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Regulated firms failing to detect criminal “ghosts”

Regulated firms failing to detect criminal “ghosts”

Almost half (47 per cent) of regulated firms are failing to carry out crucial “ghost-buster” checks on new business clients, newly released data shows.

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

And they can escape detection if regulated firms fail to carry out ultimate beneficial owner (UBO) checks as part of their due diligence on new business customers.

This worrying breach in business checks comes as organised criminals are believed to be responsible for laundering £88bn of money every year in the UK, the second-highest amount in the world.

The admissions came from a comprehensive survey of 500 regulated businesses in the property, finance and banking and legal sectors, commissioned by SmartSearch, the UK’s leading anti-money laundering platform.

Failing to verify UBOs can often lead to firms unwittingly approving Politically Exposed Persons (PEPs) or those on sanction lists.

Meanwhile, many of the firms surveyed admitted to even more basic breaches of the AML compliance rules - almost a third (30 per cent) said they did not always carry out ANY verification checks on the owners or directors of new business customers, with one in five (20 per cent) saying they did so “some of the time”, three per cent saying they did so “occasionally” and six per cent saying they never did so.

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

“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.”

The 500 businesses were questioned during May as part of SmartSearch’s continuing Electronic Verification Uncovered campaign, which argues that regulated businesses should use digital onboarding to ensure they effectively identify and screen clients.

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