Unlock Our Latest Cutting-Edge Source of Funds Solution --> Discover more
New: Maximise Efficiency in AML Compliance: The Role of Configurability and Customisation Whitepaper --> Download now
We're a multiple award-winning firm and one of the fastest-growing tech companies in the UK - find out how we got to where we are today.
We are always looking for talented individuals to join our growing team - if you are highly motivated with a positive attitude we want to hear from you.
Discover the latest events we will be hosting, exhibiting, and attending, where you can learn more about our industry-leading digital compliance solutions.
Discover key industry news and insights with our latest resources, including whitepapers, press releases, and video content.
Read all our latest news and views plus all the latest on what's going on in the industry.
Including FAQs, a glossary of terms and information on how to use our award-winning system, our help centre should tell you everything you need to know.
Find out how we have helped some of the UK's leading law, accountancy, finance, insurance, property and investment firms transform their businesses with our award-winning products and services.
In the UK, it’s compulsory to comply with anti money laundering regulations. Whether your firm is in the finance, property, insurance or legal sector – SmartSearch can help.
Money laundering is when criminals integrate their illegally-obtained cash into the financial system, so it looks like it was earned legitimately. *A staggering £100 billion of illicit wealth impacts the Uk economy every year. ‘Anti-money laundering’ refers to the laws, regulations, and procedures designed to prevent money laundering.
Firms in finance, property,
law and insurance are legally obliged to comply with these AML regulations, as
well as art markets and other high-value dealers. The compliance of these
sectors contributes to the wider battle against financial crime, and protects firms
within them from the risk of money laundering too.
What is a smartsearch?
There are several different key components when it comes to AML checks, but a smartsearch incorporates KYC, PEP and sanctions screening, along with ongoing monitoring and enhanced due diligence. While a fragmented approach to these checks is time-consuming and inefficient, a smartsearch is one simple, holistic compliance solution, which is why we are trusted by over 6,000 clients.
*Electronic Verification Uncovered II
It is important that, before you onboard any given customer, you vet them by performing a series of anti-money laundering checks. These include verifying the customer’s identity, as you can do with our multifaceted TripleCheck authentication system, which offers all of the following AML checks:
Using triple-bureau Credit Reference Agency (CRA) as well as more than 1,100 databases from the Dow Jones Watchlist, TripleCheck can quickly and efficiently check the customer’s details against lists of sanctioned individuals and PEPs (Politically Exposed Persons).
Once the customer has provided you with a photo identification document, such as a passport, you can add a further layer of security against criminal activity by having the TripleCheck AML software undertake an algorithmic analysis of the document to assess its authenticity.
Through using modern biometric facial recognition techniques and liveness detection, TripleCheck can ensure that both the image and the information on the document are true and genuine.
All in all, SmartSearch is the go-to AML compliance platform built to verify clients based not only in the UK but on a global scale. Our platform has the following features that make anti-money laundering checks far easier:
These enviable pass rates can be largely attributed to our access to many datasets, including from Experian and TransUnion. Furthermore, our automated, electronic approach to AML compliance means less chance of human error than what would be the case with manual checks.
Another plus point of turning to SmartSearch is being able to benefit from the high standard of our customer service. We are committed to assigning a ‘customer success manager’ to each of our customers so that they can get the most out of our AML software.
It’s easy to contact us to request a free personalised demo of the SmartSearch AML platform — and we can provide all members of your team with training in how to effectively use this software.
Just like everyone else, criminals are adapting
to a post-pandemic world, and changing their means of operating as much of the
global economy shifts online. From a surge in cybercrime - like phishing
attacks and malware – to an increase in fraud, financial crime is constantly
SmartSearch TripleCheck is composed of three
sophisticated verification methods, which form the most robust anti money laundering solution on
the market. A combination of electronic ID verification, facial recognition and
digital fraud checks, TripleCheck is the most effective way to protect your
firm from financial crime.
Money laundering is a criminal act, punishable
by trial, prison time or fine. There are 5 different kinds of money laundering
offence which include:
Helping a person or firm to
retain the proceeds of crime.
Obtaining, owning or using the
proceeds of crime.
Concealing the proceeds of
crime to avoid detection.
Failing to report suspicious activity
to the authorities.
Tipping off a suspect that
they’re being investigated.
A compulsory part of customer due diligence, KYC
checks drastically reduce the risk of involvement with money laundering, by
confirming your customer’s ID. The SmartSearch platform can quickly and
accurately verify the identity of your client or customer, with no need for
Many financial institutions keep an archive of
detailed records and transactions, in conjunction with software which raises an
alert around any suspicious activity. Record management like this is a crucial
defence against money laundering.
A simple but effective concept, holding periods
are used by many banks to reduce the risk of criminals “washing” their cash by
transferring it. With a holding period, any deposit must stay put in an account
for a specific number of working days before it can be moved.
Regulatory technology (or regtech) uses global
databases and watch lists to run extensive checks, carry out ongoing monitoring
and flag up anything suspect. Regtech platforms – like SmartSearch – are
becoming increasingly advanced, and a foolproof way to ensure your anti money laundering compliance meets recent regulations.
Our unique verification platform offers the only KYC solution that also provides full Sanction and PEP screening and ongoing monitoring. All checks are automatically saved into the system to ensure watertight record-keeping meaning you can use just one piece of technology for all your AML and compliance needs.
SmartSearch offers a one-stop-shop for all your firm’s AML requirements. The user-friendly system enables staff at any level to successfully run AML checks, and we are constantly updating and improving the platform to ensure it remains the leading AML solution on the market.
Let one of our highly-trained sales team demonstrate the multi-award winning SmartSearch AML product
The term ‘Know Your Customer’ (KYC) is used for background checks that your organisation should, as a matter of routine, carry out on a customer before onboarding them. These checks could even flag up issues that would necessitate you backing out of a prospective deal with the customer.
