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In Focus Consumer Credit


Seek electronic ID verification to pre-empt new AML tax


Should the government be seeking to give tax protection to modern forms of identity verification to encourage the adoption of modern method?


John Dobson Chief executive, SmartSearch john.dobson @smartsearch.com


Amid all the emergency measures to combat the impact of the coronavirus, there was one feature of the recent Budget that went almost unremarked at the time. The effect may not be quite as immediate as Covid-19, but it could come back to bite firms further down the line. Buried deep in the reams of the


documentation that accompanies any Budget, in paragraph 1.205 of the Treasury ‘Red Book’, is a commitment to “introduce a levy to be paid by firms subject to the Money Laundering Regulations to help fund new government action to tackle money laundering”. The government should be applauded


for its intent to step up the fight against money laundering. As the Red Book states, it is important to “safeguard the UK’s global reputation as a safe and transparent place to conduct business”. Preventing money laundering also protects people in the UK and across the world against the detrimental impact of the criminal activities it helps to fund.


But firms that will be affected by the levy


may be inclined to ask why they should be putting their hands in their pockets. They already bear a heavy compliance burden, through their obligations under the Money Laundering Regulations (MLR), and are subject to heavy fines in the event of being found to be non-compliant.


Level of taxation The Red Book does not make it clear at what level the Treasury is intending to set the new tax or exactly how it will apply: there is only the vague promise of a consultation “later this spring”. It is also not totally clear what the levy


is intended to fund – although elsewhere there is talk of increasing funding to Companies House, which is certainly a weak point in the current regime around beneficial ownership. When the government consulted last


year on the latest updates to the MLRs, it made clear that it was looking for ways to incentivise the take-up of electronic methods of ID verification. It also gave a strong indication that this


It is already the case that electronic verification is easier and more cost- effective for firms. If the government adopts a risk- based approach to the new Economic Crime Levy, it will pay firms even more to embrace modern AML methods


March 2020


had the potential to produce a cost saving for the industry. It is certainly the case that online ID checks are quicker and more cost-effective than manual paper- based checks. They are also much more effective in the


fight against money laundering, as electronic verification can also include all the elements of Know Your Customer and Customer Due Diligence required by the regulations, including screening against global Sanctions and Politically Exposed Persons lists,


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and provide ongoing monitoring to ensure compliance is maintained.


A good start A good place for the Treasury to start would be to use the new levy as a way to reward firms that have embraced modern AML systems. This could be achieved by making the


levy risk-based, so that firms that can demonstrate they have up-to-date processes pay proportionally less than those that are still operating, to put it bluntly, on a wing and a prayer. This risk-based approach is used, for


example, for the Pension Protection Levy, which takes account of employers’ insolvency risk, and the underfunding and investment risk of the pension scheme in question in setting the levy for each firm. It is already the case that electronic


verification is easier and more cost-effective for firms. If the government adopts a risk- based approach to the new Economic Crime Levy, it will pay firms even more to embrace modern AML methods. CCR


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