Only a quarter (25 per cent) of regulated firms always check new customers against sanctions or Politically Exposed Person (PEP) lists, according to new survey data from leading anti-money laundering (AML) and digital compliance firm, SmartSearch.
This enlightening data reveals a significant retreat from last year, where nearly three-quarters (73 per cent) upheld strict screening procedures. This “backslide” is particularly alarming given the recent global geopolitical tensions between the West and China, echoing the lessons from last year’s sudden raft of sanctions against Russia. The introduction of new sanctions could swiftly covert seemingly low-risk, longstanding UK clients into high-risk entities overnight. This underscores the urgent need for robust compliance processes to avoid the substantial fines associated with a breach.
These admissions are revealed in a comprehensive new survey of 500 compliance decision-makers across financial services, estate agents, mortgage brokers, intermediaries, accountancy and law firms by SmartSearch, the leading UK provider of digital compliance solutions.
The UK government estimates that money laundering costs the UK economy more than £100 billion each year and the International Monetary Fund (IMF) estimate that financial crime equates to a staggering two to five per cent of global Gross Domestic Product.
The legal sector, which previously led with a robust four-fifths (84 per cent) commitment to always performing checks, has now plummeted to a mere quarter (24 per cent) in 2023. The financial services sector has also seen a stark decline, from almost two-thirds (66 per cent) to just over a fifth (22 per cent). Estate Agents demonstrate a similar downturn, from over a third (37 per cent) to roughly a quarter (24 per cent).
Commenting on the survey data Martin Cheek, managing director of SmartSearch said: “The backslide in this year’s data underlines a worrying theme of complacency on compliance. Sanctions are not a static list, they are a dynamic and rapidly evolving tool of foreign policy. Firms that think occasional checks are sufficient are not just naïve, they’re risking severe penalties, including substantial fines.
“Under the Economic Crime Act, breaches of financial sanctions are punishable by fines of up to £1 million – and let’s not forget the accompanying reputational damage. In this digital age, news travels fast, and being named and shamed for a sanctions breach can be devastating.”
As regulated firms reflect on the two years since the start of Russian sanctions, the pressing question remains, will they be better prepared for the next geopolitical challenge? This data suggests a worrying trend of unpreparedness that could have serious consequences if swift compliance action is required in the future.
Collette Allen, COO, stresses the importance of robust digital compliance, she said, “The speed at which sanctions can be imposed can catch firms off guard. It is crucial that regulated firms are proactive rather than reactive when it comes to their digital compliance.
“Our recent survey data shows that firms are still not taking adequate steps to ensure they are not dealing with sanctioned individuals or entities. It is simply not enough to have screened a client ‘sometimes’ or ‘often’ and assume the job is done.”
This worrying trend is not just a regulatory concern, it poses significant consequences for the fight against the criminal gangs that laundering their “dirty money” in the UK.
The call to action is clear, regulated firms must revive their compliance processes. The use of Electronic Verification (EV), recommended by the 2020 Money Laundering and Terrorist Finance Act, is a step in the right direction. EV streamlines the verification process and provides a more reliable risk assessment.
The data from the third iteration of SmartSearch’s Electronic Verification Uncovered campaign, questions firms on their attitudes and approaches to compliance. The campaign highlights a concerning complacency in sanctions screening, which is a move away from the heightened vigilance displayed in the wake of ongoing Russian sanctions. The lessons from the past must inform the actions of the present to ensure that we protect the integrity of regulated firms.