KYC basically involves verifying the customer’s identity. To help you in fulfilling this particular duty, a customer can present you with any of the following documents:
Many businesses have used manual processes for customer verification by arranging to collect physical, tangible documents and inspecting them closely. However, this traditional approach to KYC can risk leaving you struggling to meet a raft of money laundering regulations.
This situation starts to argue the case for electronic verification (EV). This involves sourcing the data online, while you can also stay in the online sphere for the follow-up process of Customer Due Diligence (CDD), which will continue for as long as your contract with the customer remains in place.
Both KYC and CDD call for AML searches of lists comprising:
PEPs (Politically Exposed Persons)
RCAs (Relatives and Close Associates)
The objective here is to see if the customer features on any of these lists — as, if they do, it might not be legally possible for you to work with that customer. Even if this is not the case, choosing to work with them would increase the risk of your firm inadvertently facilitating money laundering.
Switching to online methods of searching PEP lists and sanctions lists can assist you in streamlining the process and making it more reliable. Our own TripleCheck solutioncan, through the following means, help your organisation to keep AML regulatory risks at bay.
The manual method of guarding against money laundering involves gathering physical documents and inferring, from the information included on these, what money laundering risks apply. However, it can be tricky and time consuming to meet AML requirements in this way.
A single round of manual checks can take at least a day to complete. However, in one survey of 500 AML-regulated firms, we found that, for 82% of the companies, a series of manual KYC checks would swallow up two or more days — and more than a week for 22% of the survey respondents.
Conversely, verifying customers electronically garners quicker and more accurate results. For each customer, the initial Know Your Customer (KYC) checks can be completed in just two seconds, and can use regularly updated international databases — like those accessible to SmartSearch clients.
A mere 6% of the companies that used manual checks indicated that they would be ‘completely confident’ in their ability to spot a fake document. Meanwhile, our TripleCheck service can thoroughly establish a document’s authenticity through utilising:
Sophisticated biometric facial recognition techniques
A customer Selfie Liveness Video (SLV)
Traditional KYC leaves other AML shortcomings for money launderers to potentially exploit. While manual KYC checks would usually be carried out only periodically after the initial assessment, electronic verification (EV) has enabled continual monitoring in the form of pKYC.
Known in longhand as ‘Perpetual Know Your Customer’, pKYC offers what has been referred to as ‘client lifecycle management’ — where, once you have got your pKYC system up and running, you can leave it to run quietly in the background while you shift your attention to other work responsibilities.
However, if you implement a SmartSearch pKYC system, you can still trust it to notify you if it detects that an onboarded client’s status has changed in a way that risks your firm’s AML compliance.
With the manual approach to AML compliance, the business would typically undertake KYC checks for the client onboarding process and then at very particular times thereafter — such as every year, two years, or five years. However, pKYC differs in checking onboarded clients continually.
For fulfilling this responsibility, a SmartSearch-provided pKYC programme would, for your company, scan a wide range of data sources and, in response to any relevant changes to the data held by these sources, update the client profiles your company has on file.
This pKYC system would even allow you to incorporate your company’s own existing client data as well as data from the following free and paid-for sources:
The electoral roll
The Post Office
The option to integrate internal data into a pKYC system can pay dividends in the fight against money laundering if, for example, a new customer provides you with ID details that are actually already linked to a client registered on your company’s database.
How does pKYC use external or internal data sources in practice? Basically, imagine a situation where the system does detect a relevant change to the client’s status. Perhaps the client has recently become a PEP, and so would now be a higher money laundering risk to your firm.
If the customer is added to a PEP list that a SmartSearch-provided pKYC system repeatedly scans as a matter of routine, the system can not only immediately record the client’s new status as a PEP but also automatically complete a fresh risk assessment on the client.
Therefore, the pKYC system’s access to a wealth of data can enable SmartSearch to help you update not only raw facts and figures about your clients but also each client’s risk profile.
Naturally, if you are running a particularly ambitious business, you could be keen for it to reach out to potential customers or clients based abroad. However, moving into international markets would also require you to meet international standards when it comes to AML efforts.
This, in itself, can throw up new problems. As AML regulations differ between countries, it can be difficult to detect unusual activity on the part of the customers based in foreign countries.
However, to assist businesses in identifying, verifying, screening, and monitoring customers, we at SmartSearch have partnered with the best of breed global data partners. These include:
What this all basically means is that, if you are keen on striking deals with clients based outside the UK, you can take comfort that using SmartSearch’s AML platform will enable you to verify these clients under the same high standards to which our UK checks adhere.
This will be the case whether the international clients at the heart of the matter comprise individuals, businesses, or a mix of both.
Having access to a wealth of global data can be especially crucial when you want to reliably determine if a client is sanctioned, a PEP, or an RCA. However, even if you do have such data at your fingertips, checking it manually can still be challenging.
This is because there is no single, formal source specifying all the sanctions, PEPs, and RCAs. Fortunately, SmartSearch screenings are both accurate and reliable due to their use of the Dow Jones Watchlist, which is updated daily and encompasses over 1,100 databases.
Having all this AML functionality at your fingertips does not have to prove a large financial burden for your business. Save on overheads with SmartSearch’s AML software, which can be tailored to meet your business’s unique needs and requirements.
We can assist you in tailoring your SmartSearch package to suit the number of AML searches you require — we do not impose a pay-as-you-go model. If you find that your organisation agrees to a particular package but later needs it adjusting, an Account Manager from SmartSearch can help you.
In consultation with you, we can arrange a bespoke plan that suits your needs and budget. The price you pay will be tied to this plan, making for a highly cost-effective AML solution — especially as you will be handed access to the same platform and customer service as the rest of our clients.
