Training and Educating Employees on Anti-Money Laundering Protocols

Money laundering involves the techniques, procedures and processes used to convert illegal funds obtained from criminal activities into other assets in such a way as to conceal their true origin so that it appears the money has come from a legitimate or lawful source.

The fight against money laundering and other financial crimes has never been more crucial. Financial criminals are developing more and more sophisticated methods for laundering funds and exploiting various legitimate business organisations. These are businesses such as, but not limited to:

• Banks
• Building societies
• Insurance companies
• Pension providers
• Credit unions
• Foreign exchange
• Other financial institutions
• Solicitors
• Estate agents
• Bookmakers, casinos and other gambling establishments
• Online gambling
• Art dealers
• Pawn-brokers
• Small businesses such as those dealing with large amounts of cash or customers from high-risk jurisdictions

Businesses need to take various steps to identify the risks and to protect themselves from money laundering. In addition, organisations face increasing scrutiny from regulators to ensure that they have procedures in place to detect and prevent money laundering, and that they are complying with UK legislation and regulations regarding money laundering. The penalties for non-compliance can be severe. 

Employees are an organisation’s best defence against money launderers and terrorist financiers who may try to abuse the services it offers for their own, illegal purposes. To effectively detect the potential risk indicators and take the necessary actions to prevent illegal activities, the organisation’s employees have a need for robust and appropriate anti-money laundering (AML) awareness and training, equipping them with the necessary knowledge and skills to handle money laundering and terrorism financial risks.

By not providing AML training to employees, an organisation is making it easier for organised criminals to launder the proceeds of their crimes into the financial system, undermining the UK economy, and becoming unwitting accessories to criminals committing serious offences such as drug trafficking and human trafficking.

The significance of AML training

Money laundering is more common than many people think; His Majesty’s Revenue and Customs (HMRC) estimates that £40 billion is laundered in the UK every year. However, the National Crime Agency (NCA) estimates that the amount of money laundered in the UK could be between £36 billion and £90 billion. The Home Office estimates that Serious and Organised crime costs the UK economy at least £24 billion annually. 

Financial crime is becoming more sophisticated and widespread, and the money laundering legislation calls for all relevant employees to receive AML training, stating that employees should be “…provided with ongoing training on identifying a transaction or other activity that may be related to money laundering or terrorist financing, and on how to proceed once such a transaction or activity is identified”.

A relevant employee can be any individual employed in the organisation, either as a permanent member of staff or as a subcontractor who is engaged in providing accounting services to clients, from bookkeeping and payroll through to tax returns and audit work. Agents the organisation uses for AML compliance such as auditors, or for the matters identified in AML regulation 24(2)(b), now also fall within the training requirements.

Regular training and education ensure that employees are well-informed about AML risks, policies, procedures and regulatory requirements, enabling them to perform their roles in compliance effectively. AML training must equip employees with sufficient knowledge to effectively recognise red flags and suspicious activity. Relevant employees should also know and understand the organisation’s AML policies, controls and procedures.

Robust AML training programmes not only help prevent money laundering and terrorist financing but also play a crucial role in detecting and preventing fraud.

The core components of effective AML training

The UK has a robust AML framework that plays a crucial role in combating money laundering and terrorist financing. Essential components of AML controls include:

• Risk assessment – organisations must assess the risks of money laundering and terrorist financing associated with their business. This includes identifying and assessing the types of customers they deal with, the products and services they offer, and the geographic areas in which they operate.
• Customer due diligence (CDD) – organisations must conduct CDD on all new customers to understand their identity, source of funds, and purpose of the relationship. This may involve verifying the customer’s identity, obtaining information about their business activities, and understanding the beneficial ownership of the customer.
• Ongoing monitoring – organisations must monitor all customer relationships on an ongoing basis to identify and report suspicious activity. This may involve scrutinising transactions, reviewing customer records, and keeping track of changes in customer behaviour.
• AML screening – organisations must screen customers against various watchlists to identify potential financial crime risks. This includes screening against sanctions lists, Politically Exposed Persons (PEP) lists, and high-risk country lists.
• Record-keeping – organisations must keep records of their AML compliance programme, including risk assessments, CDD, and Suspicious Activity Reports (SARs). These records must be kept for at least five years.
• Independent audit – organisations should have their AML compliance programme independently audited on a regular basis to ensure that it is effective and compliant with the regulations.
• Training and awareness – organisations must train their staff on AML compliance requirements and procedures as listed above. These are the core components of effective AML training. This training should be ongoing and should be tailored to the specific roles and responsibilities of each employee.

