Are electronic AML checks compliant?

Electronic checks, when identified appropriately in your Money Laundering Policy, risk assessments and and procedures, can be used as part of your compliance with the Money Laundering Regulations 2017.

In its own guidance Anti Money Laundering Supervision: Estate Agency Businesses, HMRC make a clear distinction between the use of paper documentation (4.41) and the use of electronic sources (4.46) to verify clients for the purposes of Customer Due Diligence and Enhanced Due Diligence.

That said electronic checks do not completely negate the need for paper checks. HMRC state

Manual identity documents can be checked alongside electronic verification where greater risk is indicated (4.45)

There is a balance to be made. Supervised businesses must apply a “risk-based approach” to compliance; demonstrate that they have assessed what risk their clients pose to their business. For estate agents this now include both vendors and buyers since the introduction of the 4^th Money Laundering Directive in June 2017.

Where the risk assessment identifies a low or normal risk scenario, Customer Due Diligence can be applied. Where a higher risk is identified, Enhanced Due Diligence must be applied.

Customer Due Diligence

Typically a low or normal risk customer is somebody the agent has met and in the course of discussions the reason for the sale or purchase is apparent and presents no obvious risk from a Money Laundering point of view.

Where your policies, procedures and assessments identify such, an electronic check serves to satisfy the requirement to

obtain a private individual’s full name, date of birth and residential address as a minimum (4.36)

Additionally, when this is combined with meeting the individual the following may apply:

If a member of staff has visited an individual at their home address, a record of the visit may assist in corroborating the individual’s residential address (for the purposes of a second document). This should be covered in the risk assessment. (4.42)

The critical element is to document and evidence both the process (in your money laundering policies and procedures) and the actual undertakings. All AML checks must be retained for 5 years after the end of the business relationship.

Enhanced Due Diligence

If your policies, procedures and assessments identify a higher risk, then enhanced due diligence is appropriate.

You must do more to verify identity and scrutinise the background and nature of the transactions than for standard customer due diligence. How this goes beyond standard due diligence must be made clear in your risk assessment and procedures. (4.20)

In its guidance HMRC specifically outline the minimum requirements as follows:

You must apply enhanced due diligence to take account of the greater potential for money laundering in higher risk cases, including when the customer is not physically present when being identified, and in respect of politically exposed persons. (4.1)

Typical measures that can be applied over and above those applied under CDD include

• obtain additional information or evidence to establish the identity
• take additional measures to verify the original documents supplied
• ensure the first payment is made through a bank account in the name of the seller or buyer
• take more steps to understand the history, ownership, and financial situation of the parties to the transaction
• in the case of a politically exposed person establish the source of wealth and source of funds
• carry out more scrutiny of the business relationship and satisfy yourself that it is consistent with the stated purpose. (4.20)

Where paper documentation is used as additional evidence, electronic checks can be used to verify its legitimacy.

N.B. Where paper documentation is sought for CDD or EDD it must be valid. If it expires during the course of the business relationship the updated versions must be obtained.

What do HMRC say?

Paper ID

If you verify the seller or buyer’s identity by documents, you must see the originals and not accept photocopies, nor accept downloads of bills, unless certified (see paragraph 4.51) as described below:

• photocopied identity documents can be accepted as evidence provided that each copy document has an original certification by an appropriate person to confirm that it is a true copy and the person is who they say they are
• for standard customer due diligence an appropriate person to certify is, for example, a bank, financial institution, solicitor or notary, independent professional person, a family doctor, chartered accountant, civil servant, or minister of religion

The documents must be from a reliable source not connected to the customer. (4.41)

Electronic Verification

If you verify an individual’s identity electronically, you should, for example:

• use multiple positive information sources, such as addresses or bill payment
• use negative sources, such as databases identifying identify fraud and deceased persons
• use data from multiple origins collected over a period of time
• incorporate checks that assess the strength of the information supplied.

The extent of the checks should satisfy the level of risk established in your risk assessment (4.46)

Compliance in a Box from Landmark

Electronic checks from Compliance in a Box fully comply with the obligations outlined. A clear, interpreted result is provided in each case to enable the agent to make an informed decision about proceeding with the transaction. Compliance in a Box fully complies with the record keeping requirements including;

maintain accurate, up-to-date record keeping and retention of records for 5 years from the end of a business relationship. (3.8)

… checks carried out by an outsourcing service, and which are stored on their server, will be available to you should you wish to move to another service or should that service go into liquidation. (6.7)

All electronic records must be subject to regular and routine backup with off-site storage. (6.8)

Find out more about how you can use electronic checks to demonstrate Customer and Enhanced Due Diligence with pay-as-you-go checks from Landmark. No contracts, tie-ins, set up or data fees. Contact Samantha Peacock on 01524 220013/ sam.peacock@landmark.co.uk or complete the registration form below