The fight against dirty money: recent AML developments 

Money laundering techniques have become more sophisticated to adapt to technological change; involving offshore bank accounts and complex transactions to conceal the true origins of illegally obtained funds by passing them through more legitimate channels. Governments and financial regulators globally have implemented strict anti-money laundering (AML) regulations to mitigate potential money laundering risks and combat illegal activity.

Despite these efforts, money laundering remains an evolving issue, with criminals discovering new methods to hide and launder their funds. One of which is using the Post Office to send cash or checks to a firm that has been set up to launder money. These funds are deposited into the company’s bank account, which can then be used to purchase legitimate expenses, making the funds appear legitimate, and avoiding detection from regulatory bodies or the authorities.

Money laundering via the Post Office

The United Kingdom’s (UK) National Economic Crime Centre (NECC) estimated that every year hundreds of millions are laundered using the cash deposit channel at the Post Office. Criminals were abusing this channel by banking multiple deposits of £20,000 every day – the current limit per transaction.

It was also reported that whilst financial institutions have progressed in improving AML procedures, including a 43% drop in how long it takes to report suspicious activity at Post Offices, there are still numerous instances of money laundering.

The FCA tightens Post Office AML controls

On 24 April 2023, with the help of the NECC and the government, the Financial Conduct Authority (FCA) introduced a series of measures to crack down on Post Office money laundering risks.

What are the measures?

• Transaction verification: whenever possible, prioritise card-based transactions over paying-in slips to allow for better monitoring.

• Staff training: Provide staff with the necessary training to identify suspicious activity patterns.

• Transaction monitoring (TM): strengthens banks’ monitoring abilities to detect suspicious activity.

• Deposit limits: Post Office cash deposit limits are to be reduced below £20,000 per transaction. This is dependent on individual consumer needs and banks should follow a data-led approach to determine whether a tailored offer is appropriate.

• SARs: Speed up the process of submitting Suspicious Activity Reports (SARs) to the National Crime Agency (NCA) to enable swift action.

• Intelligence sharing: Improve the sharing of intelligence so that relevant information is readily available to other firms, regulators and the FCA.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA commented: “We have worked in partnership with law enforcement, industry, and government to ensure people and businesses can still draw on the vital cash banking services provided by the Post Office while addressing gaps that criminals could abuse. This important work is part of the FCA’s three-year strategy on reducing financial crime and increasing consumer protection.”

6 ways to comply with the FCA’s new AML rules

The FCA’s regulatory expectations apply to all firms that are part of the Banking Framework Agreement. In order to achieve full compliance, firms should do the following:

1. Review the new controls and implement these to their current regulatory frameworks, ensuring that they strike the right balance between AML controls and the impact on legitimate customers using the Post Office for cash deposits.

1. Ensure all AML controls are ready as the FCA plans to test firms’ approaches to reducing money laundering risks.

1. Consider how the new procedures will not impact legitimate consumers as the FCA will be examining this.

1. Concentrate on effective communication with consumers, informing legitimate customers where they can deposit and withdraw cash if needed.

1. Liaise with the Post Office to continue working on new AML controls to ensure consumers are not harmed in the process.

1. As per the Consumer Duty regulation, always have the customers’ best interest at heart and make sure the information they receive is clear and honest so they can make informed decisions.

The US Department of Treasury’s De-risking Strategy

On 10 April 2023, in response to the AML Act of 2020, the Department of Treasury released its 2023 De-risking Strategy. The strategy addresses the issue of de-risking and summarises key policy recommendations and findings.

De-risking refers to financial institutions cutting off or limiting their business relationships with broad categories of consumers rather than conducting a thorough analysis of the specific risks associated with those customers.

Key findings

The primary consideration for firms when deciding to de-risk is profitability. However, this decision can be affected by various factors, including the institution’s resources and the cost of implementing AML and Countering the Financing of Terrorism (CFT) policies that match the level of risk presented by the customer.

The following groups are most affected by de-risking challenges:

• Small and medium-sized Money Service Businesses (MSBs) that provide money-transmitting services.
• Non-Profit Organisations (NPOs) that operate in high-risk jurisdictions outside of the country.
• Foreign financial corporations with low volumes of correspondent banking transactions, especially those that operate in environments with high AML/CFT risks.

What are the recommendations for the federal government?

• Encourage federal examiners to adopt consistent supervisory expectations and provide training on de-risking considerations.

• Review account termination notices and notice periods that banks give NPO and MSB customers and identify ways to extend notice periods, where possible.

• Consider proposing regulations that mandate firms to implement adequate risk-based AML/CFT programmes which are supervised on a risk basis.

• Clarify and revise AML/CFT Bank Secrecy Act (BSA) regulations and guidelines for MSBs.

• Strengthen the AML/CFT regimes of foreign jurisdictions through increased international engagement.

• Bolster international cooperation, including running regional consolidation projects with international counterparts.

• Provide support to international firms to combat de-risking through related projects.

• Continuously assess innovative and emerging technologies for AML/CFT compliance.

• Enhance the modernisation efforts of the US sanctions regime and recognise the importance of tailoring sanctions to address unintended economic, political and humanitarian consequences.

• Simplify the process of providing humanitarian assistance transactions by reducing the requirements.

• Monitor and quantify the overall shifts in banking relationships with MSBs and NPOs, and encourage continuous engagement between the public and private sectors with MSBs, NPOs, banks and regulators.

“While no individual recommendation is likely to be transformative on its own, Treasury believes the recommendations will have positive cumulative effects on the issue of de-risking.”

CUBE comment

The fight against money laundering continues to make progress globally. In the UK, reducing and combating financial crime is one of the commitments outlined in the FCA’s 3-year strategy. As part of this, mitigating the risk of money laundering by ensuring robust AML procedures is crucial.

Whilst the US’ De-risking strategy aims to identify and mitigate potential risks and help firms comply with AML/CFT regulatory obligations. Money laundering, which dates back nearly 2000 years, continues to evolve as firms and customers increasingly utilise advanced technology. Firms must review their AML/CFT controls and ensure they are robust enough to mitigate money laundering risks. Poor AML procedures not only cost banks millions but also can lead to fines from the Securities and Exchange Commission (SEC). Recent examples include Danske Bank for misleading investors about its AML compliance failures in Estonia and Wells Fargo advisers being charged for AML violations.

As money laundering is a pervasive issue, firms must take a proactive approach to comply with changing and new AML regulations. CUBE’s regulatory change management software can help financial institutions to stay ahead of the ever-changing regulatory landscape and quickly adapt to new compliance requirements.

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