Known Unknowns: Plugging the UK’s Intelligence Gaps on Money Laundering Involving Professional Services Providers

The gaps identified undermine the understanding in the UK of money laundering, particularly using the services of professionals to launder large amounts of money (such as the proceeds of overseas corruption or large-scale fraud), ‘wittingly or unwittingly through the UK financial sector and related professional services’, otherwise known as high-end money laundering (HEML). Since 2014, there has been considerable effort to focus the UK’s intelligence collection machinery on plugging the intelligence gaps in this field.

These intelligence gaps are particularly evident in relation to the role of so-called ‘professional enablers’ (accountants, lawyers, estate agents and TCSPs) examined in this research, who are regarded as pivotal to this type of complex money laundering. The NRA 2017 promotes the idea that progress has been made in better understanding the role of these sectors. However, this paper finds that obvious intelligence gaps remain.

Through documentary review, interviews and workshops, this research seeks to understand the reasons why, despite a concerted effort by the government and law enforcement agencies, the intelligence base needed to tackle money laundering involving professionals in the UK remains patchy. Evidence collected highlights a number of cross-cutting systemic and structural issues relating to the application of the AML regime across the professions considered in this paper, as well as some specific sectoral issues.

This research identifies inadequacies in the guiding government narrative, intelligence structures and the role of the AML supervisory regime in relation to intelligence sharing. These result in poor public–private intelligence flows, including through the Suspicious Activity Reports (SARs) regime, and under-utilisation of non-SARs information and intelligence.

In relation to the government narrative, the authors’ research finds that continuing to silo intelligence collection, dissemination and risk assessment primarily along sectoral lines neglects the overlaps and interplay between sectors in supporting the activities that underpin non-cash money laundering. The narrative should be restructured along activity lines to overcome this fragmentation. Furthermore, the vocabulary used to describe the nature of professional service provider involvement in money laundering needs to better reflect the nuances between complicit, complacent and duped actors in the system so that interventions can be better targeted.

This paper also examines the nature and scale of information sharing relationships between the public and private sectors: the dynamic and free-flowing intelligence-sharing relationships outside the SARs regime are increasingly being recognised as a bedrock of a well-functioning AML intelligence regime.

Here the relationship with the non-financial sectors lags behind the more dynamic relationships emerging with the banking sector, for example under the Joint Money Laundering Intelligence Taskforce (JMLIT) model. While a structure along the lines of the JMLIT is not appropriate for these sectors, given the dominance of small and medium-sized enterprises (SMEs), the JMLIT could benefit from their expertise. Furthermore, establishing a network of trusted sector experts, perhaps via the National Crime Agency (NCA) Specials programme or formal secondments of staff, who could use their knowledge on tactical and strategic levels to create a more dynamic model of information exchange, would be beneficial.

With regard to the UK’s AML supervisory regime, this research finds that the lack of coordination between the UK’s 25 statutory and professional body supervisors (PBS) is a significant barrier to building a money-laundering intelligence picture. Furthermore, the authors’ research highlights the differing capabilities, capacities and cultures around the handling and exploitation of intelligence within PBS, which suggest that, to date, the role of many in the intelligence cycle has been minimal.

This paper also highlights the UK AML supervisory regime’s weakness as a ‘credible deterrent’ in many of these sectors. This weakness risks undermining AML compliance overall and reducing the quality and quantity of SARs submissions from the regulated entities in these sectors, which are regarded as inadequate by the authorities.

The recently established Office for Professional Body Anti-Money Laundering Supervision (OPBAS) is welcome. Its key initial challenge will be to embed a culture of intelligence and risk within PBS where this does not currently exist. Partnering initiatives with the host department of OPBAS – the Financial Conduct Authority (FCA) – may provide this support.

The authors’ interviews suggest that improving information sharing among PBS and between PBS and law enforcement is, quite rightly, high on the agenda of OPBAS. While initial OPBAS guidance suggests that membership of one of two existing intelligence-sharing platforms – the Financial Crime Information Network (FIN-NET) or the Shared Intelligence Service (SIS) – provides a solution, more needs to be done to communicate the benefits of these systems to PBS.

