Money laundering continues to be a substantial issue in the UK, causing wide-ranging economic issues and legal ramifications. As regulations get stricter, criminals get craftier, using new techniques to divert cash away from permitted channels and funnel money made from criminal activities.
With the digital banking revolution continuing to gain pace, more and more banks are saving costs by shutting their doors on physical high street premises and making the move to online and apps. This causes an issue for customers that need to access cash, one which the Post Office has stepped in to fill. But with this new responsibility comes the opportunity for exploitation by money launderers and other financial criminals.
“The NECC estimates that hundreds of millions are laundered each year through the cash deposit channel at the Post Office. While banks have made good progress in improving safeguards, including a 43% drop in the time taken to report suspicious activity at Post Offices, there is still more work to do,” said Sheldon Mills, Executive Director of Consumers and Competition at the FCA.
The FCA (Financial Conduct Authority) said that they had identified several weaknesses in anti-money laundering controls, particularly around cash deposits and a lack of necessary AML checks. They recommended tougher safeguards to combat the risks of criminal activity.
For example, criminals were able to make multiple cash deposits of £20,000, in order to launder large amounts of cash as quickly as possible.
Up until recently, the Post Office had no limit on the number of daily transactions, a policy that was criticised by the regulator. It was accused of “presenting a material risk for money laundering” because of an “over-reliance” on its internal policy of a £20,000 per transaction limit, allowing criminal activity to slip through the cracks. Due to this, the Post Office has been told to change their existing policy and reduce cash deposit limits below the current levels, whilst still remaining a functioning bank.
The FCA proposed a daily limit of £1,000 per customer and £10,000 annually for personal accounts. This approach was tailored for businesses, asking the bank to take a data-led approach using customer information without setting a specific limit.
Another identified weakness was the use of paper paying-in slips, which make cash deposits very difficult to track. This had been exploited by third parties, allowing criminal activity to flourish undetected. The FCA said that “most” banks had changed this policy and now used card-based deposits, which are more secure and traceable, since the issue was flagged, and illegality was detected. They recommended enhanced monitoring internally at the Post Office, to reduce opportunities for account deposits made by third parties.
Moving forward, it was recommended that Post Office staff needed to be further educated on suspicious patterns of behaviour and provided with enhanced monitoring capabilities. According to the financial regulator, employees needed to be trained to recognise potential criminal activity as part of their anti-money laundering controls, and this knowledge was currently lacking in the overall frontline teams. In response to this, the Post Office promised to cut the reporting time when contacting the National Crime Agency over any activities that employees deemed to be suspicious or illegal, to give the NCA enough time to investigate and take action, if required. Additionally, this highlights the need for a MLRO within the Post Office.
Past intelligence-sharing protocols were also highlighted as a weakness by the FCA, and they said the Post Office must ensure that ‘information is passed on to other firms, law enforcement and the FCA on a regular basis’. There is an expectation to keep controls updated and under constant review, to ensure measures are refined in response to the data gathered as money laundering risks continue to evolve.
The FCA hopes that these new safeguards will be enough to deter financial criminals, and close gaps that money launderers have been known to abuse, whilst still allowing people and businesses to draw cash from the vital banking services that the Post Office provides.
A Post Office spokesperson said: “Legitimate customers should not be unfairly penalised by having to travel many miles to city or town centre bank branches and be excluded from the essential local provision of cash and banking services that Post Offices provide.
“While we are pleased with the measures announced today, there remains much more for the industry to consider, including a proper exceptions process to verify customers, as well as individual account checking by banks to further exclude money launderers while enabling bank-approved customers to use Post Offices’ vital services.”
Rich West, CEO at Red Flag Alert, said that as criminals get more sophisticated with their money laundering efforts, new technology is needed to step in and fill the gap that traditional institutions struggle with.
“Money laundering is a huge problem in the UK,” he said. “As soon as any weakness is identified in a regulated entity, criminals will do anything they can to exploit the issue and abuse the system. That’s where new technology adoption is needed, to provide instantaneous answers and protect the financial integrity of these institutions. It prevents anyone dodgy from slipping through the cracks.
With Red Flag Alert, users can fight financial crime with real-time monitoring and screening. We digitalise the process, so AML checks can be completed online and results are given immediately, taking away any ambiguity and vastly reducing any economic crime capabilities.”
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