The UK Government has published the national risk assessment of money laundering and terrorist financing 2017 (NRA).

The NRA sets out the key money laundering and terrorist financing risks for the UK, how these  have changed since the UK’s first NRA was published in 2015, and the action taken since 2015 to address these risks.

Chapter 1 of the NRA sets out the UK’s legal, regulatory and law enforcement framework for deals with money laundering and terrorist financing risks. Chapter four discusses the money laundering and terrorist financing risks to the UK’s financial services industry.

The NRA notes that the UK’s banking sector is still vulnerable to a wide range of money laundering methodologies, from basic retail banking services being exploited as an entry point for illicit funds from  organised crime groups, through to the use of complex trading arrangements to obscure the origin of funds from overseas.

In terms of specific sectors within the banking industry the NRA notes that:

  • retail banks continue to be exposed to the highest volume of criminal activity out of all financial sectors. While controls are more developed in retail banking than other areas, the widespread criminal intent to exploit retail banking products and the increasing speed and volume of transactions mean that the sector remains at high risk of money laundering;
  • wholesale banking and capital markets are assessed to be exposed to high risks of money laundering due to the known risks around correspondent banking, as well as the risks of large sums being laundered through capital markets and the relative lack of controls. The NRA also notes that there are significant intelligence gaps around the extent and nature of the risk around capital markets; and
  • wealth management and private banking are assessed to be exposed to high money laundering risks due to the sector’s exposure to the proceeds to political corruption and tax evasion, and persisting regulatory concerns.

Chapter 4 of the NRA also mentions, among other things, trade-based money laundering (TBML). Recent work has suggested that the most common form of TBML to which UK banks are exposed is through the abuse of the open account third party payments system. This is the process by which sellers extend credit to purchasers and ship goods in advance of payment. Third parties can then make payments to the seller to settle the open account debts, providing a risk of these debts being settled using illicit funds. In addition, banks can be exposed to money-laundering through documentary trade finance, whereby fraudulent documents are used to launder funds through the trade system.

View National risk assessment of money laundering and terrorist financing 2017, 26 October 2017