This is a mandatory policy which applies to all employees, directors, principals, consultants and contractors of The FD Centre Limited trading as The CFO Centre (the “CFO Centre”).
This policy is designed to ensure compliance with UK anti-money laundering (AML) and counter-terrorist financing (CTF) legislation (AML Legislation), in particular, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLR 2017), Proceeds of Crime Act 2002 (POCA) and Terrorism Act 2000 (TACT). The policy takes into account the CCAB AML guidance approved by HM Treasury (CCAB Guidance).
Failure to adhere to the policy may be treated as a serious disciplinary issue and/or material breach of contract (where applicable). In addition, if you fail to comply with the policy, you may risk breaching the requirements of the MLR 2017 and may potentially expose yourself and the CFO Centre to the risk of criminal prosecution for offences punishable by an unlimited fine and up to two years’ imprisonment.
This policy is designed to help keep you and CFO Centre compliant with the AML Legislation.
The CFO Centre’s Legal and Compliance Team play a major role in ensuring compliance by carrying out checks on all new clients and obtaining any supporting documents required to ensure compliance with the AML Legislation.
Principals are required to assist the Legal and Compliance Team in carrying out a client risk assessment within the first 3 months of any client engagement. Where a client engagement is expected to last less than 3 months, a risk assessment must be carried out as soon as possible after engaging the client.
It is important to note that the risk assessment is the very start of the AML and CTF journey.
Once the client has been onboarded by the Legal and Compliance Team, responsibility for ensuring ongoing compliance with the AML Legislation passes to the Principal involved in the relevant client relationship who are responsible for:
- Reviewing and checking that the risk assessment is accurate and comprehensive.
- Being vigilant of any unusual activity.
- Scrutinising the source of funds.
- Undertaking ongoing monitoring of the client.
It is crucial that if you have any concerns or suspicions regarding a client you are working with (whether about the client or a third party) that these are reported to money laundering reporting officer (MLRO) immediately.
CFO Centre has appointed Zoe Wilson Adv.Cert (AML) its internal Compliance Officer, responsible for the day-to-day operation of this policy. The Compliance Officer works closely with the MLRO, to manage all aspects of the company’s AML-CTF compliance programme.
What is money laundering?
Money laundering is the process through which the proceeds of crime (so-called dirty money) are processed and converted into assets that appear to have a legitimate origin.
In the UK it is an offence under POCA to process, acquire, use or possess the proceeds of crime where you know or suspect you are dealing with criminal proceeds. It is also an offence to knowingly get involved in arrangements which help someone else acquire the proceeds of crime. These are serious offences which are punishable by up to 14 years in prison.
There are three primary offences of money laundering in the UK:
- Concealing, disguising, converting, transferring or removing from the UK criminal property.
- Entering into or becoming concerned in an arrangement which a person knows or suspects facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person.
- The acquisition, use or possession of criminal property.
“Criminal property” is defined widely under POCA as a person’s benefit from criminal conduct.
It is not necessary to have actual knowledge that a party is engaged in money laundering; suspicion still requires you to act. Ignorance is no defence. The test is whether you had reasonable grounds for knowing or suspecting money laundering.
Similar offences relating to the financing of terrorism are created under TACT.
Stages of money laundering
Money laundering can be categorised into three stages:
- Placement: the launderer introduces their illegal profits into the financial system. This can be done by breaking up large amounts of cash into smaller sums (Smurfing) which are less conspicuous and can be deposited into a bank account and then collected and deposited in different accounts at other locations.
- Layering: the launderer engages in a series of conversions or movements of the funds to distance them from their source. In some instances, the launderer might disguise the transfers as payments for goods or services, giving them a legitimate appearance.
- Integration: the funds re-enter the legitimate economy, for example, the launderer may choose to invest the funds into real estate, luxury assets, or a business venture.
What is suspicion?
The AML Legislation does not define suspicion. However leading case law provides that suspicion requires “a degree of satisfaction not necessarily amounting to belief but at least extending beyond speculation as to whether an event has occurred or not”. In the leading case of R v Da Silva  EWCA Crim 1654, the Court of Appeal provided the definition of “a possibility, which is more than fanciful, that the relevant facts exist”.
This is a low threshold to satisfy so you should always be cautious when considering whether a suspicion may exist.
Our obligations to be vigilant for money laundering extend beyond assessing our own client and include third parties of the client.