To benefit from our digital compliance AML solution, you simply need to take the following steps :
Fill in and submit this online form to request a personalised SmartSearch demo and quote
Use this demonstration to gain an insight into the practical experience of using the platform
Let us help you to determine the AML search volumes you will need
Arrange for these volumes to be monitored
Liaise with your Customer Success Managerr if the agreed package fails to meet your needs
We have designed the pricing structure for SmartSearch in such a way that our AML offering will remain affordable to all companies, regardless of their size.
Through carrying out a round of initial KYC checks on a prospective client, you can learn a lot about what kind of money laundering risk they would pose to your business. However, once you have completed these checks and onboarded the client, further checks will be needed.
This is because you can’t be certain that this risk won’t change during the course of the client’s professional relationship with your business. Therefore, failing to regularly reassess the client’s risk profile could potentially result in your company unknowingly facilitating organised crime.
Here are selected examples of developments that could too easily elude your notice if your company fails to regularly carry out fresh AML checks on its clients:
Suspicious transactions made by the client
AML sanctions levelled against the client
Financing of terrorism
The client transforming illicit funds into seemingly legal funds
When you adopt the SmartSearch digital compliance AML system, you can not only use it for undertaking initial KYC checks but also arrange for it to automatically screen all your clients every night.
If any of these screenings detect that any particular one of these clients has received a financial sanction or become a PEP, your firm will be alerted.
As we have established, a pKYC-based system can go even further than this — by monitoring clients continually rather than at intervals, no matter how regular.
However, pKYC is not only good for helping you to optimise a risk-based approach to AML compliance. It also offers ‘huge cost benefits too due to the reduced demand on time and resource.’
If you currently have any remaining uncertainties about how pKYC could work for you in practice, we encourage you to get in touch.
The clandestine nature of money laundering makes its adverse impact difficult to measure with precision. However, this impact is generally thought to be significant — not only in the UK but also in various other territories around the world.
Research findings published in 2022 revealed the UK to be the world’s second largest money laundering hotspot, as an estimated £87.9 billion is laundered in the UK every year. In 2022, this figure equaled 4.3% of the country’s GDP.
Underlining the global scale of the money laundering problem, here are the top five countries ranked by the research in terms of the estimated amount of money laundered annually in each:
According to one estimate from the United Nations Office on Drugs and Crime (UNODC), 2% to 5% of global GDP is laundered each year.
It’s important not to underestimate the myriad of threats posed by money laundering. On a large scale, money laundering could even undermine a country’s financial system. It comes as no surprise then that this financial crime is classed as a serious offence, with a heavy prison sentence (up to 14 years, as well as hefty fines) attached to those prosecuted.
Money laundering also encourages a range of other criminal activities — including:
You can therefore understand why many countries have introduced new Anti-Money Laundering (AML) legislation in attempts to crack down on organised crime.
The first European legislation passed for AML purposes was the first Money Laundering Directive (MLD), which entered into force in 1994 and has since been followed by multiple other MLDs.
Over time, money laundering regulations have been regularly modified or overhauled in response to economic and technological changes as well as shifts in money launderers’ tactics. These regulations have been drawn up to provide AML guidance for companies in the financial sector.
Anti-Money Laundering (AML) laws are implemented to require businesses and financial institutions to follow a number of AML processes. AML regulations tackle not only money laundering but also:
More than 100,000 businesses based in the UK are required to comply with AML regulations — including those stated in the laws listed below:
This particular piece of legislation specifies a range of AML requirements for businesses to satisfy, and has seen multiple amendments — including in 2019 to allow for the 5th Money Laundering Directive to be transposed into UK law.
This is the main AML regulatory law for all the UK’s financial services — including those provided by banks and crypto businesses. This particular law was responsible for making the Financial Conduct Authority (FCA) the leading AML regulator in the UK, and includes guidelines for how the FCA should fulfil its duties.
Through reading the terms of this Act, you can learn about not only criminal offences as they are defined in the UK but also how each of them are penalised. This legislation also obliges companies to report activity they believe could suggest that a customer or client has engaged in money laundering.
These three pieces of legislation are known respectively by the acronyms ‘MLR 2017’, ‘FSMA’, and ‘POCA’.
If you believe that a client or customer of your company may have used it for money laundering purposes, remember that the FCA will be able to investigate the case — regardless of the industry in which your company happens to operate.
When enacted, the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 updated the UK’s existing Money Laundering Regulations by making a number of amendments.
The main changes include allowing the inclusion of additional trusts on the trust register as well as extending the responsibility to report discrepancies in beneficial owners to trusts.
Minor changes to the following UK Money Laundering Regulations took effect on 6th October 2020:
The regulation titled ‘Obligation to apply enhanced customer due diligence’ has been modified to state that a relevant person providing a life insurance policy must factor in the nature and identity of the policy’s beneficiary when assessing whether a high risk of money laundering applies — and, if it does, the extent of the procedures which ought to be utilised for managing and mitigating this risk.
This regulation has the title of ‘Enhanced customer due diligence: credit institutions, financial institutions and correspondent relationships’, and has been edited with a clarification that firms only need to apply particular enhanced due diligence measures to correspondent relationships if the latter involve the execution of payments.
The phrase ‘an appropriate level of assurance’ in the regulation titled ‘Customer due diligence measures’ was replaced with the phrase ‘assurance that the person claiming a particular identity is in fact the person with that identity, to a degree that is necessary for effectively managing and mitigating any risks of money laundering and terrorist financing’.
Further provisions of the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 came into force on 6th April 2021 and on 10th March 2022.
Though any industry runs at least some risk of facilitating money laundering or terrorist financing, certain industries remain more vulnerable than others on this particular score.
