ECSH51100 - Money service business money laundering risks

Money service businesses (MSBs) were identified as high risk in the 2017 UK National Risk Assessment (NRA) for money laundering and terrorist financing and this risk score was not changed in the 2020 NRA. There is also a risk to any of HMRC’s supervised sectors from proliferation financing.

The most significant risks of illicit financing through MSBs are:

The use of small and midsized retail businesses especially in the money remittance sub-sector. Larger retail businesses tend to invest more money into compliance with The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). Smaller MSBs may have less resources to spend on compliance compared to larger businesses and therefore could potentially be at risk of exploitation by criminals. Smaller MSBs often conduct MSB activity alongside other un-regulated business activity at the same location, so may have their focus on their MLR 2017 obligations diverted.
The medium and large FX businesses have the capability to move very large amounts of money in single transactions, more than any other MSB business type. See Public Private Threat Update (PPTU) for more details on FX risks.
MSB principals may not scrutinise and adequately monitor their agents effectively.
The further the cash is moved away from the point of placement with the first MSB, the less opaque the audit trail as it moves from MSB to MSB. The complex and convoluted structure of MSBs add to this opaqueness. In particular, MSBs providing remittance services to high street customers, usually consist of complex networks of principals and agents, as well as agents with multiple principal relationships. Principals and agents are further explained at ECSH51250.
The UK’s financial systems and institutions including MSBs are particularly vulnerable to proliferation financing. These systems present an opportunity to those looking to exploit the financial services and technologies to support their proliferating activities.

When carrying out an intervention the actual risks will be set out in the PID for the campaign.

Common compliance failings throughout the sector may present as, but are not limited to, the following:

Money Transmitters

The business sends money to high risk third countries (HRTC) without conducting an adequate risk assessment.
The business fails to maintain a clear audit trail of transactions.
There may insufficient records kept of customer identification as part of customer cue diligence (CDD) or enhanced due diligence (EDD).

Currency Exchange Office

Business accepts a cash payment for currency that does not fit with what the business knows about the customer’s intended destination.
Business does not carry out any checks on occasional customers making them more vulnerable to money laundering.

Cheque Cashers

Cheque cashers may be used by individuals who are committing tax evasion and or benefit fraud. Wage or benefit cheques do not pass through the customer’s bank account making it harder to detect that the customer is in receipt of income.
Where a cheque casher also carries out pawnbroking there is a separate risk that the goods that are pledged may be stolen property.
If the business offers payday loans and debit card advances there is a risk that the customer might be making use of a stolen chequebook or debit card.