Regulation 24 of the Money Laundering Regulations (MLR) 2017 requires firms to take appropriate measures to ensure that relevant employees and agents the business uses for AML-related work are:

• Made aware of the law relating to money laundering, terrorist financing and data protection (insofar as the law on data protection relates to money laundering and terrorist financing).
• Regularly given training on how to recognise and deal with transactions and situations that may be related to money laundering or terrorist financing.

Regulatory Bodies such as the Association of Chartered Certified Accountants (ACCA), HM Revenue & Customs (HMRC), National Crime Agency (NCA), and Financial Conduct Authority (FCA), expect that organisations adopt a training programme that is firstly, relevant to the sector that they operate in, and secondly, relevant to the types of services it offers to clients. At a minimum it is expected that training covers the following areas:

• AML red flags – these describe a warning sign that indicates the possibility of money laundering or other criminal activity. Red flags can include transactions involving companies in sanctioned jurisdictions, large volumes, or funds being transmitted from unknown or opaque sources.
• Explaining the law and regulations and placing them in the context of the organisation’s business activities.
• Conducting customer due diligence (CDD) – this is a process of checks to help identify a client and make sure they are who they say they are.
• Suspicious Activity Reports (SARs) and how to deal with suspicious transactions. SARs are a vital source of intelligence not only on economic crime but on a wide range of criminal activity. They provide information and intelligence from the private sector that would otherwise not be visible to law enforcement.
• Tipping off – this is a term used in the context of money laundering offences and is a crime. It refers to the act of alerting someone that they are under investigation or that their financial activities are being scrutinised by law enforcement or regulatory authorities.
• Reporting obligations and internal communication channels – all employees must report any suspicious transaction or activity they become aware of to their organisation’s Money Laundering Reporting Officer (MLRO). It is the MLRO’s responsibility to decide whether they need to send a report or disclosure about the incident to the National Crime Agency (NCA).
• Record-keeping – organisations must keep records for five years beginning from the date a transaction is completed and the date a business relationship ends.

Training for frontline employees should focus on customer due diligence, identifying suspicious transactions, and understanding the organisation’s reporting obligations. Managers and executives are crucial in setting the tone from the top and ensuring compliance throughout the organisation. Therefore, their training should emphasise their leadership responsibilities, including promoting a culture of compliance, allocating resources for training initiatives, and monitoring compliance effectiveness. 

Heads of Compliance or Money Laundering Reporting Officers (MLRO) will require role-specific AML training to comply with all statutory and regulatory obligations relating to the MLRO role, deal with Suspicious Activity Reports (SARs) and consent requests, assess the adequacy and effectiveness of the organisation’s AML regime and provide an adequate annual report to Senior Management.

AML training and development options can include, but are not limited to:

• Classroom-based or online courses
• Seminars
• Workshops
• Conferences

It is also advised that organisations adopt a training programme that has a post-course assessment, for example a test or exam, in order to ensure that employees who have participated in any training have understood its objectives and met the required standard of comprehension. Again, this will be valuable to organisations in demonstrating that they have employees who are adequately trained, that they fully understand the training materials and are able to transfer the learning back into work practice.