Here is a rundown of several industries that can be especially obvious targets for people seeking entities through which to conduct money laundering or terrorist financing.
As the UK’s financial sector is responsible for processing large volumes of money made through legitimate business, criminals find financial services companies attractive places to launder the proceeds of crime — as this ‘dirty’ money can easily be mixed in with the ‘clean’ money.
Companies in the UK’s financial services sector can be categorised into the following:
Payment services and electronic money
Wealth management and private banking
These can differ in the reasons they are targeted. For example, while wholesale banking and wealth management institutions are much more appealing to money launderers than to individuals seeking finance terrorism, retail banking firms are highly attractive to both groups.
This is largely due to the online banking services offered by these institutions, some of which also accept cash deposits, making it easier for money launderers to elude detection.
Cash-intensive businesses — in other words, companies where customers pay primarily with cash — can risk providing a clear pathway to money laundering or terrorism financing. This is because criminals can hand these businesses money without needing to reveal its source.
Examples of cash-intensive businesses include:
Scrap metal dealers
Money Service Businesses (MSBs)
Coin-operated amusement arcades
However, there is an especially high concentration of cash-intensive businesses in the hospitality sector. The various types of hospitality businesses that still often accept cash as payment include:
Once cash has been passed off as legitimate business proceeds or placed into company accounts, it can’t be traced back to any specific person. What’s more, using cash does not — compared to alternative, electronic forms of payment — require any specialist expertise or planning.
Many brick-and-mortar retail stores accept various payment methods, including the use of contactless payment cards as well as digital wallet solutions like Apple Pay.
However, cash also continues to be widely accepted at such stores, with some supermarkets even having ‘cash-only’ self-service checkouts.
This means that many in-person retail stores can attract money launderers and terrorists due to the ease with which they would be able to pay with cash. Examples of common store types for this include:
Online stores, too, could be used for money laundering purposes — even if the criminals would have to launder all the money electronically rather than as physical coins or banknotes.
The Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 have been in force since June 2017, and pertain to AML obligations faced by private-sector firms operating in areas where the money laundering risk is higher than usual.
MLR 2017, as this piece of legislation is otherwise known, requires businesses to pursue the following methods of identifying clients and monitoring their use of the company’s services.
This term is used for a series of AML checks aimed at not only establishing that the customer is who they say they are but also gathering information needed for you to assess the money laundering risk the customer may pose to your business. CDD is an ongoing process that continues right through to the end of the customer’s professional relationship with your business.
MLR 2017’s regulation 18 requires you to complete an assessment of the money laundering risk to your company — and a key aspect of that assessment will be considering whether and how often your company serves PEPs (Politically Exposed Persons). SmartSearch can provide you with an efficient AML system for use in carrying out and automating PEP screenings.
Once a customer has signed a contract with your business, you are legally required to monitor this customer on an ongoing basis for as long as the contract lasts. This monitoring will need to include transaction monitoring, with which you will be able to see whether the customer’s transactions are in line with what you would expect from that customer.
It is important that you take your company’s legal responsibilities under AML regulations seriously, and not just for the ethical reason that you would be contributing to the wider fight against money laundering. Recent history is littered with money laundering and fraud cases that have cost businesses dearly.
How well do you know each of your customers? Of course, this is a vague question — but, for the purposes of AML compliance, you need to know who your customers are.
For this reason, before onboarding a customer, you should ask them to provide the following documentation for you to use in verifying their identity:
However, you also need to know what onboarding this specific customer would mean for the money laundering risk to your business.
This risk could be higher if, for example, the customer is:
You should therefore check whether the customer falls into any of these categories. To make this process a lot more time efficient, you could use SmartSearch to screen the customer against lists of PEPs, RCAs (Relatives and Close Associates), and sanctions.
The checks made against these lists — as well as the necessary verification checks — would count as KYC checks. They would enable you to avoid violating AML law, as you could otherwise do accidentally — such as by signing a contract with a sanctioned individual.
Many prospective customers, like PEPs and RCAs, might present a higher money laundering risk than the average customer but not to the extent that you would be unable to legally work with them.
When conducting KYC checks on customers like these, you can find out when you need to carry out additional checks accounting for the increased risk.
The Know Your Customer stage can help you to stamp out deep roots of money laundering, as KYC checks can form part of a wider, SmartSearch-assisted set of fraud prevention measures.
The acronym ‘AML’ (Anti-Money Laundering) has a much broader definition than that of the acronym ‘KYC’ (Know Your Customer).
Whereas AML is a legislative and regulatory framework that businesses with a high money laundering risk need to follow in order to lower this risk, KYC is just one — though crucial — part of this framework, and specifically requires firms to familiarise themselves with their customers.
KYC takes place during the customer onboarding process, and allows the business to learn:
However, the KYC process does not just consist of preliminary checks. You should also continue KYC throughout the course of the commercial relationship so that you can keep track of the customer’s risk profile and whether it remains consistent with what your business knows about the customer.
What you do at the KYC stage can inform and strengthen your wider AML efforts. For example, data collected as part of KYC can be used for tailoring an AML programme to the company’s precise needs, allowing client risk profiles to be refined and compliance performance to be improved.
It would also be possible for your business to complete both KYC checks and AML checks with just one software platform — an all encompassingelectronic compliance platform covering all aspects of AML. Our AML specialists here at SmartSearch can provide you with exactly this kind of solution.
One essential takeaway from all this is that, as KYC is a subset of AML, KYC checks can also be deemed AML checks. However, not all AML checks should be classed as KYC checks.
Another AML-related acronym you might have come across — and understandably been confused by — is ‘CDD’. This stands for Customer Due Diligence — which, like KYC, is crucial to AML compliance.
