Finance firms failing to carry out AML checks on ‘ghost firms’

Almost half (45%) of banking and finance firms are failing to carry out “ghost firm” checks on new business clients, anti-money laundering (AML) platform SmartSearch has warned.

Ghost firms, SmartSearch stated, are false entities created as part of a corporate infrastructure to hide the connection of a criminal beneficiary. They are often used by criminals to obscure the real recipients of money laundering activity.

SmartSearch has highlighted that these firms can escape detection if regulated businesses fail to carry out ultimate beneficial owner (UBO) checks as part of their due diligence on new business customers. This comes as organised criminals are believed to be responsible for laundering £88bn of money every year in the UK, according to SmartSearch data, the second-highest amount in the world.

The new research by the AML firm came from a survey of 500 regulated businesses in the property, finance and banking and legal sectors.

Many of the firms surveyed by SmartSearch admitted to even more basic breaches of the AML compliance rules – with one in four (25%) revealing they did not always carry out any verification checks on the owners or directors of new business customers. One in five (20%) said they did so “some of the time”, 4% said they did so “occasionally” and another 4% said they never did so.

“Not only are these omissions risking fines and reputational damage to the firms involved, but they are also creating an open invitation to criminals to dirty the UK’s economy with the financial proceeds of their miserable crimes,” commented SmartSearch managing director, Martin Cheek.

“Regulated firms are legally obliged to identify UBOs as part of their compliance responsibilities and being able to check for them is a vital part of crime risk management and prevention for compliant businesses.

“However, without the right tools to do so, UBO checks can also seem like an impossibly complex procedure, which is probably why so many of the firms are not able to carry them out. But that is also a huge risk.

“This is yet another indication that electronic verification – which, in SmartSearch’s case, includes fast, robust UBO checks – is the most effective way for regulated firms to meet the AML regulations.”

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