Organisations should also maintain a training log that documents and records the nature of the training undertaken, the date of completion, attendance, employee assessment results, and details of scheduled training and refresher sessions. Training should be provided during an employee’s induction to establish a strong foundation in compliance from the start, and on an ongoing basis, typically once annually or any time the AML process or legislation alters, or the business’s risk profile changes. Continual investment in training and development for AML is vital to stay abreast of the latest regulations and industry best practices.

By empowering employees with the requisite knowledge and skills, organisations can cultivate a culture of compliance and lessen the risk of financial and reputational damage. Organisations exposed to money laundering activities are susceptible to legal risks. Legal risks include but are not limited to lawsuits, penal offences and criminal investigations. Organisations that are proven to have participated in laundering activities face severe legal penalties, including financial penalties, imprisonment of responsible parties, and asset forfeiture. 

Organisations also risk reputational damage. An organisation’s reputation is crucial to its success, and poor AML due diligence practices can destroy it in minutes. Money laundering is a serious crime with far-reaching implications. When an organisation is implicated or affiliated with money laundering activities, public perceptions will change, leading to decreased consumer and investor confidence.

In 2012, HSBC was fined a staggering $1.9bn (approximately £1.5 bn), the largest penalty in such a case, for having insufficient AML measures in place which enabled around $8 billion to be laundered over a seven-year period. It also found that HSBC provided services to terrorist organisations and allowed transactions involving blacklisted countries such as Iran and North Korea. The HSBC money laundering scandal had significant consequences for the bank and its stakeholders. The financial penalties and legal consequences represented a major financial burden for the bank, and the scandal also had a negative impact on the bank’s reputation and financial performance. In the aftermath of the scandal, HSBC faced backlash from customers and investors, and its stock price plummeted.

These fines demonstrate the increased focus of regulators on enforcing AML regulations and the significant financial and reputational consequences for organisations that fail to comply. Robust and regular training for all relevant employees can help to mitigate these risks of non-compliance.

Regulatory requirements

The UK’s anti-money laundering (AML) legal framework encompasses a range of legislation and regulations to ensure compliance and combat financial crimes. The main UK legislation covering anti-money laundering and counter-financing of terrorism includes:

• Proceeds of Crime Act 2002 amended by the Serious Organised Crime and Police Act 2005 – this sets out the primary offences related to money laundering:
  – Concealing, disguising, converting, transferring or removing criminal property from the UK
  – Entering into or becoming involved in an arrangement which facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person
  – The acquisition, use and/or possession of criminal property
• Terrorism Act 2000
• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR)
• Criminal Finances Act 2017
• Terrorist Asset-Freezing etc. Act 2010
• Anti-Terrorism, Crime and Security Act 2001
• Counter-Terrorism Act 2008, Schedule 7
• Data Protection Act 2018 and the General Data Protection Regulation (UK GDPR)
• Economic Crime (Transparency and Enforcement) Act 2022 – a recent addition aimed at bolstering the enforcement of economic crime offences, including money laundering
• The Financial Services and Markets Act 2023

The following legislation applies to money transmission businesses only:

• Regulation (EU) 2015/847 on information accompanying transfers of funds (the Payments Regulation)
• Payment Services Regulations 2017

AML regulations in the UK apply to a wide range of businesses and professions that are deemed at risk of being used for money laundering or terrorist financing activities. In many cases, financial services organisations such as banks, building societies, insurance companies etc. are supervised for money laundering purposes by the Financial Conduct Authority (FCA), but other authorities supervise specific sectors such as the Gambling Commission, the Association of Chartered Certified Accountants (ACCA) and the Law Society. In instances where businesses are not supervised by a professional body or the FCA, HMRC is often the supervisory authority.

Compliance with AML regulations is not an option for organisations, it is a legal obligation. HMRC may impose measures, including a financial penalty, if an organisation does not comply with the Money Laundering Regulations. In more serious cases, it may consider criminal prosecution. The penalty that HMRC imposes will be appropriate for the failure and at a level that is proportionate to the failure and deters non-compliance. In the six months to 31 December 2022, HMRC issued fines of £3.2 million to 419 businesses for failures to follow the Anti-Money Laundering (AML) Regulations and have ‘named and shamed’ 240 of the worst offenders.