There are high – and possibly unrealistic in the short term – expectations that OPBAS will provide the solution to poor intelligence flows between PBS and law enforcement. This paper recognises that, primarily, OPBAS is the ‘supervisor of supervisors’ and not an intelligence provider for PBS. Early communication of this message to PBS and law enforcement will be key to managing expectations, but OPBAS should also move quickly to explain how it sees its overall function of facilitating intelligence flows.

Although this paper recognises that there will frequently be more than one profession involved in a transaction (such as the purchase of property) or service (such as the formation of a company), it is critical to understand the factors specific to individual sectors that undermine their contribution to the intelligence picture. This paper examines factors specific to each of the four sectors by considering the findings of the NRA 2017, the SARs yield from each sector, industry cultures and intelligence-sharing relationships.

Accountancy Services Providers

This paper finds that a one-size-fits-all approach to intelligence gathering in relation to such a large and diverse sector is failing. While the NRA 2017 went some way in refining the risks to specific activities and sub-sectors, it did not go far enough. This paper specifically recommends developing the understanding of the threat in relation to unregulated accountants (who sit inside the AML regime) and the accountants in industry (outside the AML regime).

It is debatable whether the number of SARs from this sector is too low (as the government claims). However, this paper recommends: first, improving intelligence outreach to SMEs and micro-businesses, which make up 87% of the sector, to improve the quantity of reporting; and second, better communicating the business benefits of wider AML compliance to improve SARs quality.

The authors’ examination of current information sharing relationships in this sector finds that intelligence sharing between supervisors, via the Accountancy Affinity Group, is happening, but not in a systematic manner. This paper recommends establishing a specific intelligence-sharing forum for this purpose, and recognises the untapped potential of industry experts, who are well placed to inform the intelligence picture at strategic and tactical levels. Better exploitation of this expertise, perhaps via the NCA Specials programme, is recommended.

Legal Services Providers

While the NRA 2017 better defines the risks of specific types of activities performed by legal professionals, it does not adequately identify which parts of the higher-risk sub-sector (solicitors) are most at risk.

Furthermore, case studies detailing evident complicity or complacency do little to help those making an effort to comply. The authors’ research highlights the need for better information on how the innocent are duped and how criminals present themselves. Refining these typologies would go some way to improving risk awareness and resulting SARs submissions.

With regard to information sharing, this paper suggests that, while the supervisory environment for the legal profession also consists of a number of different bodies, this is due to geographical and professional distinctions and is thus easier to navigate for law enforcement. However, information sharing between law enforcement and the sector is not on the dynamic footing needed to react to increasingly complex money laundering. This research identified the need to design more bespoke forms of information sharing with legal professionals, outside the confines of the SARs regime, to improve collective knowledge.

Estate Agents

Estate agents are on the front line of the UK’s property market, but this research establishes that the industry, government and law enforcement agree that, despite pockets of good practice, AML compliance rates are poor and SARs submissions too low. This paper asserts that the low risk rating assigned to estate agents in the NRA 2017 will do little to remedy this situation.

The authors’ research also suggests that the NRA 2017 and other guidance need to display a better understanding of the increasing diversity within the sector, particularly by examining the potential criminal abuse of less well-understood areas such as property finders, auctions and the emerging online-only model. There is also a clear need to establish a more effective means of reaching out to the sole traders and micro-businesses that dominate this sector.

The key to securing better intelligence engagement from the sector lies in tackling two key issues – the industry culture around AML and poor AML supervision registration rates. This paper suggests rebalancing the risk–reward equation in this competitive market through more robust and visible supervision by HM Revenue and Customs (HMRC)5 and the creation of ‘proud to comply’ AML branding to sit alongside other good-practice hallmarks adopted by the industry.

This paper establishes that links between HMRC and industry regulatory and representative bodies are underdeveloped and therefore failing to make use of the wealth of information and intelligence outside the formal AML regime, such as trade bodies. It recognises the difficulty for law enforcement in engaging with a sector dominated by sole traders and micro-businesses, but recommends that more should be done to engage with the sector via trade bodies.

Trust and Company Service Providers

Finally, this paper addresses the increasingly well-documented misuse of UK companies and corporate vehicles in global money-laundering scandals. While the NRA 2017 assigns its highest risk rating to UK standalone TCSPs , this paper asserts that more needs to be done to understand the risks of non-UK-based TCSPs, as well as criminals’ abuse of the direct incorporation route.

