LAUNDERING OFFENCE?

Words by Jade Kirk enterprise business development manager at SmartSearch

An alarming and widespread lack of due diligence is putting specialist lenders and intermediaries at risk of regulatory action— and of being drawn into crime exploited by criminals who create complex corporate structures to hide the real recipients of illicit funds.

This is hugely topical at the moment, with Transparency International’s report highlighting the glaring weaknesses of the government’s new Register of Overseas Entities. The study reveals that nearly 52,000 UK properties are still owned anonymously and held by 18,000 offshore companies. This includes firms reportedly owned by kleptocrats, oligarchs and individuals subject to sanctions. Given the climate and the very real threat posed to institutions, the lack of due diligence is alarming. Firms forgoing their requirements to identify not only customers, but also the ultimate beneficiaries of businesses are sleepwalking into dealing with PEPs, designated persons, and those facing sanctions.

With brokers and advisers not held to the same requirements as lenders, solicitors and estate agents, it can be very easy for some firms to over-rely on others in the chain or just simply pass the buck. Nonetheless, brokers have a key role as one of the first lines of defence in identifying and reporting any suspicious activity. Therefore, they still need the systems and controls to prevent financial crime. But, without the processes in place to do so, they could be seen as enablers and, ultimately, be drawn into illegal activity, as well as damage their reputation and relationships with lenders. To mitigate the risk, many firms choose to implement the same systems adopted by others within a chain.

To meet the rising threat level posed by criminal activity and the sanction regime, many companies have decided to make compliance digital. This means taking advantage of tools such as electronic verification (EV) to authenticate a customer’s identity—a key component of KYC checks. Not only does it replace open-source checks, but it also removes the need to rely on the flawed and time-consuming methods of manual verification of paper documents. Such is its success and accuracy, EV is recommended by the Money Laundering and Terrorist Financing (Amendment)

(EU Exit) Regulations 2020 as a fundamental part of a compliance strategy. Using EV as part of a digital compliance platform such as SmartSearch means thousands of in - depth checks can be completed in seconds. The addition of ongoing monitoring, comprehensive UBO checks and robust sanction screening means firms are alerted to any potential red flags, with enhanced due diligence triggered automatically on any new or existing customer matches.

Since the banking crisis forced many mainstream lenders to be more restrictive, the specialist lending sector has done tremendous work to support borrowers with niche requirements and help businesses achieve their goals. One of its greatest strengths is the speed with which these lenders can provide funds.

It’s important, though, that this clear selling point of a specialist finance provider doesn’t also become its compliance downfall. Implementing the latest innovations allows firms to drive for greater efficiencies without losing accuracy, providing a clear competitive advantage and a frictionless compliance process.