The ‘trusty’ paper banknote, which for so long has been a staple in many people’s lives, has come to an end. The Bank of England’s deadline for the legal tender status of paper £20 and £50 banknotes were the 30th September. Quite simply, the notes are now no longer usable.
This likely poses a problem for two groups of people: those who have legitimately earned and saved money outside of the banking system and those who have cash reserves that have been earned from illegitimate and illegal activities (like drug dealing, trafficking and more). For the people that are storing money from these unlawful methods, this would’ve accelerated the need to launder that money, quickly.
This is joined by the continued circulation of the current polymer banknotes featuring the Queen soon to be mixed with future banknotes of the King, creating a cycle of co-circulation while older notes are gradually replaced. The scene that is emerging now and in the years ahead is a jumble of bank note varieties, and this will no doubt be used as a disguise for more instances of money laundering.
For regulated firms, such as in the property, finance and accountancy sectors, exposure to illicit activity is highly likely. So how do these companies address the money laundering risks that will arise as a result of these changes?
Train staff to be on red alert
Regulated firms such as banks and financial institutions should be on red alert over this period for transactions using paper notes. These entities need to be monitoring these types of activities with a watchful eye, ensuring their employees are aware of the risks and making sure the correct policies, controls and procedures are in place. This is to make certain that they are not being used as entry points for money launderers to introduce dirty money into the banking system.
Complacency and lack of awareness can allow money launderers to grasp a foothold in the system – creating an awareness towards this risk is the first step to protecting your company.
Flag high risk customers
Where you have recently encountered a large cash transaction and you suspect that there may be money laundering at play, customer due diligence becomes very important. If you determine through your risk based systems that the money laundering/terrorism risk is high, or if you are dealing with a customer who is a politically exposed person (PEP), you should apply enhanced due diligence measures. Performing enhanced due diligence measures, such as collecting appropriate Source of Wealth and Source of Funds information, is useful in order to further inspect, understand and verify where the finances are coming from.
Create a culture of compliance
Companies can ensure their employees are aware of the risk by building a culture of compliance. It goes beyond a box-ticking exercise. Employee training and individual awareness of AML needs to be prioritized from management down. This can involve regular training sessions on regulations, a comprehensive company-wide risk assessment framework for dealing with suspicious activity and ensuring that client-level and transaction-level assessments are also carried out by your employees as appropriate.
New processes for new banknotes
With the end of paper banknotes and the introduction of new ones to come, the time for a surge in money laundering activity is now. Distinguishing what’s legitimate and what’s not can become blurred when the legal status changes and illegal activity can slip through the cracks. It’s why adopting a high alert mindset in this period of volatility is so crucial.
Through establishing a top-down culture of compliance, alongside employee training of policies, procedures and controls, your company can be primed to spot money laundering activity. With this approach established and the right culture in place, you can stop bad actors entering in the first place, as well as protect reputations and avoid fines.
By Simon Luke, UK Country Manager, First AML