Money laundering

There are tough rules to crack down on mon­ey laun­der­ing and the pro­ceeds of crime. These rules affect a wide range of peo­ple and we con­sid­er how your organ­i­sa­tion may be affect­ed.

Money laundering — a definition

Most of us imag­ine mon­ey laun­der­ers to be crim­i­nals involved in drug traf­fick­ing or ter­ror­ism or to be some­one like Al Capone. How­ev­er, leg­is­la­tion in the last two decades, has expand­ed sig­nif­i­cant­ly the def­i­n­i­tion of what we might have tra­di­tion­al­ly con­sid­ered as mon­ey laun­der­ing. While the gen­er­al prin­ci­ples remain; mon­ey laun­der­ing involves turn­ing the pro­ceeds of crime into appar­ent­ly ‘inno­cent’ funds with no obvi­ous link to their crim­i­nal ori­gins, what should be remem­bered is that the def­i­n­i­tion includes the pro­ceeds of any crim­i­nal offence, regard­less of the amount involved.

The rules

The key pieces of leg­is­la­tion are:

• the Pro­ceeds of Crime Act 2002 (The Act) as amend­ed by the Seri­ous Organ­ised Crime and Police Act 2005, and
• the Mon­ey Laundering,Terrorist Financ­ing and Trans­fer of Funds (Infor­ma­tion on the Pay­er) Reg­u­la­tions 2017 as amend­ed  (The 2017 Reg­u­la­tions as amend­ed).

The Act

When first issued the Act re-defined mon­ey laun­der­ing and the mon­ey laun­der­ing offences, to cov­er the pro­ceeds of any crime (not just seri­ous crime) and cre­at­ed mech­a­nisms for inves­ti­gat­ing and recov­er­ing the pro­ceeds of crime. The Act also revised and con­sol­i­dat­ed the require­ment for those affect­ed to report knowl­edge, sus­pi­cion or rea­son­able grounds to sus­pect mon­ey laun­der­ing. See the pan­el below for some of the more tech­ni­cal terms of the Act.

The 2017 Regulations (as amended)

The 2017 Reg­u­la­tions orig­i­nal­ly came into effect on 26 June 2017 and replaced the 2007 Reg­u­la­tions. They have sub­se­quent­ly been amend­ed a num­ber of times, most recent­ly as a result of Brex­it. The Reg­u­la­tions con­tain the detailed pro­ce­dur­al require­ments for those affect­ed by the leg­is­la­tion, but have been updat­ed in some areas, includ­ing ben­e­fi­cial own­ers and high risk third coun­tries, com­pared to the pre­vi­ous ver­sion.

Digital Identity verification

New gov­ern­ment guid­ance in Feb­ru­ary 2026 clar­i­fies that firms can use cer­ti­fied dig­i­tal iden­ti­ty providers to meet iden­ti­ty ver­i­fi­ca­tion require­ments under Reg­u­la­tion 28 of the MLRs.

ID ver­i­fi­ca­tion for direc­tors and per­sons of sig­nif­i­cant con­trol (PSC)

New direc­tors and PSCs are now required to ver­i­fy their iden­ti­ty, and exist­ing com­pa­ny direc­tors have until Novem­ber 2026 to com­plete the ver­i­fi­ca­tion checks or face fines and/or removal from the reg­is­ter alto­geth­er.

Proceeds of Crime Act — technical terms

Who is caught by the legislation?

The regulated sector

The leg­is­la­tion relates to any­one in what is termed as the ‘reg­u­lat­ed sec­tor’, which includes but is not lim­it­ed to:

cred­it insti­tu­tions
finan­cial insti­tu­tions
cryp­toas­set exchange and or cus­to­di­an wal­let providers
audi­tors, insol­ven­cy prac­ti­tion­ers, exter­nal accoun­tants and tax advis­ers
inde­pen­dent legal pro­fes­sion­als
trust or com­pa­ny ser­vice providers
estate agents and let­ting agents
high val­ue deal­ers
art mar­ket par­tic­i­pants
casi­nos.

