United Kingdom Finance Law Analysis
United Kingdom Finance Law Analysis
The United Kingdom is one of the largest economies in the world and ranks among the top countries where financial transactions occur to and from other parts of the world. The increase in globalization increased the amount of money that comes into and leaves the county’s financial institutions. While most of the finances are used for good purposes, it has been proven that people can use some of the money to fund illegal activities. Some of the finances are also proceeds of criminal activity, making it necessary to have effective policies on dealing with such issues. The United Kingdom has several laws that guide the policies; among them, the U.K. anti-money laundering legislation is dictated by the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000 (Yakubu, 2020). The effectiveness of the current regulations and enforcement is debatable, and the law enforcement authorities have been proven to perform better in some areas than others. The laws and enforcement policies covering money laundering in the United Kingdom are effective, but they should constantly evolve to deal with the problem in the long term.
Two central regulatory bodies are charged with the duty of effectively preventing money laundering. The first is Financial Conduct Authority, an independent body that regulates the financial companies that offer services to the public consumers and the financial markets in the United Kingdom (Cooper, 2018). Financial firms dealing in retail and wholesale financial services are regulated by the agency and have to follow guidelines set up by the agency. The guidelines guide the transactions that occur within the United Kingdom and, even more importantly, those between the country and other countries. The transactions that occur across borders are most vulnerable to money laundering as people from different countries seek to move the money into the country as legal money. The process of regulating covers banks, mutual societies, and even financial advisors. The agency is independent but operates in coordination with the government in developing and enforcing new laws.
Her Majesty’s Revenue and Customs is the second agency that regulates and stops money laundering in many different forms. The core duty of the department is to collect taxes from the businesses and individuals within the borders of the United Kingdom. The agency is responsible for checking customs and assessing all physical goods and products that come into the country and those that leave. The agency also seizes money moved in and out of the country illegally. Such illegal movements are common when dealing with illegally earned cash from drug trafficking, thus the need to monitor and stop such actions effectively. The agency can also check money laundering by guaranteeing that the companies that file taxes have actual revenues generating activities and are not shell companies used to move money around. These two work together and share data to deal with more complex cases of money laundering.
Anti-Money Laundering Laws in the United Kingdom
Over the years, several laws have been passed to stop and criminalize the different forms of money laundering. The first such law was the Terrorism Act 2000. It is a law that legislators created to counter any activities that are undertaken to finance terrorism activities. The law placed the obligation of noticing and stopping such transactions on banks and other financial institutions (Pol, 2020). The banks were charged with undertaking due diligence of the customers that they serve and knowing the activities that those customers do. The process allows for the banks to prevent dealing with people that have any links to terror activities. Banks also have to monitor the transactions that occur within their institution and state when there is any discrepancy. Lastly, the law made it the duty of financial institutions to report any discrepancies or suspicious activities they may observe concerning various transactions.
The second law to come into effect was the Proceeds of Crime Act 2002 (POCA). While the law was introduced two years after the terrorism act, it has since served as the primary law that guides anti-money laundering activities. The law was the first to clearly define all the actions that are considered to be money laundering. The various activities include the process of preparing to undertake and facilitating money laundering. These activities make financial activities guilty of such activities whenever the activities may happen. It also consists of the distribution or acquisition of criminal proceeds from any form of crime that may have occurred. The development of the law was a form of an amendment to the terrorism act of 2000, and it made it necessary for all the financial institutions to put in place anti-money laundering measures that can enable them to detect the movement of any illegal proceeds. Undertaking customer due diligence and having effective reporting measures were also part of the responsibility of financial institutions.
In 2017, the government went a step further and introduced Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017. A set of laws and regulations transposes the regulations and rules that the European Union passed in the 5th anti-money laundering directive (Mugarura, 2018). The key feature of the law was the tightening of controls in the private sector, where money was checked and controlled more strictly. The regulations also changed the way risk assessment is done by companies, and the checks and limits are considered critical and necessary for further investigations. The United Kingdom was still part of the European Union in 2017, and the union passed the laws to help comply with the new directive issued to all member states.
Lastly, the came into effect on the 10th of January in 2020, and it expounds on the laws passed in 2017. There were considerable changes, with the most notable being the expansion of the industries regulated by these laws. The banking and finance industry was the only industry that the rules traditionally focused on. Still, these new laws helped expand to other areas of the economy that had proven to be loopholes in the money laundering operations of international criminals. It also helped increase due diligence by changing how they undertook the process and focus areas by those involved. The laws complement each other and thus improve the ability of the enforcement agencies to cover all areas of vulnerability.
Evolution of Threats and Technology
How money laundering occurs has been changing in the last three decades. In earlier years, physical smuggling cash was the most prominent risk that states were facing. Many proceeds of crime were often in the form of cash, and criminals would make an effort to smuggle the cash from one country to another to use the money freely without fear of being arrested. The process was a difficult one, and it was easy to detect as law enforcement authorities improved the processes of checking cargo. Businesses that handle a lot of cash then took off, including gambling activities and bars, churches, and even restaurants. Criminals would use these institutions to move illegal cash freely without fear of being arrested, as they were essentially free from any suspicion. The government also put in place measures to check some of these activities and effectively detect illegal activities.