Any business covered by the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) is legally required to conduct CDD when:
In the UK, an AML-regulated organisation would need to complete the following steps in order to comply with its legal need to carry out CDD:
These steps all fall under the category of Standard Due Diligence. However, in some circumstances, you would need to also carry out Enhanced Due Diligence (EDD). The MLR 2017 states that, if you do need to go down this route, your EDD procedures must include the following at the very least:
However, you could also make other EDD moves suggested by the MLR 2017 — such as:
Under the MLR 2017, failing to complete a CDD on a client would legally bar you from establishing a business relationship with them.
The concept of Customer Due Diligence can initially be difficult to precisely grasp. The Law Society defines CDD as ‘a process of checks to help identify your client and make sure they are who they say they are’ — a description that may make CDD sound indistinguishable from KYC.
To a certain extent, CDD can be considered part of KYC. This is because the KYC process involves performing CDD in order to verify the customer’s identity, and so CDD can be seen as an integral aspect of KYC. However, this only begins to explain how CDD and KYC differ.
To help elaborate on the differences, it is worth emphasising that KYC checks:
Meanwhile, CDD is performed not just during KYC but also for the rest of the customer relationship’s duration. CDD is used for a wide range of purposes, including:
Screening the customer against lists of PEPs, RCAs, and sanctions
What KYC and CDD have in common is their importance to a reliable AML programme. While KYC can help you initially establish the risk presented by the customer, CDD would let you, before the contract ends, keep tabs on that customer so that you can reassess this risk as and when necessary.
If you run a business that falls under the AML regulations, you would not legally be able to work with a prospective customer before identifying and verifying them. However, the worth of CDD would remain relevant for your business long after a customer has passed the initial CDD checks and been onboarded.
With our unique AML digital compliance platform at your disposal, you can follow a long-term plan of regularly checking many aspects of a customer’s behaviour as part of a CDD regime, including:
Some changes to the customer’s risk might require you to undertake Enhanced Due Diligence, while others — like the customer becoming sanctioned — could force you to terminate your contract with them. However, either way, you can help to keep your business compliant with AML regulations.
The legal punishments your business could face if it breaches the UK’s Money Laundering Regulations by failing to carry out CDD when required by UK law include:
Even overlooking these penalties, the company’s image could be at stake if you are found and reported to have become involved with an individual or business known to have committed financial crime.
Enhanced Customer Due Diligence: When is it required?
The MLR 2017’s regulation 33(1) describes various circumstances which would call for you to implement Enhanced Due Diligence (EDD) — otherwise known as Enhanced Customer Due Diligence (ECDD) — measures.
Those circumstances include if the transaction or business relationship will involve:
Regulation 33(6) lists numerous factors you must consider when deciding whether the risk of money laundering or terrorist financing in a particular situation is high enough to warrant you initiating EDD. These factors include whether:
Still, this is far from an exhaustive list of the factors the MLR 2017 says you should consider — and you should be wary of automatically designating a particular situation as ‘higher-risk’ simply because one or more of these factors is present.
As the acronym ‘AML’ stands for ‘Anti-Money Laundering’, a term with a broad definition, it can bode well for your peace of mind if, as a business owner, you arrange for AML screenings to be completed on your company’s customers on a regular basis.
SmartSearch offers an extensive AML compliance platform that would provide you with the functionality you need for completing AML screenings of all types.
When these screenings are strung together into a round of checks on a customer, you can expect the screenings to be collectively far-reaching, touching on the following aspects of the customer:
Once you have implemented a SmartSearch AML system, you will be able to use it to carry out comprehensive AML screenings on any individual or corporation eager to buy from your business.
The AML checks you can make with SmartSearch technology include:
As a rule, the larger the amount of external data an AML compliance platform can draw upon for its AML checks, the more reliable and accurate you can anticipate the results of those checks being.
For added assurance, all AML checks made using the SmartSearch platform refer to the daily updated Dow Jones Watchlist of more than 1,100 databases.
Anti-money laundering checks — or ‘AML checks’, as they are often casually called — are, to a large extent, self-explanatory. They are indeed aimed at preventing money laundering.
This is a succinct, to-the-point definition — but a more elaborate one would touch on how, in the UK, AML checks are used by many AML-regulated businesses in adherence to the UK’s Money Laundering Regulations.
Businesses and professionals that should diligently follow AML measures include:
A business will often use AML checks to identify and verify prospective customers as well as assess what money laundering risk they would, if onboarded, present to the company.
For the purpose of judging a customer’s money laundering risk and complying with AML regulations, businesses could check information about the following subjects:
The terms of the Money Laundering Regulations will be a major factor in how the business responds to the findings of the risk assessment. The business might either:
However, a customer’s money laundering risk, far from set in stone, can change over time. For this reason, many businesses will also, after onboarding a customer, conduct fresh AML checks on them over the course of that customer’s professional relationship with the company.
It is essential that you use an AML solution capable of performing robust checks. SmartSearch’s own AML technology confidently ticks this particular box — as, by entering only the customer’s name, address, and date of birth into the system, you can conduct a range of exhaustive checks.
Completing a full AML check with SmartSearch takes just a matter of seconds. All of the following steps will be included as part of the check:
In terms of the depth and functionality of the AML searches it delivers, our AML platform is unique and unrivalled on the market.
The 5th Money Laundering Directive — a European Union (EU) directive added to UK law on 10th January 2020, shortly before the UK left the EU — stipulates that, where possible, electronic verification should be used for the AML measure of authenticating a customer’s identity.
SmartSearch can serve as a conveniently accessible, central hub for your company to use in meeting all its AML obligations — including those in the KYC and CDD categories.
What’s more, once you have finished setting up the SmartSearch AML system for members of your team to use, you can rest assured that the system is fully GDPR compliant.