The implications of being in the regulated sector

Those busi­ness­es that fall with­in the def­i­n­i­tion are required to estab­lish pro­ce­dures to:

iden­ti­fy and assess the risks of mon­ey laun­der­ing and ter­ror­ist financ­ing to which they are sub­ject and man­age that risk
apply cus­tomer due dili­gence pro­ce­dures (see below)
keep appro­pri­ate records
appoint a Mon­ey Laun­der­ing Nom­i­nat­ed Offi­cer (MLNO) to whom mon­ey laun­der­ing reports must be made
appoint a mem­ber of the board or senior man­age­ment as the offi­cer respon­si­ble for com­pli­ance with the Reg­u­la­tions (this may be the same per­son as the MLNO)
estab­lish sys­tems and pro­ce­dures to fore­stall and pre­vent mon­ey laun­der­ing
mon­i­tor and man­age com­pli­ance with, and com­mu­ni­ca­tion of, the poli­cies and pro­ce­dures and
pro­vide rel­e­vant indi­vid­u­als with train­ing on mon­ey laun­der­ing and aware­ness of their pro­ce­dures in rela­tion to mon­ey laun­der­ing.

If your busi­ness is caught by the def­i­n­i­tion you may have received guid­ance from your pro­fes­sion­al or trade body on how the require­ments affect you and your busi­ness. Those of you who are clas­si­fied as High Val­ue Deal­ers may be inter­est­ed in our fact­sheet of the same name, which con­sid­ers how the 2017 Reg­u­la­tions (as amend­ed) affect those who make or receive high val­ue cash pay­ments.

The implications for customers of those in the regulated sector

As you can see from the list above, quite a wide range of pro­fes­sion­als and oth­er busi­ness­es are affect­ed by the leg­is­la­tion. Those affect­ed must com­ply with the laws or face the prospect of crim­i­nal lia­bil­i­ty (both fines and pos­si­ble impris­on­ment) where they do not.

Customer Due Diligence (CDD)

Under The Reg­u­la­tions, if you oper­ate in the reg­u­lat­ed sec­tor, you are required to under­take CDD pro­ce­dures on your cus­tomers. These CDD pro­ce­dures need to be under­tak­en for both new and exist­ing cus­tomers.

CDD mea­sures must also be applied on a risk sen­si­tive basis at oth­er times to exist­ing cus­tomers. This could include when a cus­tomer requires a dif­fer­ent ser­vice, or where there is a change in the customer’s cir­cum­stances. Busi­ness­es must con­sid­er why the cus­tomer requires the ser­vice, the iden­ti­ties of any oth­er par­ties involved and any poten­tial for mon­ey laun­der­ing or ter­ror­ist financ­ing.

The pur­pose of the CDD is to con­firm the iden­ti­ty of the cus­tomer. For the customer’s iden­ti­ty to be con­firmed, inde­pen­dent and reli­able infor­ma­tion is required. Doc­u­ments which give the strongest evi­dence are those issued by a gov­ern­ment depart­ment or agency or a Court, includ­ing doc­u­ments filed at Com­pa­nies House. For indi­vid­u­als, doc­u­ments from high­ly rat­ed sources that con­tain pho­to iden­ti­fi­ca­tion, eg pass­ports and pho­to dri­ving licences, as well as writ­ten details, are a par­tic­u­lar­ly strong source of ver­i­fi­ca­tion. The 2017 Reg­u­la­tions (as amend­ed) now explic­it­ly state that elec­tron­ic ver­i­fi­ca­tion may be regard­ed as a reli­able source of evi­dence.

The law requires the records obtained dur­ing the CDD to be main­tained for five years after a cus­tomer rela­tion­ship has end­ed. It also requires cus­tomers to be noti­fied about how their per­son­al data will be processed and who the data con­troller is (being the name of the entity/person reg­is­tered under Data Pro­tec­tion rules).