There is no exhaustive list of issues which may trigger a suspicion. However, the following factors may trigger concerns:
- Difficulty in determining the source of funds or source of wealth.
- Overly complex or opaque legal structures.
- If the transaction appears to have no purpose.
- If the client is pursuing loss-making transactions that lack commercial rationale.
- If the client has been secretive or deceptive (for example, unwilling to provide client due diligence documents).
- Receipt of unexpected payments from third parties.
- Offers of making payments in cash. CFO Centre’s policy is not to accept cash payments either in respect of fees or for the purposes of a transaction.
Everyone has a responsibility to be alive to suspicious activities. You must be vigilant to ensure that you do not facilitate money laundering either by clients or third parties.
Suspicious activity reporting
A suspicious activity report (SAR) is a report to law enforcement relating to possible money laundering or terrorist financing. You are legally required to make a SAR where you find out or come to know or suspect that a person, whether a client or a third party, might be engaged in money laundering or terrorist financing.
This requirement applies to all persons to whom this policies applies including Principals
Failure to make an internal SAR where you know or suspect money laundering or terrorist financing is a criminal offence and may result in a fine or a prison sentence of up to five years.
Therefore, you must ensure that you stay alert to suspicious activity on the part of a client or third party and that you do not turn away from unusual or questionable facts or conduct in a client relationship. This is because where there are reasonable grounds to suspect money laundering or terrorist financing, you could also be at risk of committing a criminal offence, even where you did not develop a suspicion at the time.
If you have any knowledge, concerns or suspicions that someone may be engaged in money laundering you must report this to the MLRO immediately. If they are unavailable, please send your report to the Head of Legal and Compliance.
By making an internal report in this way, you will have discharged your duties under the AML Legislation; it will then be MLRO’s duty to consider whether an external disclosure should be made to the relevant authorities. Where you make an internal SAR, you must also apply client due diligence (EDD) measures to your client. This might mean refreshing the information you hold about them, or gathering more detailed information. The steps you take to apply EDD will be informed by your risk rating of the client, which, if you suspect money laundering, is likely to be “high” in any event. Reports can be made by email. The MLRO will contact you shortly after receipt of the form.
You should ensure that any report is made confidentially and that you do not discuss this with anyone else, in particular, your client or another external party. This is to ensure that you do not commit the offence of tipping off.
If you have any concerns about the origins of funds you must also share these with the MLRO.
A criminal offence is committed where all of the following apply:
- A SAR has been made in the course of business in the regulated sector.
- A person discloses that the SAR has been made.
- That disclosure is likely to prejudice any investigation that might be conducted as a result of the SAR.
A person found guilty of tipping off is liable for a fine and up to two years’ imprisonment.
You are at risk of committing a criminal offence once a suspicion has been raised (whether or internally or externally) and you must therefore take great care when speaking with a client, or any other person, in these circumstances.
The MLR 2017 impose obligations on CFO Centre (and where appropriate the Principal) to:
- Take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which our business is subject, taking into account the nature and size of the business and to document these in a firm-wide risk assessment.
- Establish and maintain policies, controls and procedures to mitigate and manage effectively the risks of money laundering and terrorist financing identified in our firm-wide risk assessment.
- Carry out screening of relevant employees, both before the appointment is made and during the appointment.
- Conduct an independent audit to examine and evaluate the adequacy and effectiveness of our AML and CTF policies, controls and procedures.
- Undertake due diligence on our clients applying a risk-based approach.
- Undertake ongoing monitoring of those client relationships.
- Appoint individual(s) responsible for AML and CTF systems and for managing CFO Centre’s relationship with, and making reports to, the National Crime Agency (NCA).
- Preserve due diligence and other related AML and CTF compliance records.
- Ensure that all relevant staff understand the importance of taking appropriate AML measures, and are made aware of the law relating to AML and CTF, including through training in how to recognise and deal with transactions and other activities or situations which may be related to money laundering or terrorist financing.
- Have in place a system for the making of SARs required under POCA and the AML Legislation.
CDD and ongoing due diligence must be undertaken on all new clients applying a risk-based approach. CDD means:
- Identifying the client and verifying the client’s identity on the basis of documents, data or information from a reliable and independent source.
- Identifying where there is a beneficial owner who is not the customer and taking adequate measures, on a risk-sensitive basis, to verify their identity so that the relevant person is satisfied that they know who the beneficial owner is. This includes, in the case of a legal person, trust or similar legal arrangement, measures to understand the ownership and control structure of the person, trust or arrangement.