There will also be no need for you to manually upgrade this AML solution simply to keep your organisation compliant with AML legislation. As and when this legislation is modified, we will always update the system at our end before the legal changes come into force.
Here’s a more detailed rundown of various KYC and CDD checks SmartSearch can help you to make for the purpose of protecting your company’s AML compliance.
Individuals or businesses either participating in or suspected of illegal activities can be subjected to sanctions and, as a result, prevented from engaging in particular industries.
Financial sanctions can be categorised as:
Restrictions on financial markets
Orders to entirely cease trading
As you would be breaking the law if you worked with anyone covered by a sanctions list, which either a government body or financial authority could issue, you need an effective verification process in place. With SmartSearch, our platform allows you to quickly and easily complete sanctions searches on clients.
In fact, with any AML checking you perform using our platform, sanctions screening will be included as standard. If the system matches the client’s name to a sanctions list, the process of Enhanced Due Diligence will automatically be triggered.
Here are just some high-profile examples of sanctions lists:
The UK Consolidated list
The EU Consolidated list
The United Nations list
Even if you use SmartSearch to carry out initial KYC checks and the customer turns out not to be on any sanctions lists scanned by the platform, you can leave it to sanction-screen the customer — and, for that matter, the rest of your customers — every night.
This is so that, if the customer is added to one of these sanctions lists, the software can soon alert you — allowing you to take timely action.
Traditionally, KYC has been conducted in a ‘transactional’ fashion — where, after a company initially runs a round of checks, it is repeated periodically. This could be every year, three years, or five years — with the risk assessment determining how often the post-onboarding checks happen.
However, changes in customer circumstances, money laundering risks, and the AML regulatory landscape mean that carrying out Customer Due Diligence only at the onboarding stage and periodically thereafter is no longer seen as sufficient.
With ongoing monitoring, customer data is regularly refreshed and enriched. The ongoing monitoring functionality baked into SmartSearch’s AML compliance system completes new KYC checks every night, using the Dow Jones Watchlist’s in-depth data as a reference point.
The SmartSearch platform can monitor all of the following on an ongoing basis:
Sanctions lists: These need to be watched closely due to the regularity with which individuals and entities are added to and removed from them.
PEP lists: Given how time consuming it would be for you to look through these manually, it is convenient that our AML software is able to scan them in seconds for you.
Ultimate Beneficial Ownership (UBO): If the client is a company and it has a change of ultimate owner or manager (i.e. the Ultimate Beneficial Owner), there could be implications for the level of money laundering risk run by the company.
Ongoing monitoring would make it easier for you to keep customer risk profiles fully updated.
Many AML checks are aimed at reducing the chances of money laundering happening in the first place. However, with transaction screening, your business can detect if and when financial crime is happening, and so give you the opportunity to stop it in its tracks.
Through using AML software with transaction screening functionality built in, you can see customer transactions either in real time or retrospectively. This would enable you to study the transactions at length for possible evidence of money laundering.
When screening a customer transaction, you can screen all the parties involved in it against multiple databases. That way, you can find out whether any of these parties are currently subject to sanctions — therefore not actually permitted by law to receive or send the money.
Transaction screening can be used for analysing all elements of a customer transaction so that, if it is indeed a case of money laundering, the problem can be effectively addressed before it worsens.
You would even be able to use the technology to screen large volumes of transactions at once — and the software can be frequently tuned over time in response to changes in how money tends to be laundered.
The Law Society defines a Politically Exposed Person (PEP) as ‘someone who’s been appointed by a community institution, an international body or a state, including the UK, to a high-profile position within the last 12 months.’ PEPs can be:
Senior members of government, including heads of state and ministers
Members of Parliament
High-ranking officers in the armed forces
Members of high-level judicial bodies, such as supreme or constitutional courts
Often, trying to figure out whether a client should be classed as a PEP can feel a bit haphazard. You might think to check news reports for evidence that the client is a PEP, or the client could send you communications on a letterhead officially confirming their PEP status.
However, we at SmartSearch present you with a smoother way of deciding whether a client is indeed a PEP — as our AML software can be used to check their details against PEP lists.
Though simply working with a PEP is not illegal, doing so would still make your business more vulnerable to money laundering risks. This is because a PEP’s high profile and influence would render this particular individual likelier to engage in bribery or corruption compared to the average client.
Check in real time: On your behalf, the SmartSearch AML platform can screen its customers nightly and let you know if any of them have recently been added to a PEP list.
This will very much depend on the type of AML check. For example, you should perform KYC and initial checks before agreeing to any business dealings between your company and the client. However, you can also regularly AML-check a client after your firm has onboarded them.
The global money laundering watchdog Financial Action Task Force (FATF) recommends that, as a minimum regulatory requirement, financial institutions undertake AML checks when:
The FATF also advocates that further AML checks are made in specific circumstances — including when:
You might be confused about what extent of Customer Due Diligence (CDD) you ought to apply for a given customer, but the FATF recommends that you decide by taking a risk-based approach. SmartSearch can help you with implementing a risk-based AML strategy that suits your business.
With the use of our automated AML digital compliance platform, you can even arrange for retrospective checks to be completed on clients, enabling your firm to stay compliant at all times.
The automated aspect of this platform can be seen with its integrated ongoing monitoring service, where the system automatically scans the hundreds of Dow Jones Watchlist databases every night.
A SmartSearch subscriber can use this service to be speedily notified in the event that the system finds them to be at increased risk — for example, due to one of their clients having recently become a PEP or a close associate of one.
A further step up from online monitoring would be pKYC, where each customer’s status is monitored continuously rather than on a nightly basis. We can provide you with a solution like this so that you can essentially cover all bases with how often AML checks are carried out on your customers.