Enhanced Due Diligence (EDD)

EDD and ongo­ing mon­i­tor­ing must be applied where:

• the risk of mon­ey laun­der­ing or ter­ror­ist financ­ing is assessed as high
• the cus­tomer or a par­ty to a trans­ac­tion in which they are involved is estab­lished in a high-risk third coun­try
• the client is a polit­i­cal­ly exposed per­son or a fam­i­ly member/known close asso­ciate of one (this now includes UK PEPs)
• false or stolen iden­ti­fi­ca­tion doc­u­ments or infor­ma­tion have been pro­vid­ed and there is still an inten­tion to act for the cus­tomer
• a trans­ac­tion is com­plex or unusu­al­ly large or has an unusu­al pat­tern or there is no appar­ent legal or eco­nom­ic pur­pose
• by its nature there is a high­er risk of mon­ey laun­der­ing or ter­ror­ist financ­ing
• there is a ‘cor­re­spon­dent rela­tion­ship’ with anoth­er cred­it or finan­cial insti­tu­tion.

Addi­tion­al pro­ce­dures are required over and above those applied for nor­mal due dili­gence in these cir­cum­stances.

The above list was changed in the 2017 Reg­u­la­tions (as amend­ed) to define more clear­ly what is meant by estab­lished in a high risk third coun­try and to extend the scope to include any oth­er par­ties to a trans­ac­tion. The word­ing in respect of trans­ac­tions that trig­ger EDD was also amend­ed to refer to com­plex or unusu­al­ly large rather than com­plex and unusu­al­ly large, and sim­i­lar­ly unusu­al pat­tern and no appar­ent legal pur­pose was changed to or. In addi­tion, with the increased use of inter­net or oth­er remote trans­ac­tions the require­ment to apply EDD where not meet­ing the cus­tomer face to face has been removed pro­vid­ed elec­tron­ic ver­i­fi­ca­tion of iden­ti­ty is under­tak­en suc­cess­ful­ly.

Reporting

As men­tioned above, the def­i­n­i­tion of mon­ey laun­der­ing includes the pro­ceeds of any crime. Those in the reg­u­lat­ed sec­tor are required to report knowl­edge or sus­pi­cion (or where they have rea­son­able grounds for know­ing or sus­pect­ing) that a per­son is engaged in mon­ey laun­der­ing ie has com­mit­ted a crim­i­nal offence and has ben­e­fit­ed from the pro­ceeds of that crime. These reports should be made in accor­dance with agreed inter­nal pro­ce­dures, first­ly to the MLNO, who must decide whether or not to pass the report on to the Nation­al Crime Agency (NCA).

The defences for the MLNO are:

• rea­son­able excuse (rea­sons such as duress and threats to safe­ty might be accept­ed although there is lit­tle case law in this area)
• they fol­lowed Trea­sury approved guid­ance.

The Courts must take such guid­ance into account.

National Crime Agency (NCA)

The NCA is the UK crime-fight­ing agency with nation­al and inter­na­tion­al reach and the man­date and pow­ers to work in part­ner­ship with oth­er law enforce­ment organ­i­sa­tions to bring the full weight of the law to bear in cut­ting seri­ous and organ­ised crime. Part of the role of the NCA is to analyse the sus­pi­cious activ­i­ty reports (SARs) received from those in the reg­u­lat­ed sec­tor and to then dis­sem­i­nate this infor­ma­tion to the rel­e­vant law enforce­ment agency.

The Reg­u­la­tions require those in the reg­u­lat­ed sec­tor to report all sus­pi­cions of mon­ey laun­der­ing to the NCA. By act­ing as a coor­di­nat­ing body, the NCA col­lates infor­ma­tion from a num­ber of dif­fer­ent sources. This could poten­tial­ly build up a pic­ture of the crim­i­nal activ­i­ties of a par­tic­u­lar indi­vid­ual, which only become appar­ent when looked at as a whole. This infor­ma­tion can then be passed on to the rel­e­vant author­i­ties to take action. More detail on the activ­i­ties of the NCA can be found on their web­site www.nationalcrimeagency.gov.uk.

Is your business vulnerable?

