The government is looking at ways to raise an extra £100m per annum to fund its fight against money laundering – and to collect that sum it is looking at the potential of a financial levy on businesses engaged in activities exposed to money laundering.
Currently, financial and credit institutions, legal services providers, accountants, trust or company service providers, money services businesses, estate agents, letting agents, casinos, dealers of high value goods, art market participants, and crypto asset providers are among those businesses in the AML-regulated sector.
This is because these sectors are deemed as at risk of facilitating money laundering and terrorist financing.
A consultation document has been published by the Treasury and it is calling for responses from interested parties within the next three months.
The document says that government believes it is fair that those whose business activities are exposed to money laundering risk pay towards the costs associated with responding to and mitigating those risks.
It says it recognise that firms already contribute through their compliance with the requirements in the Money Laundering Regulations (MLRs) that aim to deter, detect and prevent money laundering, and through meeting their reporting obligations under the Proceeds of Crime Act 2002.
However, compliance and regulatory activity can never eliminate the risk created.
Law enforcement find that in nearly all money laundering cases, criminal money passes through the AML-regulated sector at some point to obtain legitimacy.
The Economic Crime Plan recognises that further action is required to enhance both the law enforcement response to economic crime and the effectiveness of the preventative measures that businesses deploy.
The government has explored whether obtaining contributions from the AML-regulated sector can be done on a voluntary basis.
£6.5 million of the FY19/20 costs of the SARs (Suspicious Activity Report) reform programme were funded by a grant from six major financial institutions.
The government says it is grateful for those organisations for their cooperation and generosity.
However, there is a shared view in both public and private sectors that this is not a sustainable, efficient or equitable option in the longer-term.
The AML-regulated sector consists of around 90,000 entities. In order to obtain a contribution from an appropriate cross-section of these firms, it has become clear the only mechanism available is a mandatory levy.
This solution will also help address the private sector’s request for the government’s funding asks of the private sector to be joined up as far as is possible.
The levy will increase capacity to tackle money laundering and support delivery of the Economic Crime Plan with an additional £100 million a year.
The government will continue to meet its existing commitments and will also invest in new capabilities.
The government has considered three potential company/group annual revenue thresholds at which a levy might become payable: £1 million; £5 million; and £10.2 million (this is aligned with the small company threshold in the Companies Act 2006).
Initial analysis suggests that a £10.2 million revenue threshold would exempt over 95% of regulated businesses from paying the levy, but still include around 3,500 businesses from across the different sectors.
A £5 million revenue threshold would require 1,800 further businesses to pay the levy.
A £1million threshold would extend the levy to a significant further number of businesses, although still exclude around 85% of businesses.
Exempting small businesses, however, may reduce the levy’s proportionality to money laundering risk, as some businesses exempted through the threshold are likely to still pose a money laundering risk (and in some cases could be high risk).
While this may ultimately be a necessary consequence of ensuring the levy is a viable and sustainable mechanism for raising funds in a cost-effective manner, the government is interested in alternatives to a threshold exempting small businesses (as long as these broadly do not negate the benefits of a small business threshold).
One option could be a small flat fee for all those businesses under the threshold.
This would ensure there is ‘solidarity of payment’ across the AML-regulated sector although the cost effectiveness of this option would need to be considered in light of decisions on the collection model for the levy.