Only a quarter of regulated firms always check new customers against sanctions or Politically Exposed Person (PEP) lists, according to data from anti-money laundering (AML) and digital compliance firm SmartSearch.
This data revealed a significant retreat from last year, where nearly three-quarters (73%) upheld strict screening procedures.
Given recent global geopolitical tensions between the West and China, as well as lessons from last year’s sanctions against Russia, the introduction of new sanctions could swiftly covert seemingly low-risk, longstanding clients into high-risk entities.
The Government estimated that money laundering costs the UK economy more than £100bn each year, and the International Monetary Fund (IMF) estimated that financial crime equated to 2% to 5% of global Gross Domestic Product (GDP).
The legal sector, which previously showed an 84% commitment to always performing checks, dropped to 24% in 2023.
The financial services sector also saw a strong decline, from 66% to 22%, while estate agents demonstrated a similar downturn, from 37% to 24%.
Martin Cheek (pictured), managing director of SmartSearch, said: “The backslide in this year’s data underlines a worrying theme of complacency on compliance.
“Sanctions are not a static list, they are a dynamic and rapidly evolving tool of foreign policy.
“Firms that think occasional checks are sufficient are not just naïve, they’re risking severe penalties, including substantial fines.”
He continued: “Under the Economic Crime Act, breaches of financial sanctions are punishable by fines of up to £1m – and let’s not forget the accompanying reputational damage.
“In this digital age, news travels fast, and being named and shamed for a sanctions breach can be devastating.”
Collette Allen, COO at SmartSearch, added: “The speed at which sanctions can be imposed can catch firms off guard.
“It is crucial that regulated firms are proactive rather than reactive when it comes to their digital compliance.
“Our recent survey data shows that firms are still not taking adequate steps to ensure they are not dealing with sanctioned individuals or entities.
“It is simply not enough to have screened a client ‘sometimes’ or ‘often’ and assume the job is done.”
