Criminal gangs will thrive until regulated firms take action

21 December 2022

Criminal gangs will continue to launder money in the UK as long as regulated firms insist on trusting manual verification checks, an anti-money laundering expert has warned.

A comprehensive, cross-sector survey of 500 UK-based decision-makers revealed that regulated firms in the North West, North East, and East of England rely most on manual checks to identify new customers and are the most vulnerable to criminal activity.

The findings come as forged documents become increasingly sophisticated and harder to identify. The Home Office’s own guidance on checking for forgeries of official documentation lists 24 potential failure points, many of which require expert knowledge to spot.

Despite this guidance, 66 per cent of those asked in the North East were confident that they could identify a fake passport or driving licence.

The survey was commissioned by SmartSearch, the UK’s leading provider of anti-money laundering (AML) software and solutions. The firm found that a surprising 43 per cent of regulated firms in the east of England admitted they relied only on manual checks of hard-copy documents to verify customers.

The findings come at a time when the weight of responsibility to know-your-customer has never been heavier, with oversight leaving the door ajar for money laundering and other criminal activity – as well as fines and reputational damage for those who commit breaches.

Martin Cheek, managing director at SmartSearch said: “It is vital that firms have robust ‘know your customer’ (KYC) procedures in place when it comes to onboarding new clients.

Regulated firms are the front line of defense against money laundering. And the importance of maintaining pace with ever-changing anti-money laundering (AML) rules and procedures has never been more critical.”

There is a clear regional stubbornness towards digital verification. When asked for the reasons for using manual verification, 52 per cent in the north west cited that they had ‘always worked this way’ while 33 per cent in the north east stated ‘it was the only way to guarantee an ID was real’.

Martin Cheek added: “These figures underline the inefficiency and unreliability of using manual processes to verify new customers.

“They also show that while regulated firms persist with these time-consuming, flawed processes, dirty money will continue to be washed through the UK economy.

“Electronic verification combines credit reference data with other reliable sources and is almost impossible to fake.

“The 2020 Money Laundering and Terrorist Finance Act even recommends that regulated firms use electronic verification (EV) as part of their due diligence to make it as effective as possible.

“Using EV doesn’t just minimise the risk of breaching AML rules, it also makes the firms’ own customer journeys more efficient, helping those who use it to stand out from their competitors.”

These findings should sound a wake-up call to regulated firms that organised criminals are increasingly active, and that the continued threat of money laundering in all areas of the UK is a very real one.

For more information please visit: www.smartsearch.com