What would constitute warning signs that money laundering may be occurring? You should be particularly concerned if you notice any of the following when undertaking AML checks:
You would have especially good reason to be suspicious if these clients appear to know a lot about money laundering.
The customer might make certain kinds of transactions you would not expect them to make — perhaps including payments with cash or from third parties.
It is rare that a customer not engaged in money laundering or terrorist financing would want to use non-local firms.
If the client is a business, it could bode ill for it to be a shell company or have a complex ownership structure.
The risk would be that of money laundering, and the countries can include those with unstable governments or high levels of corruption.
The news outlet responsible for this adverse publicity could be based anywhere in the world.
Other common AML red flags include a customer’s PEP status or sanctions exposure — either of which SmartSearch’s automated AML system can detect and flag up.
Since money laundering involves ‘cleaning’ the proceeds of crime to make the money appear to have been sourced legitimately, money launderers have had to resort to increasingly creative ways of covering their tracks, so to say, and avoiding getting into hot water with the authorities.
The money laundering process can typically be broken down into the following three stages:
After using theft, bribery, and corruption to illegally acquire funds, the criminal shifts this money away from its original, ‘dirty’ source and into a legal financial system. This could be a set of offshore accounts, helping to ‘clean’ the illicitly sourced money.
With this tactic, the criminal moves money within the financial system by making a series of financial transactions. The criminal’s aim here is to obscure the trail that could otherwise be inadvertently left as a clear path the authorities would be able to follow.
This is where the money is absorbed back into the legitimate economy, allowing the criminal to spend the now ‘cleaned’ money as they wish. The funds could be used for the likes of real estate, investment, or luxury assets — or ease further money laundering.
It’s worth pointing out, however, that money laundering is ultimately more complex than the seemingly simple step-by-step process outlined above would suggest. It would not, after all, serve the criminal well if they repeatedly used a method that could easily be tracked.
Some money laundering cases do not even comprise these three steps. In certain instances, some stages can be combined — or even repeated several times.
Here are detailed insights into three of the ‘main’ money laundering stages and what they can entail…
This stage is so-called as it indeed involves placing the illegally sourced money. As for exactly where, the basic answer is: where the criminal hopes this money will not be suspected of having been sourced illegally. The legal financial instruments that could be used for placement include:
Sometimes, once the money has been placed into one of these instruments, the instrument itself could be moved — enabling the money to be shifted even further from its original ‘dirty’ source. The money could even be repeatedly transferred between businesses, such as:
Small independent retail stores
When added to an existing company’s accounts, the funds could be disguised as financial transactions — potentially even for products the business intentionally never provides.
Often, when an especially large amount of money has been obtained illegally, it will be divided into smaller sums that might subsequently all be placed in different locations.
For a money launderer, it would be a rookie mistake to deposit a large sum of unaccountable cash all at once — as the financial institution where this money is deposited could, as a result, quickly suspect that some wrongdoing has taken place.
Of course, some financial criminals who are inexperienced at money laundering could still make this blunder, perhaps just due to lacking knowledge about what behaviours tend to be flagged by AML compliance platforms like ours.
However, experienced money launderers — like those belonging to organised crime syndicates — are likely to be more cautious and strategic about how and where they place their ill-gotten gains.
Any client of your company who does use it to engage in money laundering will be determined to always remain at least several steps ahead of you as you look for evidence of money laundering. However, you can tip the odds more in your favour when you use reliable AML procedures.
While this can be an especially complex part of money laundering, this complexity can also make layering especially effective at preventing the criminal’s money laundering activities from coming to light. For the criminal, layering basically involves adding extra ‘layers’ of safety.
Layering can also be a relatively varied and time-consuming phase of the money laundering process, as layering involves moving the money between multiple different sources. Good examples of layering techniques include:
Blending illicit money with legitimate money
Moving the illegally sourced money from one account to another
Transferring the money through different foreign currency exchanges
Gambling the money in a casino
The more elaborate the layering method, the more difficult it can be for accounting investigators to distinguish between ‘dirty’ money and funds generated legally.
As some jurisdictions do not participate in AML investigations, these are places where criminals could choose to have accounts for use in storing laundered money.
As explained above, a money launderer could give themselves away if they deposit too much money at once in a single bank account. However, they can conceal their illicit activities more easily if the money is separated into much smaller chunks each placed into a different account.
This strategy’s obfuscating effect can be heightened when each of those accounts is in a different jurisdiction, with several of the jurisdictions used perhaps being at least somewhat lax in their AML measures.
For example, in money laundering cases where the money is originally made from drug sales, the ‘placement’ and ‘layering’ stages can essentially be combined into one stage.
This money could be divided into smaller amounts for ‘money mules’ to deposit. The funds could then be transferred to a shell company, purportedly to pay for services it offers.
If you run a business that a criminal could potentially use for money laundering purposes, it would be beneficial for you to know many different warning signs that a customer or client of the business could be channelling laundered money through it.
This is about putting — or ‘integrating’, you could say — the laundered money back into the legitimate economy. However, money launderers know they still have to be meticulous even at this final stage, as they need to be able to provide a plausible explanation for how the money was made.
For this reason, before the criminal does integrate the money, they will need to make sure the money will be transferred from what comes across as a legitimate source — or, at least, the trail has been obscured enough to prevent it from being easily followed.
The criminal’s objective here is to make it possible for them to spend the money without running the risk of being suspected of — or caught for — money laundering. The criminal will not want to leave any potentially incriminating documentation from earlier stages of the process.
Once the money has been integrated, it can be spent on many different things, including:
Real estate holdings
Highly priced commodities, like artwork and jewellery
New business assets
The money could also be used to purchase assets that would be useful for facilitating other money laundering efforts further down the line.
