The Expected No-Deal Brexit and AML/CFT Laws in the UK

The Expected No-Deal Brexit and AML/CFT Laws in the UK

The current prime minister of the UK Mr. Boris Johnson made a statement that the UK should be ready for no-deal Brexit in 2020. In case the UK is unable to get the Brexit deal done by the end of December 2019, it’ll have to go for no-deal Brexit in January 2020. And the prime minister is all set to get the Brexit done by the end of 2019. In case the Brexit is done, December would be the transition period and the UK will get some time for getting things on the track.

Brexit – A Timeline

In June 2016, the UK voted to leave the EU and then prime minister David Cameron resigned the other day. Since the UK took the initiative of leaving the EU, it’s political infrastructure faced some significant changes including the resignation of the last two prime ministers and the delays in the Brexit day. The latest delay was of 31st October 2019. It was expected that the UK will leave the EU with the deal designed by former prime minister Theresa May but it got postponed and now it is expected to be completed in December or the UK will have to leave the EU with a no-deal. 

What is a no-deal Brexit?

A no-deal Brexit is a scenario that depicts that the EU and the UK were unable to reach a joint agreement on Brexit and the UK would leave the EU immediately without a transition period. The UK will leave the single market and the customs union and will have to follow the laws of the World Trade Organization (WTO). Also, the UK will have to introduce its new regulations for AML compliance and the country will face a major shift in its legal framework. The country will also have to form new trade agreements with neighboring EU countries and might face delays in trade due to this shift. 

No-deal Brexit will have an impact on the seamless implementation of AMLD-5. In case the UK leaves the EU without a deal it will have problems in data sharing that is to be practiced in case of implementation of the AMLD-5. 

What is a deal Brexit?

A deal Brexit is what the UK seems to be struggling for the past few years. It means the UK and the EU will agree on certain “Divorce terms” related to trade, law enforcement, data sharing, immigration, etc. 

So far it seems that the UK will be forced for a no-deal Brexit due to the approaching deadline of the end of December 2019. 

What will be the consequences of no-deal Brexit on the financial infrastructure of the UK?

Nicola Gratteri a public prosecutor in Calabria predicted that Brexit might aid the Italian mafia in pooling in their illegal money to the UK. Shell companies will be the safe haven of criminals to legitimize their cash proceeds from drug dealing, human trafficking, etc. 

AML laws and AML compliance 

The current AML laws of the UK are aligned with the EU. But in case of a no-deal Brexit or a deal Brexit, the UK will have to form its own laws. The only difference is that in case of a no-deal Brexit it’ll have to form new laws quickly as there’ll be a gap between law enforcement and this gap will be exploited by the criminals. 

The businesses in the UK and the EU will have to change their AML/KYC compliance practices as per the requirements of the new laws. The EU countries will be in a transformation period and the businesses will have to follow to cope up with the changing laws. 

AMLD-5 and its implementation

The AMLD-5 is expected to be implemented in January 2020. AMLD-5 increased the scope of AML regulations. The identity verification threshold for the prepaid cards was reduced to EUR 50, in case of remote transactions. 

The UK has always been very keen on implementing AML/KYC regulations in the country. In case the UK leaves EU with no-deal Brexit it’s AMLD-5 implementation will be affected by this shift. It’ll no more be liable for AMLD-5 compliance in its country. But it is also expected that the UK will change its Money Laundering Regulation (MLR) as per AMLD-5 regulations to practice thorough risk prevention. 

The businesses in the UK are now swinging between two scenarios, either they should prepare to follow AMLD-5 in 2020 or not.

Trade friction

Not only this but the UK will face friction in its trade and it will no more be a part of the single market and it will cause regulatory friction. As the UK will not have any transition period to settle things down unless the new laws are formed and implemented properly. 

In case the UK-leaves with a no-deal Brexit it would have the opportunity to make trade deals with other countries without long delays. In case of a deal, the scenario would be the opposite and the UK would follow the EU laws during the transition period. 

How Brexit will impact businesses in the UK and the EU?

Brexit is bound to affect the business community. It is expected that the community will face a plethora of changing regulations while continuing trade in the EU region. The businesses will have to change their AML/KYC compliance practices. In case the EU adopted the AML regulations of the EU, things might become easier for the businesses. 

