Russia’s war in Ukraine highlights AML gaps: SmartSearch

The anti-money-laundering software company says its survey reveals “continuing shortfalls in the way some regulated firms check on new and continuing customers and continue to rely on hard-copy documents rather than digital checks to identify them”.

It also found that 34% of firms in the finance and banking sector and 47% of those in the legal sector had also not updated their approach to new customers since the sanctions were imposed.

The first in a series of major economic measures against Russia began to be imposed by the US, the EU, the UK and other countries on the first day of the invasion, 24 February, although limited sanctions were applied by some nations in the weeks before the war began.

The AML software firm says know your customer checks have come under closer scrutiny since major sanctions were applied – which place restrictions on individuals, entities, and their subsidiaries, and introduced legislation to limit deposits held by Russian nationals in UK bank accounts.

It adds that “gaps in new customer checks” are compounded by some property firms’ continued reliance on hard-copy documentation to verify new clients’ identities.

The survey finds that 45% of property firms say they used documents like passports or utility bills to identify new clients – even though 14% of these companies admit they are “not confident” of their ability to spot a fake.

It adds that 20% of financial firms and 23.5% of legal companies also rely on manual checks – with 16% of firms in the financial and banking sector admitting they were similarly “not confident” about spotting a fake. This figure is one in ten among firms in the legal sector.

Martin Cheek, SmartSearch’s managing director, said: “As the government increases its censures on companies for breaching compliance rules, some are continuing to risk fines and reputational damage by either failing to increase their surveillance in the light of sanctions or relying on outdated manual checks. Or both.

“Such firms are unwittingly exposing themselves, and the UK, to the proceeds of some of the world’s worst crimes – people trafficking, drug running, tax dodging and scammers who prey on the most vulnerable.

“Regulated businesses need to ensure they are doing everything they can to prevent these crimes and the only way to do so is to embrace electronic verification. Electronic verification uses credit reference data, combined with other reliable sources, to create a unique ‘composite digital identity’ which is virtually impossible to fake.”

The SmartSearch survey was conducted among decision-makers in 500 regulated UK businesses across the legal, property and finance sectors from May 6 to 20.