AML checks for accountants in the UK

Despite increased financial surveillance and technological solutions, money laundering remains a huge issue in the UK, with £10 billion of illegal money laundered each year. 

Accountants are on the frontline when it comes to detecting money laundering. This means a solid understanding of AML checks and how they work is essential to providing responsible and vigilant accounting services. 

In this article, we’ll explain everything you need to know about AML checks for accountants in the UK. Read on to explore: 

• Current laws and regulations
• The role accountants play in AML
• AML compliance strategies 

But before we start, a quick disclaimer: this guide is provided for information purposes only. It cannot be considered legal advice nor relied upon as evidence of complying with AML requirements. 

What is AML?

AML stands for anti-money laundering. It refers to the laws, regulations, and activities designed to prevent criminals from laundering money. 

When criminals obtain money through illegal activities, they often attempt to disguise that money as legitimate income by “cleaning” it. This typically involves moving large amounts between various accounts and entities to obscure their origin. AML aims to detect these activities through stringent checks and controls.

Different countries and regions have different AML laws and regulations. It’s essential for accountants to understand the regulations that apply to them and how they build AML compliance into their day-to-day work.

What AML legislation applies in the UK? 

Until 2020, when the UK officially left the European Union (EU), the UK was subject to the EU Anti-Money Laundering Directive (AMLD). This is a set of rules issued by the European Parliament to prevent money laundering in EU member states. Since Brexit, however, AML regulations in the UK are now set out in domestic legislation. 

Rather than having a single directive for AML, the UK has a robust and somewhat complex framework of AML legislation. This is spread across multiple different legal acts and regulations, including: 

The Proceeds of Crime Act 2002

The Proceeds of Crime Act (POCA) is the main legislation in the UK’s AML regime. It defines money laundering as: 

“The process by which the proceeds of crime are converted into assets which appear to have a legitimate origin, so that they can be retained permanently or recycled into further criminal enterprises”.

The main purpose of POCA is to stop criminals from benefiting financially from illegal activity, including money laundering, fraud, and tax evasion. It gives law enforcement legal power to confiscate property acquired illegally — including money, property, and intangible assets. 

POCA also requires professionals working in regulated sectors to report activities they suspect to involve money laundering to the National Crime Agency (NCA). This is done through a Suspicious Activity Report (SAR). Regulated sectors include finance, legal, and accounting.

Money Laundering Regulations 2017 (MLR 2017)

The MLR 2017 is officially known as the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017. This regulation imposes additional obligations for private-sector businesses that operate in areas that are particularly vulnerable to money laundering. 

These include financial institutions, legal practices, and other professional services providers, including accounting practices.

The MLR 2017 goes beyond the scope of POCA by requiring firms to:

• Conduct firm-wide risk assessments
• Implement stringent AML policies, procedures, and controls
• Conduct customer due diligence

The Terrorism Act 2000

Known informally as TACT, the Terrorism Act 2000 addresses the financing of terrorism. In addition to providing a legal definition of terrorism, it sets out the powers available to law enforcement. For accountants and other professional service providers, it introduces an obligation to report any incidents that they suspect relate to terrorist financing. 

The Criminal Finances Act 2017

The Criminal Finances Act 2017 (CFA) was introduced to amend certain parts of POCA. For example, under the CFA, POCA-regulated businesses can share information about suspected incidents of money laundering if certain conditions are met. This can either take place at the discretion of regulated businesses or the request of the NCA.

The Economic Crime (Transparency and Enforcement) Act 2022

The Economic Crime (Transparency and Enforcement) Act 2022(ECA) was introduced to help crack down on money laundering from foreign elites in the UK. It requires foreign entities that own property in the UK to register their beneficial owners with Companies House. The ECA also provides law enforcement with greater powers to impose sanctions and share information. 

Do accountants need to do AML checks?

Yes, accountants in the UK are legally required to comply with AML regulations. The MLR 2017, for example, applies to all regulated businesses, including accountants and accounting firms. As such, accountants must carry out AML checks, conduct customer due diligence, and report any suspicious transactions or behaviour to the NCA. 

Carrying out AML checks helps accountants ensure that their services aren’t being used to move or hide “dirty money”. They also act as a deterrent against illegal activity while strengthening the collaboration between professional services firms and law enforcement agencies. 

AML compliance strategies for UK accounting firms

At this point, you might be wondering, how exactly do I implement AML compliance in my accounting business? In this section, we’ll answer that question with some practical strategies.

Employ a money laundering reporting officer

Before we get into specific AML strategies, let’s start with an important obligation. POCA requires regulated businesses — including accounting firms — to employ a money laundering reporting officer (MLRO). 

It is the MLRO’s responsibility to promote AML best practices, ensure firm-wide adherence to AML regulations, and report any suspicious behaviour to the NCA. While implementing AML procedures is a firm-wide effort, the MLRO is ultimately responsible for AML-related strategies and outcomes.