The AMLD-5 implementation is also a headache for businesses these days as they are uncertain if they should follow the instructions or not. 

The uncertainty in the financial regulatory landscape of the UK is most likely to be exploited by financial criminals looking for loopholes in the regulatory framework of a country. 

How Digital AML/KYC screening will help businesses in the upcoming plethora of guidelines?

Also, the businesses dealing in the EU and the UK will face problems in aligning their AML/KYC compliance practices as per the regulatory requirements in both the regions. The digital KYC solution is designed to cater to the global AML/KYC compliance requirements of businesses. Using a global AML screening solution will help the businesses retain growth even if there is a crisis situation.

Brexit is expected to be completed in December 2019 and it is expected to change the financial landscape of the UK forever. In order to come out of this storm of changing regulations, digital KYC and AML screening solutions will be helpful.

AML

“Brexit” Greasing the Wheel of Money Laundering

Brexit is in the global news for many years. The reason is that several countries have their stake in it. But the UK will be the one exposed to a huge threat of money laundering. As its regulations regarding Anti Money Laundering are in the pipeline, the businesses in the UK are exposed to money launderers hidden behind shell companies. The predictions infer that UK-based businesses are in dire need of effective AML solutions to mitigate the risk coming from global criminals especially from Russian and Italian mafia.   

The UK’s defense against money launderers will be weak as it will be isolated from its neighboring countries. It will have to develop its own regulations, generate new connections and agreements with other states for regional wellness. This whole process will take time and the money launderers will leverage on it. Currently, the UK is part of Europol, which is mainly involved in Anti Money Laundering efforts. But the overall defense of the UK against money launderers will become weak after leaving the European Union (EU).  

Nicola Gratteri a public prosecutor in Calabria predicted that Brexit might aid the Italian mafia in pooling in their illegal money to the UK. Shell companies will be the safe haven of criminals to legitimize their cash proceeds from drug dealing, human trafficking, etc. 

UK-based businesses and financial institutions are mainly exposed to this risk. The new regulations might transform their AML compliance practices. An increase in shell companies will increase the risk in both B2B and B2C relations. 

These predictions are not only based on speculation, but also on the analysis of past incidents. The Guardian revealed a few years back that $20 billion were moved out of Russia during a 4 year period from 2010. Due to cold relationships with Russia, the UK authorities were unable to trace the real culprits behind the huge money laundering incident. 

A few years back, Organized Crime and Corruption Reporting Project (OCCRP) collected the data of thousands of bank transactions from secret sources and revealed shocking facts about money laundering. It shared the data of 20,000 bank transactions with the news and other agencies. The data showed that 1920 transactions took place in the UK and UK registered firms and banks were used in those transactions. 

Who is exposed to the risk?

Brexit has attracted international investors to invest in the UK, as well as criminals. The UK banks and B2B companies are exposed to a huge risk of money launderers hidden behind shell companies. 

Banks

Banks need to pay heed towards their AML protocols. The screening of UBOs (Ultimate Beneficiary owners) is crucial. They need to watch over their individual consumers as well. Because money launderers use layman on the front end to hide their original identity. For example, a 2012 report on an organized criminal group “Ndrangheta” revealed that a Brazillian woman living in the UK was also involved in facilitating money laundering for the Italian mafia. 

The banks in the UK need to keep an eye on the transaction of their individual clients as well. Do not ignore any unusual transactions of the old clients as well. 

Businesses

Businesses are also exposed to risk. The risk comes to the businesses from several sources, clients and merchants are the most vulnerable corners. Merchants might be money launderers or terrorist financiers. The fake merchants manipulate the business proceeds and integrate the black money within. Once those money launderers are caught, their connection with a legitimate business will tarnish the credibility of that business. 

On the other hand, the clients are also a huge risk, businesses are bound to exercise Anti Money Laundering compliance on their clients. Due to huge risk, the regulatory authorities will keenly scrutinize the businesses and the chances of huge penalties are high. 

Running online identity verification on the merchants and clients will help legitimate businesses to prevent the risk of serving money launderers. Also, it will help to build trustworthy relationships with clients and merchants in the environment of uncertainty. 

To wrap up, once the UK leaves the EU the risk for the businesses and financial institutions will increase. They will have to tighten their KYC and AML practices to prevent monetary and credibility loss.