The use of school fees as a way for financial criminals to launder illicit funds is coming under greater AML scrutiny. A Refinitiv Expert Talk examines how enhanced due diligence and Source of Wealth checks can help independent schools reduce their money laundering risk.
- Private schools are a potential money laundering risk if insufficient checks are made on the source of funds behind the fees.
- If a high-risk transaction is suspected, Source of Wealth checks as part of Enhanced Due Diligence should be carried out prior to accepting funds.
- A Refinitiv Expert Talk raises awareness about school fees and the money laundering risk, including some of the red flags for school bursars to look out for.
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Recent press reports have shone a spotlight on financial criminals using UK private schools to launder illicit funds.
In September 2018, it was reported that the UK’s National Crime Agency had “put private schools on notice that they should file more reports flagging suspicions about fees being paid with dirty cash.”
This came amidst concerns that the independent schools sector presents “a glaring loophole in the UK’s anti-money laundering (AML) system” because it appears that insufficient checks on the source of funds are completed by schools before they accepted the fees.
This is despite the fact that more students now hail from high-risk countries.
The 2019 UK Independent Schools Council (ISC) census reveals that there are more than 536,000 pupils at 1,364 ICS member schools, with approximately five percent of these from outside the UK.
Drilling down, 45 percent of these pupils are from EEA countries, but according to the census there has also been a steady growth of pupils from Asia.
Source of Wealth checks
If a high-risk transaction is suspected, then Enhanced Due Diligence (EDD) that encompasses Source of Wealth (SoW) checks should be carried out prior to accepting funds to identify and mitigate risk.
SoW investigations involve understanding exactly where money comes from, and checking that this wealth originates from legitimate means and there are no apparent links to financial crime such as money laundering.
Thorough SoW reports look at a subject’s economic activities (including work history) and corporate affiliations, and should include information about all assets, including, for example, property and investment portfolios.
Where wealth originates from sources such as inheritance, marriage or other events, a SoW assessment should be extended to include the original holders of the wealth.
The purpose of such a comprehensive SoW report is to build a coherent subject profile that presents reasonable evidence to support the legitimate accumulation of wealth.
If SoW research identifies gaps or inconsistencies that indicate the origin of funds or wealth cannot be accounted for, further consideration should be applied to the case to appropriately mitigate financial crime risk
How to manage money laundering risk
As criminals become ever-more sophisticated in laundering the proceeds of crime, more sectors, including schools, are at risk of being used for illegal activity. All organizations therefore have a crucial role to play in identifying potential risk and reporting it to authorities.
This begins with raising awareness and ensuring that all stakeholders understand their obligations and appreciate the important role they can play in wider efforts to root out financial crime at all levels.
Read our Expert Talk to find out more about how this affects the UK independent educational sector.