In larger firms, MLRO duties might comprise a full-time position or fall under the responsibility of a compliance manager. For smaller firms and solopreneurs, the firm owner often doubles as the MLRO. According to MLR 2017, firms should also appoint someone at the board level or senior management to be responsible for MLR 2017 compliance. This can be the same person as the MLRO.

Carry out AML risk assessments

Under MLR 2017, you must conduct AML risk assessments to help prevent and detect money laundering. Your risk assessment must be in written form and should cover risks associated with factors such as: 

• Your current clients
• The countries or regions you operate in
• The nature of your services
• The type of transactions you facilitate

If an accountant in your practice detects suspicious activity during this process, they should report it directly to the MLRO. If necessary, the MLRO should then submit a Suspicious Activity Report to the NCA. Failure to do so can be a criminal offence under POCA, so any suspicious behaviour must be taken seriously.

Develop a comprehensive AML policy

You’ll also need to write clear AML policies and procedures. These policies should cover key areas such as: 

• The controls you will implement to mitigate risk and identify suspicious activities
• Your customer due diligence process
• Your reporting and record-keeping processes
• How you monitor compliance with internal controls
• How you identify unusual or suspicious transactions
• The role technology plays in your AML procedures
• Key roles and responsibilities

Make sure your AML policies and procedures are approved by senior management, readily available to your team, and updated regularly in line with corporate or regulatory changes. If your firm is part of a larger corporate structure, it’s important that your policies and procedures apply to all branches and subsidiaries. 

Carry out independent audits

Depending on the size of your firm and the industry you operate in, you may be required to implement additional internal controls to mitigate AML risk, including independent audits. This will help you verify compliance, identify potential risks, and suggest improvements to your existing strategies.

According to MLR 2017, independent audits don’t have to be carried out by a third party — although they can be. They must be independent of the specific function being audited, however. 

Conduct customer due diligence 

MLR 2017 requires firms to conduct customer due diligence in certain situations. For example, customer due diligence is required when entering into a new business relationship, when transactions exceed certain thresholds, or if you suspect money laundering is taking place. This typically includes: 

• Performing know-your-customer (KYC) checks to verify the identity of clients
• Gathering key information, such as names, addresses, and business identification numbers
• If the client is a legal entity, verifying its ownership structure
• Ensuring that a person acting on behalf of a business is authorised to do so

Implement advanced due diligence for high-risk clients

In some specific cases, you might be required to carry out what the MLR 2017 refers to as “enhanced due diligence.” This imposes additional requirements for clients or situations that are considered high-risk. These include when:

• A new client is not physically present when you carry out KYC checks
• You enter into a new business relationship with a “politically exposed person”
• You enter into a transaction with a client from a high-risk country
• You are engaged in any other situation that poses a high risk of money laundering

Invest in AML staff training

Adhering to AML regulations and policies is a firm-wide effort. To ensure that your staff understand the role they play in AML compliance, hold regular staff training sessions. Your training should cover key aspects of your AML strategy, including:

• Your internal policies and procedures
• How to conduct customer due diligence
• How to spot irregular or suspicious activity
• What to do if you suspect money laundering
• Key roles and responsibilities within your firm

Enhance AML compliance with technology

Like most accounting processes, AML compliance can be significantly enhanced using the right technology. Modern software can automate processes such as client screening, transaction monitoring, and record-keeping. This reduces the risk of human error while increasing transparency, efficiency, and auditability. 

In addition to accounting software, a comprehensive practice management platform can provide you with important tools for streamlining the tasks and processes associated with AML compliance. TaxDome, for example, enables you to: 

• Automate the client onboarding process, including information and document gathering
• Keep all your client details and communications in an accounting CRM
• Store, manage, and share client documents securely in one place 
• Gain top-down visibility into teams, tasks, and deadlines 
• Integrate seamlessly with other accounting technologies

Regularly review and update your AML procedures

Like everything accounting-related, AML is an evolving landscape. Requirements and regulations are subject to change. Likewise, best practices, technologies, and internal controls must adapt to new realities. With this in mind, make sure you review your AML procedures regularly — and update them where necessary. 

Taking a proactive approach to updating your AML procedures is essential. By staying one step ahead of potential risks and changes, you’ll maintain a strong defence against money laundering and other financial crimes.

Conclusion

Money laundering is a serious issue in the UK and worldwide. As accountants deal with complex financial transactions, they are in a unique position to identify money laundering incidents and mitigate risks. Understanding the relevant regulations and how they can be applied in practice is essential for any diligent accounting professional.  

We hope the information in this guide helps you better understand the AML landscape and what is required of accountants and accounting firms. It’s important to remember that while implementing AML strategies at scale can be complicated, with the right tech, it needn’t be. 

TaxDome provides the tools you need to run a highly efficient, organised, profitable firm. Many of these tools can enhance or automate the tasks and processes associated with AML compliance. But don’t just take our word for it — request a demo and see for yourself!

You might be interested in:

• HMRC scam letters and emails: a cybersecurity guide for accountants
• Cybersecurity in accounting: threats, best practices, and future trends
• Data Security for Tax and Accounting: 5-Step Plan to Securing Client Data