As efforts to stamp out money laundering and the financing of terrorist activity are stepped up throughout the UK, tax preparation specialist David Redfern, managing director of DSR Tax Claims, has issued his guidance to small businesses and sole traders who have business activities which may be at risk of money laundering – which could include many catering equipment dealers.
Legislation against money laundering was strengthened with the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which placed additional emphasis on performing due diligence on potential clients.
Money laundering includes concealing, converting or disguising the proceeds or crime, or assisting others to do so, including funds which are used to finance terrorist activity. Redfern stated: “Small businesses and sole traders are particularly vulnerable due to their size and potential for their anti-money laundering procedures to be less vigorous but ignorance of the law is very rarely a valid defence.”
His first piece of guidance concerns creating an anti-money laundering policy for the small business or sole trader so there is a documented framework for identifying the potential for money-laundering. He stated: “It is a key requirement to put a solid anti-money laundering procedure in place for your business. Until that procedure is in place, the business will always be at risk of high-risk clients slipping through the net.
“Your procedure should include designating a dedicated person to be responsible for maintaining and updating your anti-money laundering policy, a thorough risk assessment for your firm and your potential clients as well as a solid policy of due diligence towards your potential clients. Where is the potential risk to your firm? Where are the holes in your due diligence that could allow a high-risk client to slip under the radar? A dedicated member of your organisation responsible for maintaining and upholding your anti-money laundering procedure is an essential first step to protecting your business.”
A comprehensive risk assessment of the small business or sole trader’s activities is the next step, according to Redfern. Identifying the areas where your business is vulnerable to those who would wish to launder illegal proceeds is essential in protecting against them.
He commented: “Does your company deal with clients from high-risk jurisdictions? Do you deal with clients who could be described as politically exposed persons (PEPs)? Are you likely to come into contact with clients with sources of income which they cannot explain? Identifying the areas where your business might be at risk is a crucial step in ensuring your business is secure.” Politically exposed persons are individuals who have been entrusted with a prominent public position, making them more vulnerable than most to the possibility they could be involved in activities such as bribery or embezzlement.
Finally, Redfern urged affected small businesses and sole traders to toughen their due diligence with regard to client identification. He stated: “The 2017 legislation makes it clear that you have a legal responsibility to make sure that your clients are who they say they are, including clients which are companies or organisations as well as individual clients. The onus is on you to ensure that you have performed rigorous identity checks on your clientele and potential clientele and if you have any knowledge or suspicion that their income is criminal in origin or will be used to finance terrorist activity, you are bound by law to report your suspicions to the National Crime Agency.”