Proliferation Financing

IPA Insolvency Practitioner newsletter AML Digest, April 2023

Contents

• David Holland, Chief Inspector and IPA Money Laundering Reporting Officer
• High-risk countries for money laundering purposes: Enhanced Due Diligence
• Ongoing monitoring of AML matters in an appointment
• SAR reporting
• Licences from OFSI
• Insolvency Practitioner identity fraud and scam websites
• Reporting misuse of bounce back loans
• NCA Amber Alert: High Net Worth Individuals and Tax Evasion (member login required to view)
• AASG alerts (member login required to view)
• Regulation 18 risk assessment reviews
• Reporting of material discrepancies of Companies House records
• Economic Crime Levy
• OPBAS Sourcebook
• How the 2017 Money Laundering Regulations have evolved
• ISS AML training
• OFSI webinar

The amendments in September 2022 to the 2017 Money Laundering Regulations introduced the requirement for UK Financial Services – which includes accountancy/insolvency services – to consider the risks to their business from Proliferation Financing (PF). Whilst the IPA considers that the risk to insolvency work from PF is low, as this is now a requirement for business to consider the risks from PF, the following article may assist in your considerations of the risks to your firm.

What is Proliferation Financing?

Proliferation Financing (PF) is the use or provision of funds or financial services for use in whole, or in part, in the manufacture, acquisition, development, export, trans-shipment, brokering, transport, transfer, stockpiling or otherwise any connection with the possession or use of chemical, biological, radiological or nuclear weapons (CBRN).

It includes the provision of funds or financial services in connection with the means of delivery of such weapons and other CBRN related goods and technology in contravention of a relevant financial sanctions obligation.

What is the risk nationally?

HM Treasury published a National Risk Assessment of PF in September 2021, which identified, assessed and looked to understand the PF risks to the UK. The report can be viewed here and additional FATF Guidance here.

The findings were that the UK was attractive for PF activity and people seeking funds, financial services and looking to evade sanctions regimes due to the open nature of the UK economy in foreign direct investments. But, the risks were mitigated by the UK having a strong and robust framework of targeted financial sanctions, controls on exports and trade embargos with a robust legal framework.

Money Laundering Regulations amendments

From the 2021 assessment, the 2017 Money Laundering Regulations were amended from 1 September 2022 by The Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations 2022. The changes introduced to Reg 30A on reporting material discrepancies to Companies House and amendment of Reg 66 to allow the right of AML Supervisors to view SARs were advised to members in the August IPA Newsletter – the article can be viewed here.

The Amendment Regulations also introduced the requirement for UK firms in the accountancy sector to assess their risk to exposure to PF in accordance with the new regulation 18A.

Members may recall that the National Risk Assessment from 2020 advised that the risk to accountancy services (which includes insolvency work) was low for terrorist financing.

However, as was recently reported in the press, a former pub landlord is accused of sending thousands of pounds of Covid support loan funds to fund Islamic State in Syria and is due to stand trial shortly.

Whilst the risk is remote, there can be instances where PF may impact.

What can or should IPs do?

Firstly, the assessment of any PF impact can be considered as part of the review of your Regulation 18 Firm-Wide Risk Assessment which assess your firm’s risks and exposure to money laundering activity. There is no requirement to carry out a separate PF risk assessment – unless you choose to do so.

It is important to note that whatever route is chosen for the Risk Assessment, the requirements of regulation 18 and 18A both need to be met. The risk assessment must assess the risks the business is subject to in respect of:

• money laundering
• terrorist financing
• proliferation financing

The following issues may indicate an increased risk or red flag for any appointments:

• Companies/individuals that traded in chemicals, electronics, software, maritime or aviation component manufacture, telecommunication equipment manufacture – is there a possible ‘dual-use’ issue where goods may have a civil and military use?
• Companies/individuals that are involved in overseas logistics
• Is any intermediary used/was used where the end user is unclear – remember the High-Risk Countries as outlined in a separate article in this month’s newsletter
• Geography – do any possible companies/individuals have trading links to possible PF risk areas?
• Crypto asset/currency use
• Off-the-Shelf-Companies – companies that were dormant and then control changed. Does the new business activity make sense with the previous profile?

The main risk in accountancy is considered to be in TSCPs (Trust or Company Service Providers), which rarely directly impacts on insolvency work.

However, IPs should be aware of PF matters and ensure that any risks from cases are highlighted where relevant.