Crim­i­nals are con­stant­ly search­ing for new con­tacts to help them with their mon­ey laun­der­ing or ter­ror­ist financ­ing. Cer­tain types of busi­ness are more vul­ner­a­ble than oth­ers. For exam­ple, any busi­ness that uses or receives sig­nif­i­cant amounts of cash can be par­tic­u­lar­ly attrac­tive. To counter this, the Reg­u­la­tions require busi­ness­es that deal in goods and accept cash equiv­a­lent to €10,000 or more to reg­is­ter with HMRC and imple­ment anti-mon­ey laun­der­ing pro­ce­dures. Such busi­ness­es are known as High Val­ue Deal­ers (HVD).

You can imag­ine that if a drug deal­er went along to a bank on Mon­day morn­ing and tried to pay in the week­end’s tak­ings, the bank would notice it and report it unless the sum was rel­a­tive­ly small. If crim­i­nals can find a legit­i­mate busi­ness to help them by tak­ing the cash and pre­tend­ing that it is the busi­ness’s mon­ey being paid in (in exchange for a pro­por­tion!), then that busi­ness can put the cash into the bank with­out any ques­tions being asked.

Take, for exam­ple, the mobile tele­phone busi­ness that has had a fair­ly steady turnover of £10,000 per week for the last cou­ple of years but sud­den­ly begins to bank £100,000 in cash each week. With­out a clear, ratio­nal and plau­si­ble expla­na­tion, this type of sus­pi­cious activ­i­ty would clear­ly be report­ed to the NCA.

Per­haps a less obvi­ous exam­ple of pos­si­ble mon­ey laun­der­ing could be where an indi­vid­ual comes into an antiques shop and offers to buy a piece of fur­ni­ture for £12,000 in cash. Not too many sell­ers would have insist­ed upon a cheque in the past! Now the HVD will need to con­sid­er the risk of mon­ey laun­der­ing and as a min­i­mum car­ry out cus­tomer due dili­gence before accept­ing such a cash amount. This per­son may be a mon­ey laun­der­er who then goes to anoth­er shop and sells the antique for say £8,000, being quite pre­pared to suf­fer the appar­ent loss. This time the crim­i­nal asks for a cheque that can then be paid inno­cent­ly into a bank account, mak­ing the mon­ey look legit­i­mate.

The leg­is­la­tion aims to put a stop to this type of activ­i­ty. Those in the reg­u­lat­ed sec­tor are required to report any trans­ac­tions that they have sus­pi­cions about. Also, it is not sim­ply the more obvi­ous exam­ples of sus­pi­cious activ­i­ties that have to be report­ed. For the major­i­ty of those reg­u­lat­ed, the gov­ern­ment has insist­ed upon there being no de min­imis lim­its with­in the leg­is­la­tion. This means that very small pro­ceeds of crime have to be report­ed to the NCA.

Tipping off

There is also an offence known as ‘tip­ping off’ under the Act. This is what would hap­pen if a per­son in the reg­u­lat­ed sec­tor were to reveal that a sus­pi­cious activ­i­ty report had been made, say for exam­ple about a cus­tomer, to that cus­tomer. Where this dis­clo­sure would be like­ly to prej­u­dice any inves­ti­ga­tion by the author­i­ties, an offence may be com­mit­ted. A tip­ping off offence may also be com­mit­ted where a per­son in the reg­u­lat­ed sec­tor dis­clos­es that an inves­ti­ga­tion into alle­ga­tions that a mon­ey laun­der­ing offence has been com­mit­ted is being con­tem­plat­ed or car­ried out, and again, that this dis­clo­sure would be like­ly to prej­u­dice that inves­ti­ga­tion. As you can imag­ine there­fore, if you were to ask an accoun­tant or estate agent whether they had made any reports about you, they would not be able to dis­cuss this with you at all. If they did, they could break the law and could face a fine or impris­on­ment, or both.

AML supervision moving to FCA

In 2025 it was announced that AML super­vi­sion respon­si­bil­i­ties will move from the reg­u­lat­ed sec­tor and pro­fes­sion­al body super­vi­sors, such as ICAEW, to the sole con­trol of the Finan­cial Con­duct Author­i­ty (FCA) in 2026.