Criminals with vast sums of cash to launder, such as those dealing in drugs, human trafficking or terrorism, are shunning banks because of their stringent AML provisions and instead using money service businesses – and the authorities are now taking action.

MSBs typically allow funds to be transferred overseas, such as when foreign nationals want to send earnings home and can also provide bureaux de change, cheque cashing and payday loan facilities. Their exact numbers are unknown, but a report in the Guardian last month, suggested there were some 34,000 across the UK.

According to a senior police officer, Detective Chief Superintendent Michael Gallagher, MSBs are now the main way for those involved in organised crime to move their funds around: “At least hundreds of millions of pounds is flowing through MSBs, which are less strictly regulated than banks.”

He added that some MSBs were run by criminals, commenting:

“Many of them look like a front, and they are, they can be set up purely by organised crime groups in order to get cash out of the UK quickly without it being effectively monitored.”

But Gallagher, who is Scotland Yard’s head of specialist crime, added there will be crackdowns this year, commenting:

“Some are there for a legitimate purpose, some are not, our job this year is to get into that space and to disrupt the criminal use of finance via MSBs.”

Meanwhile, Bob Lyddon, chairman of the Association of UK Payment Institutions, which represents regulated MSBs, said:

“Close down the bad actors, and take strong action against the illegal sector, but at the same time make sure the good actors can operate because they provide a valuable service.”

NECC takes action

So, how can these ‘bad actors’ be closed down? In February, the National Economic Crime Centre said it would be holding a ‘day of action’ when it would target MSBs that had been identified as potentially being used for money laundering or terrorist financing.

This will involve visiting all MSBs in the City of London and in addition, around 90 other businesses will receive ‘educational visits’ by joint teams from the NECC. It is understood these firms are of interest and may potentially be involved in money laundering.

The NECC is part of the National Crime Agency and includes representatives from the Serious Fraud Office, the Financial Conduct Authority, City of London Police, HM Revenue and Customs, the Crown Prosecution Service and the Home Office. NECC director general, Graeme Biggar, said:

“MSBs are vulnerable to exploitation by criminals looking to launder the proceeds of crime, and in some cases, they are complicit in the criminality. This ability to ‘clean’ money is key for criminals and as such we fully support this joint operation by our partners to raise awareness among operators of money service businesses, and to identify and disrupt the crime that takes place through them.”

In the dock

Those running illicit MSBs are also likely to be more aware of the consequences following a record breaking fine handed down to Touma Foreign Exchange last September, for failing to comply with money laundering regulations. The business, which had three branches in West London, was fined £7.8 million and officials seized over £100,000 in cash. The court heard there were breaches connected to risk assessments and record-keeping, polices, controls and procedures, customer due diligence measures and staff training. Hassanien Touma, who founded the business in 2011, is now banned from any management roles at businesses governed by AML regulations.

The authorities are clearly taking a tougher stance and 2020 could well see more MSBs being closed down along with further prosecutions. Whether intentionally or through negligence, the message to these firms is to take action now as the months ahead could well mean there is an unwelcome knock on the door.