The government of the United Kingdom recently issued a new directive vis-à-vis Anti Money Laundering law. Dubbed the 4th Anti-Money Laundering Directive, it became effective on Monday, 26 June 2017. The new regulations were based on the existing Anti-Money Laundering (AML) framework, but they contain important additions that Britons need to be aware of.
The legal ramifications of the AML framework have the capacity to affect multiple areas including whole firm risk assessment (S. 18), internal controls (S. 21 a), internal controls employee screening (S. 20 1B), internal controls independent audits (S. 20 1C), controls, policies and procedures (S. 19 and S. 20), due diligence of clients, simplified due diligence, and politically exposed persons (PEP) among others.
A Brief Discussion of Regulation and Taxation
Several years ago, many Britons faced the prospect of relocating to new countries or tax jurisdictions to avoid new tax regulations coming into effect. These kicked in in April 2010, and many folks considered relocating abroad to avoid exorbitant taxes in the United Kingdom. Less than a decade ago, the number of UK citizens living abroad numbered 6 million, and most of these people live in places where the tax rate is significantly lower than the UK.
These destinations include Spain, Malta, Switzerland, and others. Many folks in the United Kingdom could avoid punitive taxes at home by simply living abroad. Provided you had a physical presence of less than 183 days per year, you were not considered a resident for tax purposes in the UK. Additionally, Britons who did not stay on average 91 days + per annum for appeared of 4 years were not considered tax residents.
However, the rules changed. HM Revenue and Customs has totally revised those regulations. Depending on how closely you are associated with United Kingdom, your taxes will be determined accordingly. The primary conditions for the new tax rules will determine whether the individual is paying rent, or has a mortgage in the UK. If individuals have a bank account in the UK, or even UK credit cards, that may still qualify them for UK taxation. The regulations were such that the only safe option for many UK citizens and residents appeared to be emigration.
That guarantees that money earned abroad will not be subject to taxation in the United Kingdom. However, UK citizens and residents will not be free from tax since they will be required to pay tax in their new home country. Sometimes there are dual tax agreements with countries, which determine how much will be paid to which country. Capital gains taxes must also be considered, particularly if you’re moving into a tax-heavy jurisdiction such as France.
What Do You Need to Be Aware of When Transferring Money to the UK?
Money laundering is a financial crime. The governments of European countries, the US, Canada, and the United Kingdom are particularly severe when it comes to cracking down on financial crimes like money laundering. In essence, money laundering is defined as illegally gained proceeds. This money is then ‘laundered’ to make it appear legitimate i.e. clean.
It has been expressly categorized and defined by the Financial Conduct Authority (FCA). Businesses or individuals involved in money laundering activity need to carefully explain where the money came from, and offer a legitimate explanation as to how it was acquired. There are 3 important steps to providing verification of these funds: the placement, the layering and integration.
By the 1970s, US banks made it a requirement to report any cash transactions greater than $10,000. Additionally, the identity of people making deposits and withdrawals had to be ironclad. This resulted in a properly maintained paper trail. By the 1980s, anti-money laundering regulations were firmly in effect, particularly as the drug cartels ravaged the US. For example, any transaction of $3,000 + needed to be properly verified. Since the 2000’s, there has been a global movement towards guarding against terrorist funding by managing the money flows between countries.
Over the years, HSBC – a leading UK bank – has been found guilty of facilitating money transfers from drug cartels and terrorists to the US. The bank was fined $1.9 billion. Many other incidents abound, but current anti-money laundering policies are cracking down on the way funds are transferred from abroad to the UK and vice versa. The most pressing reason for cracking down on AML regulations is terrorism, but tax evasion remains a priority too. Compliance is mandatory, and Britons will do well to follow the latest regulations.