Regulated firms giving a “green light” to Russians

Almost one in five (17 per cent) regulated firms admit to not checking new customers against sanctions or Politically Exposed Person (PEP) lists, a new survey has revealed.

The disclosures come as Putin’s war with Ukraine passes its sixth month and the Government imposes stricter, “eye-watering” penalties on firms who breach the sanctions regulations.

One anti-money laundering (AML) expert has described the admissions as a “green light to Russians looking to circumvent sanctions and help Putin to fund his invasion of Ukraine”.

The comprehensive survey of 500 decision-makers across the property, legal and finance and banking sectors was carried out in May by SmartSearch, the UK’s leading provider of AML software.

Martin Cheek, managing director of SmartSearch and a qualified lawyer, said: “The threat of committing a damaging breach of the regulations for these companies is very real. A recent report from the commons foreign affairs committee showed that the government is still failing to tackle Russian kleptocrats who are laundering cash illegally through the UK – some of which is being used to finance Putin’s invasion of Ukraine.

“Not only are these firms potentially putting Ukrainians at risk by giving a green light to Russians looking to circumvent sanctions, but they are also risking the eye-watering fines and reputational damage which come with breaches of the regulations. Unintentionally breaching the rules is not a defence.”

More than 2,500 sanctions were already in place against Putin and Russia when the invasion of Ukraine took place at the end of February.

The Government reacted quickly to place new restrictions on individuals, entities and their subsidiaries, and brought in legislation to limit deposits held by Russians in UK banks.

Within weeks, the number of sanctions had been doubled and an unprecedented 7,200 individuals and 1,250 entities have since been added to the sanctions list.

The survey is part of SmartSearch’s continuing Electronic Verification Uncovered campaign, which is calling on regulated businesses to switch to electronic verification (EV). Digital onboarding is more reliable and can be done in as little as a few seconds.

Mr Cheek added: “It’s almost incredible that in this climate of a heightened awareness and increased penalties around sanctions that so many regulated companies are failing to do any checks at all.

“These firms should invest in robust sanctions checking procedures as quickly as possible. Electronic verification (EV) is recommended in the 2020 Money Laundering and Terrorist Finance Act as a way to make customer due diligence as effective as possible.

“From verifying the identity of new clients to sanction list checking and monitoring – even retrospectively – EV is the most robust way for regulated firms to fulfil their compliance responsibilities.”