And here is my third and (for the moment) final post on the UK’s draft new money laundering regulations. One little phrase jumped out at me in the consultation document: “EDD is a sliding scale”. The point is made in reference to PEPs (which I discussed last time), but it struck me that this aspect of EDD is often overlooked: people think that there is one level of EDD that comes into play the moment a client falls into a high risk category.
The best analogy is perhaps with the speeding offence. Looking at the speeding sentencing guidelines here in the UK, you will see that there are degrees of driving exuberance. If you’re in a 30mph zone and you do more than 30 but less than 40, it’s one band, then from 41 to 50 it’s another and so on. So if your client is only mildly high risk – say he is a citizen of a high risk jurisdiction, but everything else about him is completely standard – then you can apply a lower level of EDD than you would to a client who is a PEP in a high risk jurisdiction, wanting to set up a convoluted corporate structure in order to service his new Bitcoin and arms dealing empire.
Indeed, this idea of varying levels of EDD is supported by the JMLSG Guidance Notes for the UK financial sector, in a paragraph (4.51) that is unchanged in the revised version of the GN that has recently been put out for consultation (there’s a few more blog posts in the making): “Where the risks of ML/TF are higher, firms must conduct enhanced due diligence measures consistent with the risks identified… Examples of EDD measures that could be applied for higher risk business relationships include…” and then a menu of options (not a prescriptive list) is given. It may be tempting to have one category of EDD, but this is neither a proportionate reaction to risk, nor required by legislation.