AML compliance failures are rife in the UK – SmartSearch’s new report and damning figures 

by | Feb 6, 2024

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An analysis of more than 1,600 ‘anti-money laundering (AML) events’ recorded across the UK in the last decade shows money laundering is the most prevalent issue (27.5%), a new report has revealed.

SmartSearch, the UK’s leading digital compliance and AML software provider, analysed more than 16,150 AML events across the globe between 2013 and 2023 – to determine which financial crimes and AML compliance issues are most prominent – and in which countries.

AML events include recorded crimes or issues relating to money laundering, drug trafficking, financial fraud, AML compliance failures, violations of AML laws, regulatory breaches, reporting failures and international sanctions.

In its 2024 Money Laundering and Financial Crime Stats Report, SmartSearch inspected 1,664 AML events in the UK alone, and found that while just over a quarter of the UK’s crimes and issues pertain to money laundering (27.5%), this was closely followed by AML compliance failures (23.9%) – which beat drug trafficking (19.8%) and financial fraud (13.4%) to the top spot.

 
 

According to Martin Cheek, qualified lawyer and the managing director of SmartSearch, the stats highlight the urgent need for regulated businesses to have adequate AML processes and software in place to detect criminal behaviour. If not, they risk facing multi-million pound fines, punishments which could include prison time, and enabling criminals to carry out illegal activities, like cleaning dirty cash.

While just under a quarter of the UK’s AML events relate to compliance failures (23.9%), this doesn’t include reporting failures (2.1%) and violations of AML laws (1.5%).

Mr Cheek said: “The notable occurrence of AML compliance failures in the UK, at 23.9%, is pretty shocking. While the figures span a whole decade, which means technological advancements and reforms of laws and regulations will have helped to combat compliance failure in more recent years, this figure is still too high. To add to this, a larger amount of the events were recorded in 2022.

 

“This backs up the need for much of the work being done right now to tackle this problem across the board. There’s no better time for businesses to take a proactive stance and maintain full control of their AML compliance obligations, or they risk being left behind in not only failing to meet current standards, but evolving to meet newer requirements.

“This could involve employing a dedicated AML compliance team or officer to understand the ever-changing regulations and bear responsibility for conducting training within a company, carry out due diligence and checks, update policies and procedures, conduct risk assessments and even seek further professional advice.”

Regulated sectors include: legal, accountancy, property, gaming, cryptocurrency, investment, insurance, financial services, banking and property development.

 

Across the world, after analysing 16,150 AML events in total, drug trafficking came out as the top AML event (29.3%). The report found 2022 was the worst-recorded year for AML events across the globe, with almost a quarter of the 10-year total (4,363 out of 16,150) occurring in 2022. 

In the UK in 2022, almost £500m in penalties was handed out across 617 AML events, involving almost 450 organisations and 420 individuals. This suggests the current supervisory system either isn’t working well enough or businesses don’t have adequate AML compliance procedures in place.

Last year, HMRC announced it fined 240 businesses a combined total of £3.2m for breaching AML rules. It said its work with other enforcement agencies and Government departments to tackle economic crime and crack down on breaches, is working to drive non-compliant firms out of business.

 

AML compliance typically involves checks, verifications and ongoing monitoring. This can include verifying documents like passports, verifying a person’s source of funds, checking if an individual is on a sanctions list, and spotting and reporting suspicious activities.

And according to Mr Cheek, it might come as a surprise that many regulated sectors and businesses are using inadequate and outdated AML compliance methods, despite the risks they face and the time they take.

He said: “One big way in which businesses are still slipping up is using manual methods of verification. Not only is it incredibly time-consuming and takes longer to process, it allows significant room for error – especially given the convincing fakes that criminals present, for example with passports or utility bills. Businesses should be using robust, electronic methods of verification which cater to all AML compliance needs and operate automatically.”

According to the Government, money laundering is estimated to cost every household in the UK £255 a year. Enforcement agencies are said to be struggling with low-quality reports from businesses. When fining two banks last year, the Financial Conduct Authority (FCA) cited a failure to obtain sufficient information from the customer at the onboarding stage, which helps the bank determine who the customer is, the nature of their business and source of funds.

 

Now, it says, firms must “take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems”

Late last year HM Treasury published a consultation on the reform of the AML and counter-terrorism financing supervisory system, putting forward four models to shake up the way rules around each issue are policed. The current system is made up of the FCA, the Gambling Commission and HMRC – and 22 professional body supervisors which watch over the legal and accountancy sectors.

Three proposed a significant consolidation of supervision into a single public body or a handful of professional bodies.

 

A dozen accounting bodies warned in November that the majority of the models would ‘weaken the UK’s battle against financial crime’. They said the three which propose consolidation of supervision “carry significant risks which at best could see money laundering grow, and at worst see the whole supervisory regime collapse”.

Mr Cheek added: “The proposals have benefits and drawbacks. Changes may inadvertently create challenges that could be exploited by money launderers, so guidelines would need to be clear to avoid any confusion or gaps in compliance that could let criminals slip under the radar. If the regulatory modifications involve more requirements that carry a heavier burden, smaller businesses with limited resources might struggle to keep up, creating vulnerabilities that could be exploited by those aiming to launder money.

“But as platforms like SmartSearch are continually updated to meet the latest regulations, with this comes an even greater need to have a robust digital compliance solution in place, which reduces this stress and burden, the amount of time spent on AML compliance overall and even costs in the long run.

“With this in mind, it’s also important to recognise the proposed changes suggest a proactive approach by the Government and are in aid of positive steps towards adapting regulatory frameworks to evolving threats and over time, reducing the figures like those we see in this report.

“The UK’s AML bodies are distributed among various authorities, which can lead to fragmentation and challenges in consistent enforcement. Streamlining or having a centralised body might enhance the overall effectiveness of AML efforts.”

All businesses in the following regulated sectors must ensure AML compliance: legal, accountancy, property, gaming, cryptocurrency, investment, insurance, financial services, banking and property development.

GLOBAL STATS
In its 2024 Money Laundering and Financial Crime Stats Report, SmartSearch analysed 16,150 AML events in total across the globe.

Worldwide, the most pressing AML event in the last decade has been drug trafficking (29.3%), followed by financial fraud (22.2%) and money laundering (17.6%). The data shows that almost 1 in every 10 AML events across the world relates to AML compliance failures (9.5%).

US STATS
Almost 11,500 of the events analysed were recorded across the US – with its most persistent issues differing to that of the UK’s.

In the US, it’s drug trafficking (35.9%) followed by financial fraud (25.9%) and money laundering (15.7%). Interestingly, the US has far less issues with compliance failure.

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