Money Laundering and the Tourism and Hospitality sector

There is an ever-developing focus on the UK’s dirty money problem, officially estimated to run into the hundreds of billions of pounds and so ran a recent headline in the FT “UK professional groups criticised over money laundering prevention.”

I quote below from the FT before turning to the Tourism and Hospitality sector.

Office for Professional Body Anti-Money Laundering Supervision

A report by the Office for Professional Body Anti-Money Laundering Supervision, (OPBAS) found that nearly all of the 22 professional bodies overseen by OPBAS, have failed to gather full basic information on members as a first step. Meanwhile 80 per cent lack appropriate governance arrangements to tackle dirty money in their profession, and nearly a quarter of the bodies do not undertake any form of money laundering supervision at all, despite there being EU rules in place demanding that they do.

OPBAS was set up last year as part of the government’s plans to make the UK a more hostile environment for ill-gotten gains.

OPBAS is meant to ensure consistent supervision among the bodies. Alison Barker, the FCA’s director of specialist supervision, said: “The accountancy sector and many smaller professional bodies focus on representing their members, rather than robustly supervising standards. Nicky Morgan MP, chair of the Commons Treasury committee, said the statistics in the OPBAS report were “shocking”. “They reveal real vulnerabilities in the UK,” she said. “OPBAS has rightly asked the professional body supervisors to address the findings in their report. The Treasury committee will want to see evidence that urgent action is being taken.”

Tourism and Hospitality sector and Money Laundering

The ICAEW has done a lot of work in the area of Money Laundering. Professional bodies such as those for Accountants, Lawyers, Banks (UK & International) and other Financial Sector businesses maintain significant infrastructure assets (systems and people) in order to address Money laundering and the issue of illegal activities that flow from such money.

When I looked for similar endeavours in the Travel and Leisure sector, I found little evidence of guidance issued by businesses or public bodies addressing Money Laundering and control over consumer funds received.

Tourists inbound and outbound use the services of the banking sector, insurance sector, money transfer and foreign exchange sectors and credit cards providers.

There is a lot of guidance on Money Laundering and Terrorist financing in general but little seems to have been done to apply it to the Travel and Leisure sector. It would be very helpful if find out if there any meaningful and substantive written guidance and control procedures for this sector. Businesses in this sector have compliance requirements but they are of a general nature and certainly nothing close to the specific and direct compliance obligations and documentary requirements which bodies overseen by OPBAS have to comply with.

I sampled a selection of websites for bodies such as CAA, ABTA, HOSPA, other various Travel Licencing and Membership Bodies and websites for the booking conditions of the online travel booking industry, hotels, airlines, cruise businesses and train companies. The results of my search serve to confirm there is a paucity of information and guidance on compliance so far as money laundering and the collection of consumer funds is concerned.

This is a matter of concern in that it appears regulators believe either this sector does not need OPBAS type of scrutiny or they believe the Tourism and Hospitality businesses can be policed under the existing non-specific structures despite the size and importance of the sector to the UK economy.

This is surprising when one considers the sheer breadth and depth of this sector:

  • Total contribution of travel and tourism to GDP in the UK has grown from £190bn in 2012 to £220bn in 2018 and projected to grow to £265bn by 2028
  •  Approximately 39 million visits were made to the UK from overseas in 2017 and 42 million in 2018.
  •  Total annual number of visits abroad by UK reached 73 million in 2017.

 Regulation in the Tourism and Hospitality sector

Tourism and Hospitality is already very heavily regulated. For entirely understandable and valid reasons is has to comply with a raft of regulations, legislation and guidance on consumer protection and client funds (ATOL – Trust Accounts and Bonds), GDPR, Health & Safety, VAT compliance, Pensions, Tips and a host of other obligations. The financial and administrative burden of these compliance requirements is already quite onerous and grows as each year passes.

Brexit is very likely going to impose quite significant additional burdens with the UK being “outside” Europe having to work with large Tourist flows both outbound to Europe and Inbound.

Awareness and Enforcement

The sector if it was regulated for money laundering probably has compliance issues, enforcement is low and the sector’s understanding of the rules and threats could be enhanced. awareness of money laundering rules in the sector probably needs to be increased with an emphasis on both self-regulation and reporting suspicious transactions.

Despite the lack of direct regulation, it is clear that Trading Standards, HM Revenue & Customs presumably in conjunction with the Police have carried out some prosecutions of travel businesses for money laundering including a prosecution for the laundering of £500m of cash at a Travel Agency business in 2015.

It is worth noting that fewer and fewer transactions involve cash with funds received either from credit cards or bank transfers which can be traced.

The Financial Action Task Force published its mutual evaluation report of the United Kingdom’s AML/CTF regime. The report recognised that the UK’s anti-money laundering and counter-terrorist financing (AML/CTF) regime was the strongest of any country assessed to date. The UK received the highest rating possible in four areas of the report, and received a rating of ‘substantial’ (the second highest rating) in a further four areas.

There are some checks and balances in place in the Tourism and Hospitality sector

The current range of checks and balances in place emanate from the Tourism and Hospitality Industry’s engagement with:

  • Auditors and Accountants
  • Legal profession
  • Banks when setting up bank accounts and conducting Transactions
  • Merchant Acquirers in obtaining Merchant facilities
  • The general obligation to comply with Money Laundering Regulations and
  • From adopting Good practices including Staff training.

 The fact that certain businesses have to be licenced, particularly by ATOL in the outbound sector also adds to the regulation indirectly.

Anonymous
  • The self-catering sector is totally unregulated.  Agents, even those which are accredited by Visit England, take money from guests and mix it with their own money in their balance sheets.  These balance sheets are often stuffed with intangibles and unknown debtors disguising their insolvency.  Owners are usually paid near the time of the holiday and so millions may be held in totally unregulated businesses' bank accounts.
     
    Such "clients" accounts as there are, are totally unregulated, with agents able to dip into these and lend them to directors and to associated companies.
     
    Owners are paid from new guests money coming in.  In the event of an insolvency, a liquidator would be hard pushed to decide to whom the assets belong.  Accountants and auditors are often complicit in auditing and preparing accounts for businesses which are "men of straw"  but which are taking substantial sums from the public.
     
    I have complained to Dept BEIS, Dept CMS (who look after tourism) and Visit England, but no one is interested.
     
    Little comment is made by accountants on the risks to owners or guests that the companies pose.  Even worse, there are agents which are partnerships and sole traders, with no published accounts, but Visit England are happy to accredit these.
     
    Visit England don't even require the names of the proprietors/partners/companies to be stated on the agent's website as a requirement for accreditation.  There is no requiremnet for agents to tell owners that they are letting their own properties as principals alongside those where they act as agent. Such gross breaches of infidelity indicate that some of these agents are unfit to take public money.