Money laundering rules hit net finance firms

Washing machine: How dirty money becomes clean

Companies offering online services such as stockbroking and spread betting face sweeping changes to the way they deal with their customers under new rules to combat money laundering.

From 30 November this year, the kind of scrunity that only banks have hitherto had to undergo will apply to anyone involved in selling financial services.

The Financial Services Authority, which has written the new rules and will be responsible for putting them into effect, has identified a number of groups which are most at risk of being used by criminals to "wash" their ill-gotten gains.

Groups offering online finance, as well as credit unions and independent financial advisers (IFAs), have not faced such stringent scrutiny before, the FSA said.

"There's going to be a massive change," said FSA spokesman Patrick Humphries.

Few checks

The new structure wll be the first time a uniform set of rules has applied across the board, and the FSA will make efforts to educate institutions in how to comply.

The money laundering "cycle"

Placement: Moving the funds from direct association with the crime

Layering: Disguising the trail to foil pursuit

Integration: Making the money available to the criminal once again with its occupational and geographic origins hidden from view

Till now, enforcement outside the banks regulated by the Bank of England has been patchy, said MHA Consulting's Sue Thornhill, for 13 years a specialist in how institutions can spot money laundering.

"If no-one's checking up, then it's only human nature that with onerous and expensive responsibilities standards are going to fall," she said.

Now, though, those who persist in breaking the rules will face unlimited fines. The FSA is also getting the power to "name and shame" transgressors.

"For the first time we will have the power to prosecute," said Mr Humphries, "so if we find evidence of money laundering in the course of our regulatory activities, we can get straight on with it."

Abacha's loot helped trigger new rules

The moves follow the investigation last year of 15 British banks' involvement in laundering $1.3bn stolen from Nigeria by former dictator Sani Abacha, who died in 1998.

The investigation, the FSA said, showed the need for more "joined-up" enforcement. To that end the FSA has signed a deal to collaborate with the National Criminal Intelligence Service to push forward work against money laundering.

New conduits

Traditionally, offshore banking has usually been seen as the main vehicle for money laundering - the term used for turning illicitly-acquired money into assets which can be traded legitimately.

But the FSA's report, drawn up with the help of accountancy firms and the cross-industry Joint Money Laundering Steering Group (JMLSG), identifies new risks.

The online world is a huge boon to money launderers, said Ms Thornhill

If no-one's checking up, then it's only human nature that with onerous and expensive responsibilities standards are going to fall

Sue Thornhill, MHA Consulting

"There's almost no 'know your customer' checks," she said, referring to one of the basic requirements of anti-laundering: That you know who benefits from the services you provide.

"Anything that avoids face to face contact is ideal for criminals."

Online firms will have to develop electronic tools to spot suspicious transactions which break the normal pattern of trading in a particular account, she said.

Another risk is that multiple accounts could be used automatically to "wash" money, so as to avoid breaching the limit - usually about $10,000 - above which transactions have to be reported to the authorities.

"This has to be taken forward very, very quickly," she said.