Case study – Successful AML training implementation

Santander was fined by the FCA for “serious and persistent gaps” in their anti-money laundering controls, and a lack of due diligence between December 2012 and October 2017. It was estimated that over £298m was successfully processed through business accounts despite red flags being raised. The firm was fined £107.7 million. 

Santander has since established an Anti-Financial Crime Academy to train relevant employees. The following case study was detailed in the CIPD’s Learning and Skills at Work Survey 2021.

Background

Santander UK PLC, part of the Santander Group, is a leading financial services provider in the UK, offering a wide range of personal and commercial financial products and services. Across the UK it employs almost 23,000, serving 25 million customers via a nationwide branch network and telephone, mobile and online banking.

Tackling the challenge of financial crime

As the age of automation jets further forward, financial institutions must deal with increasingly sophisticated financial crime and rapidly evolving regulation. Financial institutions like Santander must be proactive in preventing and responding to financial crime, by detecting suspicious activity early, taking appropriate action quickly, and efficiently addressing gaps in systems and processes to prevent such crimes from being committed again.

Santander UK is committed to building the right level of anti-financial crime (AFC) capability in its organisation to protect its customers, shareholders and society from financial crime, and to demonstrate to regulators that Santander UK has a strong AFC capability development framework and learning offering which underpin a skilled workforce.

Development of the Anti-Financial Crime Academy

To respond to this rapidly evolving threat and regulatory context, Santander UK has worked at pace to ensure that colleagues have the right level of skills and knowledge at all levels within the bank to deter, detect and disrupt financial crime.

Understanding the skills requirements and deficits – taking a risk-based approach, the first step to developing a learning curriculum was to build an in-depth understanding of the skill and knowledge requirements for teams and levels across the bank and to identify skills, strengths and gaps, and the learning required to address the needs.

Leveraging technology – Santander UK used an AI-based skills assessment to rapidly identify skill requirements and knowledge gaps, enabling it to understand quickly where learning development should be focused.

Developing the co-ordinated learning offer – in addition to the pre-existing Santander UK training programme and learning strategy, the Anti-Financial Crime Academy (AFCA) was established in 2020 to provide support and guidance to Santander UK employees and ensure they are suitably equipped to fight financial crime and be the bank’s best form of defence.

The ambition was to create and drive:

• A consistent and optimised anti-financial crime curriculum for a cost-efficient, role-based learning
• Experience
• A robust and sustainable operating model and governance structure to comprehensively manage, monitor and evolve the AFCA new learning analytics approach, enabling business outcomes through the use of both descriptive and predictive learning analytics
• Focus on highly relevant financial crime topics, such as anti-money laundering and sanctions, anti-bribery, corruption and facilitation of tax evasion, with priority given to those areas where there is the largest gap in competency
• A flexible learning platform/academy architecture that can be kept up to date with modern financial crime typologies and evolving threat patterns.

The Anti-Financial Crime Team is focused on protecting customers, communities and shareholders from increasingly complex threats. The AFCA is central to this and enables Santander UK employees to develop and enhance their knowledge and skills to perform their roles with the aim of deterring, detecting and disrupting financial crime within the bank’s customer base.

The AFCA is a flexible learning solution that can be kept up to date with modern financial crime typologies and evolving threat patterns. The AFCA allows Santander UK employees to develop the right skills and capabilities to fulfil the bank’s anti-financial crime commitments.

Visibility, consistency, sponsorship, governance

The one-stop-shop nature of the academy made it really visible across the bank, and centralisation of governance means that Santander UK could track the learning that was happening and make sure that it was to the right standard. Sponsorship from the Money Laundering Reporting Officer further raised its visibility and profile. The cultural workstream within the AFCA allowed Santander UK to focus on behaviours and embedding the learning, as well as on how to drive accountability and ownership for tackling financial crime across the bank.