- Establishing the purpose and nature of the business relationship.
- Where a person purports to act on behalf of a potential client, identifying the individual and verifying their identity on the basis of documents or information obtained from a reliable source and verifying that they are authorised to act on behalf of the potential client.
- Conducting ongoing monitoring of the client relationship to detect unusual or suspicious transactions.
- If CFO Centre has not undertaken any work for a client for 6 months the status of the client record will automatically change on the CFO Centre’s systems from “active” to “lapsed”. A lapsed client can be made active without CDD being refreshed, provided that no material changes have taken place within the client since the client lapsed, and provided that no more than 3 years has passed since the client lapsed. The CFO Centre’s Compliance Officer will walk you though this process.
- The CFO Centre’s AML Onboarding Process is set out in Annex B.
Enhanced due diligence (EDD) is the process of applying additional measures to gain a better understanding of the background, ownership and financial profile of the client. EDD must be applied at the client onboarding stage and throughout the business relationship where a client or beneficial owner poses a heightened financial crime or reputational risk to CFO Centre.
EDD must be applied if one or more of the following risk factors is identified:
- There is knowledge of, or sufficient grounds to suspect, money laundering, terrorist financing or other financial crime.
- The client or beneficial owner is established or resident in a high or very high-risk country.
- The client or beneficial owner is subject to sanctions.
- The client or beneficial owner is, or is a family member or close associate of, a politically exposed person (PEP).
- The client or representative of the client has not been met face to face.
- The client operates in a high-risk sector.
- The client or beneficial owner is subject to severe adverse media (for example, allegations of criminality).
- Unusual circumstances associated with the client, beneficial owner, wider business relationship or transaction.
- The transaction or pattern of transactions is unusually large, complex or the transaction has no apparent economic or legal purpose.
- The client’s structure is complex or unusual for the client type and for which there is no commercial rationale.
- Any other situation that presents a heightened money laundering, terrorist financing or reputational risk to CFO Centre.
EDD measures must be tailored to the circumstances and applied to address the specific high-risk indicators identified during the risk assessment. There are several EDD measures which may be applied, including:
- Obtaining additional information about the client, its corporate structure and any beneficial owners from independent sources.
- Reducing the threshold for beneficial ownership and conducting due diligence on any beneficial owners with an interest of 10% or more.
- Obtaining information relating to the source of wealth of the client and beneficial owner.
- Obtaining additional information and supporting documents in respect of the source of funds to be used in a transaction.
- Obtaining additional information relating to the purpose and intended nature of the business relationship.
- Conducting further research and adverse media screening in relation to the client or beneficial owner.
- Conducting additional screening of persons associated with the client (such as directors and instructing persons) and known associates of the beneficial owner.
- Escalating the client for review in line with CFO Centre’s escalation procedures.
- Conducting enhanced ongoing monitoring of the business relationship.
A PEP is an individual, or family member or close associate of that individual, who is, or has been in the preceding 12 months, entrusted with a prominent public function by an international body or a state.
Specific EDD measures must be applied when dealing with a client who is a PEP, or who has a beneficial owner who is a PEP. Additional information must be obtained on:
- The PEP, why they have been classed as a PEP and their business interests.
- The purpose and intended nature of the business relationship.
- Their source of wealth and for transactional matters, their source of funds.
Senior management approval to establish or continue a PEP relationship must also be obtained.
Evidence of identity must be obtained when establishing a new client relationship. This should be obtained at the point of taking instructions. Principals are not permitted to commence work before CDD has been completed, unless authority has been granted by MLRO. Requests for such authority should be made via the Legal and Compliance Team.
Where CDD cannot be applied to any client, the AML Legislation requires that no relationship may be established with that client.
If circumstances arise where you believe that CDD cannot be carried out as required, you must therefore cease all work for and communications with the client and report the circumstances to the MLRO immediately.
If you have developed knowledge, concerns or suspicions that the client may be engaged in money laundering, you must also make an internal report to the MLRO as set out above.
When conducting CDD on companies and partnerships registered on the UK register of people with significant control (PSC Register), The Legal and Compliance Team will obtain proof of registration.
If any material discrepancies are identified between the beneficial ownership information on the PSC Register and information obtained from other sources (including the client), this may trigger an obligation to report the discrepancy to Companies House in the UK. Reporting these discrepancies is subject to legal professional privilege.
