is no apparent commercial basis for the structures and services being provided, particularly if opaque structures are being used to prevent identification of the ultimate owner.
The guidance notes that the risk may significantly increase where the TCSP is asked to supply multiple services, on the instructions of non-UK based intermediaries, to their customers. HMRC says, ‘It is important, in these circumstances, that you assess the risk to your business of providing services, taking into account the locations of the intermediaries, their customers and the beneficial owners and the nature of any entities being provided, and services required.’
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