Money laundering is the process by which persons attempt to conceal the true origin and ownership of the proceeds of criminal activity. Anyone successfully 'laundering' these proceeds will ultimately be able to provide an apparently legitimate cover for their source of income. There are many ways that money laundering might occur in a credit union, for example where members offer large lump-sum payments which are not part of their normal payment pattern or they may make numerous small payments for shares so that the total of each deposit is unremarkable, but the total of all the credits is significant. Reluctance to provide normal information when opening an account (even when taking account of the financially disadvantaged nature of some potential credit union members) should alert staff to a potential money laundering situation.

The Act gives the FSA a 'reduction of financial crime' objective and explicit powers in relation to money laundering for the first time. These are the power to prosecute for breaches of the Money Laundering Regulations and the power to make and enforce regulatory rules on money laundering.

The Money Laundering sourcebook (ML) rules and guidance apply to credit unions unless the text makes clear that they do not (for example, ML 8 on sole traders and professional firms).

This chapter of CRED offers some short additional guidance to credit unions to help them understand what ML expects of them in relation to some specific aspects of ML, namely:

1. (1)

   identification of the client (ML 3);

2. (2)

   external reporting (ML 4);

3. (3)

   using national and international findings and material deficiencies (ML 5); and

4. (4)

   compliance monitoring and record keeping (ML 7).

This additional guidance is not a substitute for, and should be read in conjunction with, the requirements contained in the relevant parts of ML.

ML 3.1.1 G - ML 3.1.9 R establish a duty on relevant firms to carry out the identification of clients. ML 3.1.3 R makes clear that relevant firms must not, in general, carry out relevant regulated activities, or agree to do so, for a client or potential client unless the firm has taken reasonable steps to check that client's identity. That requirement applies to any person engaged in, or who has had contact with the firm with a view to engaging in, any transaction with that firm:

1. (1)

   on his own behalf; or

2. (2)

   as agent for or on behalf of another.

In the case of (2), the firm has to enquire into the identity of both persons, unless an exception enables it to focus solely on the person it is actually in contact with.

In the credit union context, in order to ensure that the person is who they say they are, the following information should be obtained:

1. (1)

   a true name and name used;

2. (2)

   correct permanent address, including postal code; and

3. (3)

   date of birth.

Ideally, the true name or names used should be verified by reference to a document obtained from a reputable source which bears a photograph. There is obviously a wide range of other documents that members might produce as evidence of their identity. It is for each credit union to decide the appropriateness of such documents in the light of other security procedures operated when an account is opened.

In addition to the name verification, it is important that the current permanent address should also be verified. Some means of verifying address are:

1. (1)

   checking the voters' roll; or

2. (2)

   making a credit reference agency search; or

3. (3)

   requesting sight of a recent utility bill, local authority tax bill, bank or building society statement (originals); or

4. (4)

   checking a local telephone directory (not as a primary check).

ML 3.1.5 G - ML 3.1.7 G recognise that there will be exceptional circumstances when the potential member is unable to produce the normal documents to confirm their identity. In these circumstances a credit union can accept a letter from persons in a position of responsibility such as teachers, social workers, doctors, ministers of religion, hostel managers and solicitors as evidence of identity. The credit union still has the responsibility to satisfy itself that the person applying for membership is who they say they are (ML 3.1.3 R).

ML 3.2 sets out a number of exceptions to the requirement upon firms to establish the identity of the client. These exceptions apply in principle to credit unions. However, none of these exceptions applies if the firm has reasonable cause to know or suspect that the client is engaged in money laundering.1

Firms should take reasonable steps to ensure that, when money laundering is suspected, a report is swiftly made to the MLRO. Having considered the information available, if the MLRO suspects a person has been engaged in money laundering, he should report promptly to the National Criminal Intelligence Service (NCIS).1

In the credit union context the committee of management may consider it appropriate to have a standing item covering money laundering on the agenda of their monthly meeting to ensure procedures are regularly reviewed.

ML 5.1.2 R requires relevant firms to take reasonable steps to ensure that they obtain and make proper use of any government or Financial Action Task Force findings. In order to assist relevant firms, the Joint Money Laundering Steering Group (JMLSG) publishes government, government department or Financial Action Task Force findings, of the kind referred to in ML 5.1.3 R. This information can be found on the JMLSG's website (www.jmlsg.org.uk) or accessed indirectly via the FSA's website (www.fsa.gov.uk) or, in the case of Financial Action Task Force findings only, via the Financial Action Task Force's website (www.fatf-gafi.org). All relevant firms should check this information regularly to ensure that they keep up to date with current findings.1

It is acknowledged that many credit unions do not have direct access to the Internet. Where this is the case, they will need to make arrangements for a volunteer to access the website on a regular basis, as a minimum every six months. Many credit unions will have members who are foreign nationals or have overseas links. For those credit unions it is important that they keep abreast of the Financial Action Task Force findings of inadequacy concerning the approach to money laundering of individual countries or jurisdictions so that these can be taken into account in their decisions and arrangements.

ML 7.2.2 E sets out that, in accordance with SYSC 3.2.6 R, firms should take reasonable care to establish and maintain appropriate systems and controls. In the context of the financial crime objective, this should include requirements for, at least, annually:

1. (1)

   a report from the MLRO;

2. (2)

   a review of the firm's compliance with ML;

3. (3)

   assessing the impact of any new findings underML 5;

4. (4)

   a review of the number of money laundering reports made by staff.

In the case of credit unions, the committee of management should consider the MLRO's report and take any action necessary to remedy deficiencies identified.

ML 7.3.2 R requires firms to make and keep for specified periods records in relation to evidence of identity; records of transactions with clients; records of internal and external reports made; and records of suspicions of any money laundering not reported to NCIS. In the credit union context, it is important to note that ML 7.3.2 R requires a credit union which has concluded that a member is financially excluded (under ML 3.1.5 G - ML 3.1.7 G) to make and keep a record of the reasons for doing so.