All Principals are required to assist the Legal and Compliance Team in carrying out a client risk assessment for each engagement within the first 3 months of any engagement, taking into account:
- The type of client (individual, limited company and so on).
- The nature of the client’s business.
- The jurisdiction in which the client is registered and operates.
- Public information available.
- Source of Funds.
- Cash Trading.
- Client Contact and Introduction.
- Funding Protocols Used.
- External Regulation.
- The involvement of any PEP.
- Any sanctions issues.
As noted above, the CDD conducted at client opening is only the start of the CDD journey. Once the client is opened, the Principal is responsible for:
- Being vigilant of any unusual activity.
- Scrutinising the source of a client’s funds.
- Undertaking ongoing monitoring of the client.
The CDD undertaken by the Legal and Compliance Team will identify if the new client is subject to any sanctions. If any sanctions issues are identified, the Compliance Officer will contact the Principal to discuss next steps.
If the client is a current client of one of the CFO Centres sister businesses, The Legal and Compliance Team is unable to rely on any CDD undertaken by those entities and must undertake their own. This is because those entities may be operating in circumstances with lower AML and CTF regulatory requirements than the CFO Centre.
Similarly, CFO Centre will not accept requests from third parties (including sister businesses) who wish to rely on the CDD undertaken by CFO Centre.
“Source of funds” refers to the funds that are being used to fund a specific transaction. It is not enough to confirm which bank account they will come from; you need to understand where the funds ultimately derive from.
You must carry out enquiries to ensure you understand the source of funds for any transaction you are advising on. You must be satisfied that:
- the transaction is being funded via a legitimate source;
- the transaction is consistent with the client and their usual business activities; and
- the source of funds is consistent with the client’s source of wealth.
In certain circumstances, it may also be appropriate to obtain supporting documents to evidence these enquiries.
Where a client is high risk, you must also identify the client’s source of wealth. “Source of wealth” refers to the origin of a client’s entire body of wealth (that is, total assets). It describes the economic, business and commercial activities that generated, or significantly contributed to, the client’s overall net worth or entire body of wealth.
Undertaking effective CDD at the outset of the client relationship significantly reduces the risk of money laundering. However, this is only the first stage of the CDD journey.
CDD is an ongoing obligation that rests with each Principal. The purpose of ongoing monitoring is to identify any changes in the client’s risk profile and to detect unusual or suspicious transactions. This requires you to:
- Scrutinise transactions throughout the course of the relationship (including source of funds) to ensure that the transactions are consistent with your knowledge of the client, their business and risk profile.
- Stay alert to any changes in the client’s ownership structure and any high-risk factors or suspicious activity that may come to your attention.
- Keep documents, data or information used for the purpose of applying CDD measures up to date.
While ongoing monitoring is the responsibility of each Principal, the Legal and Compliance Team is always available to provide assistance. Any changes to the client’s details or risk profile should be reported by email to the Compliance Officer.
The key changes that should be notified are:
- The appointment of new directors.
- Changes in the ownership structure.
- Any allegations or findings of criminal activity.
As part of the CFO Centre’s mandatory formal induction, all CFO Centre staff are required to complete an AML and CTF training module and to attest to having read this AML Policy. Principals are also required to attend the Risk Section of the mandatory induction and read the AML Guidance, which is contained within Schedule 2 of their Contract for Services with the CFO Centre. Principals are required to periodically attest that they have refreshed themselves as to the Guidance provided by the CFO Centre.
Principals are reminded that it is a condition their professional membership that they in their own right meet the obligations and responsibilities on them as set out in the AML Legislation.
All staff in an AML compliance role or whose work contributes to the identification or mitigation of AML risk are screened before their appointment and at appropriate intervals during their employment. This includes all legal, finance, and client facing employees and contractors.
If you are in any doubt about any aspect of this policy or have any queries, please contact the Legal and Compliance Team or speak to the MLRO or Compliance Officer. Please use the contact details set out in Annex A.
Money Laundering Reporting Officer – Nevil Durrant ([email protected])
Compliance Officer – Zoe Wilson Adv.Cert (AML) ([email protected])
Head of Legal and Compliance – Toby Parkes ([email protected])
Group Risk Advisor – Paul Dodd ([email protected])
Legal and Compliance Team ([email protected])