The SARs yield from standalone TCSPs is universally accepted as poor. This paper identifies weak overall AML compliance within this sector as the primary cause and recommends improving AML supervision registration rates (by working with Companies House6 to identify non-registered businesses) and more robust and visible AML supervision by the sector supervisor, HMRC.

This paper finds that the diverse options available to criminals who wish to establish corporate structures – through accountants, lawyers, financial professionals, standalone UK TCSPs, and directly with Companies House – coupled with an uncoordinated supervisory response, create significant barriers to plugging the intelligence gap. The authors’ research also identifies legal barriers to intelligence sharing between Companies House and HMRC, which must be rectified.

Non-SARs Intelligence

This paper recognises that much of the dialogue in relation to closing the intelligence gap remains focused on SARs. However, exploring other intelligence streams provides a potential means of improving the intelligence picture. Again, the under-exploitation of potential intelligence from other sources, such as whistleblowing, is in contrast with the financial sector. This paper highlights models from the UK and the US, such as whistleblowing and more targeted information collection (using the example of geographic targeting orders [GTOs]), which merit consideration in this context.

Conclusion

This paper makes a number of observations about the findings as a whole. First, to silo intelligence along sectoral lines is misguided and fragments the picture. There is a need to look at this issue through the prism of activities.

With regard to intelligence inputs from the regulated sector, while this paper recognises that a ‘more SARs’ approach is not the answer, it finds that poor SARs submissions (assessed on a quantitative and/or qualitative basis) are a feature in the non-financial sectors. This is, in part, a symptom of poor overall compliance, which is itself a product, in places, of weak AML supervision.

Furthermore, the one-way snapshot intelligence flow delivered by the SARs regime is increasingly viewed as an anachronism. The need for a more dynamic flow of intelligence is clear, but lacking in the non-financial sectors. Other potential areas of intelligence, such as whistleblowing, are largely untapped in this arena.

Changing the AML culture within the industry requires a two-fold approach of more robust and visible AML supervision and of identifying specific measures to apply within each sector. To better attune these sectors to the specific risks also requires more granular risk assessment at both national and sectoral levels – steps have been taken in this regard in the NRA 2017, but further work is needed. In short, there is no single solution which will remedy the intelligence gaps in this arena. This paper highlights the need for systemic change.

Recommendations

Recommendation 1: Information and intelligence in relation to money laundering should be gathered, structured and disseminated along activity rather than sectoral lines.

Recommendation 2: Strategic intelligence assessments of particular high-risk activities should be produced in advance of the preparation of a future NRA, with sanitised versions made available to the professions.

Recommendation 3: Risk assessments at national and sectoral levels should be recognised as joint assessments by government and representatives of the professions.

Recommendation 4: Law enforcement should work with the professions to disambiguate the term ‘money laundering’ and to develop less divisive terminology describing professionals’ involvement.

Recommendation 5: OPBAS should suggest partnering initiatives between the FCA’s Intelligence Department and less well-equipped PBS and highlight PBS good practice examples across the system.

Recommendation 6: OPBAS should review the format and processes of FIN-NET and SIS once critical mass has been achieved to consider the capacity of PBS participants to process intelligence derived from them.

Recommendation 7: OPBAS should facilitate discussions around the pooling of PBS resources in certain areas to create effective intelligence functions to support their work.

Recommendation 8: The intelligence value of non-complicit professionals should be disaggregated from the money-laundering risk presented by the activities that they facilitate.

Recommendation 9: The NCA Specials programme or another mechanism should be used to develop a coordinated network of vetted professionals to advise on operational intelligence and to co-write typologies and alerts.

Recommendation 10: The UK government should consider ways to involve the professions in developing intelligence under the JMLIT model.

Recommendation 11: HMRC should improve the visibility of the AML registration gap and of the sanctions it issues.

Recommendation 12: HMRC should clarify the information-sharing pathways between itself and partners in the AML and non-AML intelligence regime.

Recommendation 13: A redesign of the SARs regime and procedures should ensure that the system adequately meets the needs of non-financial sector actors.

Recommendation 14: Policymakers should consider the different whistleblowing models, which may offer a route to improved intelligence collection in relation to money laundering involving professionals.

Recommendation 15: Policymakers should consider the value of supplementing the SARs regime with more targeted reporting measures.