On 17 December 2020, the UK Government published its 2020 UK National Risk Assessment (NRA) of money laundering and terrorist financing. The report follows on from the previous UK NRA published in 2017.

The 2020 NRA reflects on the positive outcomes achieved by the UK in the Financial Action Task Force (FATF) Mutual Evaluation conducted on the UK in 2018. However, it acknowledges and reiterates the need for more to be done in the anti-money laundering (AML) and counter terrorist financing (CTF) spaces in the UK, including: application of a risk-based approach to supervision; deficiencies in the UK suspicious activity reporting (SAR) regime; and accuracy of industry data held on Companies House.

It also notes that the UK has undergone significant regulatory shifts in the financial crime space over the past 3 years. This includes the implementation of the provisions of the 5th AML Directive in 2020, as well as the UK’s Sanctions and AML Act 2018 which will truly come into force at the end of the UK’s Brexit transition period on 31 December 2020.

With respect to money laundering and terrorist financing risks and threats to the UK economy, the 2020 NRA highlights that the Covid-19 pandemic has evolved and increased these. From a financial crime perspective, those who commit money laundering predicate offences (like fraud and cybercrime) have sought to capitalise on public fear and generosity during these challenging times. Then from a community perspective, individual spending habits have drastically changed and businesses have been forced to shift their approaches and strategies, which has created new problems for practices such as transaction monitoring.

Outside of pandemic-driven changes and challenges, the UK Government comments that the “traditional” sectors associated with financial crime have retained a “High” risk score in the 2020 NRA. These include:

  • financial services (“High” for both money laundering and terrorist financing);
  • accountancy services (“High” for money laundering);
  • legal services (“High” for money laundering);
  • companies and partnerships (“High” for money laundering);
  • cash (“High” for both money laundering and terrorist financing); and
  • money services businesses (“High” for both money laundering and terrorist financing).

However, it notes that even within these sectors criminals seek to find new ways to launder circumvent the system and launder funds, for example through piggybacking on new technological developments interplaying with these sectors.

Other sectors have been assigned a higher risk score in the 2020 NRA. These include:

  • cryptoassets (increased from “Low” for both money laundering and terrorist financing in 2017 to “Medium” in 2020). Whilst the UK Government acknowledges some cryptoasset market participants are now included in the scope of the UK money laundering regulations (as of January 2020), it considers that the extensive evolution of the cryptoassets ecosystem over the last 3 years has given criminals new opportunities to abuse it for illicit purposes; and
  • the property sector (increased from “Medium” for money laundering from 2017 to “High” in 2020). This is primarily due to the large sums of money which are usually involved in property transactions, and the attractiveness of the UK market (particularly London) to foreign investment). The UK Government note that overseas property ownership structures are often complex which are a challenge to understand and rationalise.

Finally, the Art Market was assessed separately for the first time as part of the NRA and assigned a risk score of “High” for money laundering. Like cryptoassets, the art market is a newly regulated under the UK money laundering regulations as of January 2020. However, the international footprint of the art market augmented with the often high sums of funds involved in transactions makes it an attractive sector for criminals to target.

In terms of next steps, the UK Government intends to include the risks and knowledge gained through the 2020 NRA into the UK’s long-term Economic Crime Research Strategy, which in turn factors into the UK’s Economic Crime Plan to work alongside law enforcement, academics and industry to tackle and deter these types of criminal activity in the home market.