What was achieved?

The Anti-Financial Crime Academy has been set up to tie back to key business metrics as well as track learning impact via the Kirkpatrick evaluation model. The academy has only been up and running since the end of 2020; however, initial evidence gathered on completion rates and learner assessment highlight positive results:

• 98% completion rate made by target date for sanctions modules
• 89% either agree or strongly agree that they would recommend the learning to colleagues
• 83% either agree or strongly agree that they have learned new knowledge and skills
• 88% either agree or strongly agree that the learning was well structured and/or engaging.

Top tips for working at pace

• Harness technology – Santander UK used an AI-based skills assessment to rapidly identify skill requirements and capability gaps, and provide insights needed to drive decision-making.
• Set expectations about what the learning is going to look like upfront; reuse and repurpose existing content.
• Partner with the internal and external experts – the creation of the AFCA was led by an internal subject-matter expert with over 17 years’ experience of working in the bank to tackle financial crime. Partnering with external consultants enabled Santander UK to harness external knowledge and expertise, and enabled it to deliver at pace.
• Address the right level of risk – make sure that the learning offer takes a risk-based approach, focusing on where the highest risks exist and need to be closed.
• Visibility and sponsorship – learning engagement and behaviour change has been driven from the top: “The message from top down is that we all have to understand, and be ready to respond proactively, on future risk. It’s about building accountability and ownership bank wide.”

Ongoing education and adaptation

AML regulations and best practices are constantly evolving, as are the financial crimes which are becoming more complex and refined. Continual investment in training and development for AML is vital to stay abreast of the criminals, the latest regulations and industry best practices. By providing opportunities for continuous learning, organisations can ensure that their team members are well-equipped to recognise and address potential risks and issues before they escalate. 

Organisations need to provide continuous training and refresher courses to ensure that their employees keep up to date with the latest developments to safeguard the organisation and ensure ongoing compliance.

Regular training updates help to reinforce employees’ knowledge, address knowledge gaps and ensure that employees remain vigilant in their day-to-day activities. Addressing knowledge gaps and providing continuous training opportunities for existing employees is essential for maintaining a high level of compliance awareness throughout the organisation. These updates can be delivered through various means, such as online modules, workshops, newsletters or team meetings. This is particularly important as regulations change to meet the ongoing evolution of money laundering techniques. 

Not all employees have the same level of exposure to money laundering risks or the same responsibilities in AML compliance. Therefore, tailoring refresher training programmes and updates to different job functions is crucial to ensure relevance and effectiveness.

Fostering a culture of compliance

Organisational culture is key for fostering and innovating AML compliance within an organisation. An organisation’s culture comes from the top down. When employees see that mandatory legal or regulatory issues matter to and are complied with by senior management, the value system, goals and code of conduct are mirrored throughout the organisation and engage employees. Leadership and support are instrumental in demonstrating the organisation’s commitment to AML compliance and for setting the tone for employees to prioritise AML practices and compliance.

Clear and concise AML policies and procedures which align with the training content should provide practical guidance on applying compliance principles and responding to potential AML risks and challenges. This alignment reinforces employees’ understanding of compliance expectations and helps embed compliance into their day-to-day activities.

There is a management saying “what gets measured gets done”. By including AML compliance objectives or Key Performance Indicators (KPIs) in organisational, departmental and team business plans, and ensuring that all relevant employees have an AML compliance objective within their personal performance plan, AML compliance by individual employees can be monitored, assessed and underperformances addressed to ensure AML risks are mitigated.

By investing in performance management and training and development, organisations can effectively combat money laundering and maintain regulatory compliance, safeguarding the integrity of the organisation and protecting their reputation.

Final thoughts

A wide range of businesses and professions are deemed at risk of being used for money laundering or terrorist financing activities. AML controls, when effectively implemented by effectively trained employees, mitigate the adverse effects of criminal economic activity and promote the integrity of these businesses and professions.