The role of technology in money laundering then increased as computers became more accessible to the whole world. The first process involves trade-based laundering, which means valuing and overvaluing invoices to show money movement even in cases where such activity has not occurred. The process was made even more effective when they moved the invoices through the use of electronic means. Round-tripping is also common where money is deposited in offshore accounts where there is minimal scrutiny. Then it is wired to the country as a foreign direct investment which makes the money to be seen as legal money. Such activities make it hard to detect the source of the funds, thus making it easier to launder the cash. The use of cryptocurrencies such as Bitcoin is also becoming more common. The inability to trace the source or destination of the funds makes it hard to effectively prevent the transactions of illicit funds (Teichmann, & Falker, 2020).
As the methods used for money laundering have increased and improved in complexity, the threats that the processes pose have also increased in magnitude considerably. The most significant risk currently is terrorism financing. Many terror groups such as ISIS have been found to finance their operations through funds laundered from developed countries. These groups undertake attacks on civilians based on their ideologies, making it necessary to cut their abilities to buy supplies effectively. One can use the money to purchase more complicated weapons in the black market, and this risks making the strength and complexity of their attacks even higher.
The second risk is that of organized crime. The ability of criminals to plan and execute their activities from places worldwide has improved considerably through technology. The ability to move money globally has allowed these criminals to have a global crime syndicate that carries illegal drugs and counterfeit goods to increase (Van Duyne et al., 2018). These two crimes have adverse effects on the economy and society, thus making it necessary to counter them effectively. Preventing money laundering can help prevent these crimes and even slow down the growth of international organized crime syndicates.
Anti-Money Laundering In the United States
In the United States, efforts to combat money laundering started in the 1980s as the country was busy fighting the flow of illegal drugs. The Financial Crimes Enforcement Network (FinCEN) is a government agency under the treasury department responsible for tracking suspicious money laundering activity. The agency also regulates financial institutions’ activities and checks both local and international transactions that are suspicious. The agency is also responsible for stopping terrorist financing and many other financial crimes within and outside the United States border.
Comprehensive laws guide these processes, and the rules are designed to deal with traditional and modern threats to money laundering. The agency is known to coordinate with other countries in the method of combating money laundering. Considering the United States is the largest economy globally, many people seek to get money illegally and move it out of the country (Gallant, 2013). The use of this agency helps limit money laundering and helps maintain discipline within the financial industry in the country. The enforcement is made possible by sharing information with other American agencies, the Drug Enforcement Administration, the Federal Bureau of Investigation, the U.S. Secret Service, the Internal Revenue Service, and the Customs Service.
Anti-Money Laundering In Russia
Federal Service for Financial Monitoring is a federal agency in Russia charged with preventing money laundering and preventing the financing of terrorist activities. The laws that guide the anti-money laundering activities in the country came into effect in 2002 and have been updated several times ever since. The development of these laws was meant to combat crimes such as corruption and drug trafficking, both of which had significant negative effects on the country’s economy.
The laws cover companies dealing in the financial industry. Among the most common and well-regulated are banks, money transfer companies, leasing companies, investments and securities companies, and insurance companies. All these first are mandated to assess and observe and suspicious transactions and report them. They are also required to conduct a risk assessment for their clients and employ a compliance officer that can help guarantee the organization observes the laws daily (Ahtik et al., 2019). Some major fines are imposed on companies, and individuals found guilty, and the process directly acts as a deterrent for those who may want to be involved in various crimes.
From the understanding of the various systems in both the United States and Russia, it is fair to say that the British system is equal to the system employed in the two countries. The laws applicable in these countries all place the burden of proof and responsibility on the financial institutions. Banks and other financial institutions must conduct due diligence on the various clients and guarantee that they are not involved in money laundering or financing terrorist activities. The authorities are also responsible for internal and external transactions, making them have complete control of those activities within a country.
It is also notables that in the three countries, these agencies have to work with other government agencies that are in charge of ports of entry and exit and criminal investigations. The key reason is that the tracking of money laundering is directly related to other illegal activities, and hence agencies stand a better chance of success when they work together. International cooperation is of great importance when investigating money laundering activities, considering that it is common to move between different countries. It is necessary to establish global standards to prevent money laundering on a worldwide scale effectively.
The laws and enforcement policies covering money laundering in the United Kingdom are effective, but they should constantly evolve to deal with the problem in the long term. From the analysis of the current laws and the agencies that enforce them, it is reasonable to say that the rules effectively prevent the majority, if not all, of the money laundering activities. The need to constantly update the laws has been made clear as the methods used for money laundering are continually evolving (Parkman, 2012). The need for internal cooperation with other agencies and collaboration with foreign countries is also evident as the nature of money laundering makes it necessary to move from one place to another.
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