In this sense, then, a lengthy chain of money laundering events can start to form unless this chain is broken — such as if money launderers are successfully prosecuted and sentenced for this criminal behaviour.
Your organisation can help to break this kind of money laundering chain — such as if you arrange for AML and fraud monitoring to be conducted on your customers on an ongoing basis. That way, you can be alerted if a customer does something that could lead you to suspect a money laundering case.
What is a virtual currency? Basically, ‘a digital representation of value only available in electronic form’ and ‘stored and transacted through designated software, mobile, or computer applications.’ Virtual currencies:
Virtual currencies are easy to use while offering speedy transaction speeds. However, though cryptocurrency has hugely grown in popularity in recent years, international rules and regulations have been slow to adapt to the increased money laundering risk.
It has been estimated that, in 2021, £6.4 billion was laundered through cryptocurrency — 30% more than in 2020. As the cryptocurrency network continues to grow, more and more criminals are likely to prey on cryptocurrency for use in money laundering.
To combat this, regulatory steps have been made to meet this emerging crypto challenge. The crypto sector was recently added to the list of the UK’s AML-regulated firms — and the 5th Money Laundering Directive (5MLD) has provided a legal definition of cryptocurrency and virtual currency.
For money launderers, virtual currency exchange platforms have an obvious appeal, as they convert real currencies into virtual ones. However, the 5MLD requires cryptocurrency exchanges to:
In this sense, cryptocurrency exchanges have been brought into line with traditional financial institutions. Though, as the threat of crypto-based money laundering continues to evolve, we can expect further regulation to be introduced in a bid to tackle it.
If you run a cryptocurrency firm or simply a business that facilitates transactions of virtual currencies, subscribing to the all-in-one SmartSearch AML platform would help you to comply with AML regulatory changes — as the platform will be automatically updated to accommodate these.
Terrorists and terrorist organisations often need to generate funding for themselves and terrorist acts they commit. The money-making activities pursued for this purpose fall under the bracket of ‘terrorism financing’, which can be directly linked to money laundering.
Terrorist financing is addressed by the same UK law as money laundering, though the proceeds for terrorism can come from from legitimate sources — like profits made by businesses and charitable organisations — and illegal sources, such as:
Like money launderers, terrorists might choose to regularly shift money from one place to another in an attempt to prevent its original source from coming to light.
A terrorist organisation might use money laundering techniques to move money away from the sponsors that originally sent it and eventually to the ultimate, intended beneficiaries of the funding — all without the illicit nature of its journey being ascertained by authorities.
However, in the case of terrorist financing, the money tends to be moved in even smaller amounts than what generally applies with money laundering.
Another difference between money laundering and terrorist financing is that, while money laundering is more circular in that the money eventually lands back into the hands of the person who originally sourced it, terrorist financing is usually a more linear process.
The stages of a terrorist financing scheme can be summed up as:
Naturally, this sequence of four words essentially describes what happens to the money — with ‘use’ referring to the use of the money to propagate terrorist activities.
Terrorists can resort to various methods of moving their funds — including:
Terrorist groups can buy materials with the intention of using them in terrorist attacks — and Financial Intelligence Units (FIUs) can assist in identification and detection of these purchases.
If your organisation’s AML compliance system picks up on any suspicious behaviour, remember to report this by submitting a SAR (Suspicious Activity Report) to the National Crime Agency (NCA).
It is important not to underestimate the extent to which fraud and financial crime can potentially undermine your commercial operations.
In one survey, 56% of UK consumers said they would switch to a different bank if their current one was hit by a money laundering scandal. This percentage increased to 64% in 18- and 24-year-olds and 68% in 25- to 34-year-olds.
Even if you choose to simply see AML fines as a ‘cost of doing business’, you could risk losing customers — perhaps in large part due to negative word of mouth.
What steps should you take to meet your AML responsibilities? Here’s a summary of the key ones:
We can provide tailor-made but comprehensive AML training for you and your workers, enabling everyone in the company to get to grips with our user-friendly AML software and use it to perform quick and easy AML checks.
If you are eager to ensure AML compliance in a manner that would be especially efficient in both time and cost, you should take a risk-based approach. Our AML specialists have the expertise to help you in designing and implementing an AML strategy that will suit your specific corporate needs.
When you switch from manual to electronic means of making KYC checks, you can make them more quickly and reliably — especially when you use SmartSearch, with its access to immense amounts of external data.
Our ongoing monitoring service scans the Dow Jones Watchlist databases every night, allowing for customer information held by SmartSearch subscribers to be updated quickly.
The SmartSearch platform can carry out a wide range of AML checks automatically. What’s more, you can have these checks happen continuously when you utilise Perpetual Know Your Customer (pKYC), an especially dynamic solution for risk management.
Have a specific question about SmartSearch’s AML services, or would like to discuss a bespoke subscription? We’re happy to talk.
Phone us on 0113 537 4042 or send us an email via firstname.lastname@example.org.
Encouraged by both the FATF and the FCA, a risk-based approach requires that firms thoroughly assess the money laundering threat posed to their business, and deploy an appropriate amount of resources to counter it. This is a proactive approach which should enable companies to detect and diffuse any risk of money laundering before it can take place, whilst using resources efficiently.
If you encounter any suspicious behaviour, you should fill out a SAR (Suspicious Activity Report) with all the relevant details, before submitting it to the National Crime Agency (NCA), via the SAR online system. The UK Financial Intelligence Unit then receives and processes SARs on behalf of the NCA. SARs can also be submitted anonymously, but your identity will remain confidential regardless.
The first European legislation passed in an attempt to bolster anti-money laundering efforts was the first Money Laundering Directive, which came into force in April 1994. Since then, 4 further MLDs have been brought into effect, to provide guidelines for companies in the finance sector on how to reduce the risk of money laundering.