SMEs yet to be ruled out of money laundering levy

The government has launched a consultation into how its economic crime levy should be rolled out following its announcement in the March 2020 budget.

In its consultation document the government said it believes that a mandatory levy is the only way to obtain a contribution from an appropriate cross-section of 90,000 AML-regulated firms.

The levy aims to raise approximately £100m per year from such firms, which may still include small businesses at high-risk of exposure to money laundering.

The consultation explores the ‘proportionality and affordability’ of the levy at various levels, suggesting that businesses should pay in proportion to the amount of activity they undertake which gives rise to the risk of money laundering.

However, small businesses have not yet been ruled out of paying the levy as the consultation document states that exemption may “reduce the levy’s proportionality to money laundering risk”.

The government has considered three potential thresholds for which a business may be considered small and therefore exempt; £1m; £5m; and £10.2m.

The consultation document says preliminary analysis suggests that a £10.2m revenue threshold would exempt more than 95% of regulated businesses from paying the levy, but still include around 3,500 businesses from across the different sectors.

A £5m revenue threshold would require 1,800 further businesses to pay the levy and 31m threshold would extend the levy to a significant further number of businesses, although still exclude around 85% of businesses.

The consultation also asks for views on implementing a small flat fee for all those businesses under the threshold, rather than exemption.

It claims: “This would ensure there is solidarity of payment across the AML-regulated sector.” But it acknowledges that this method may be unviable depending on the collection model for the levy.

The levy will form one part of the government’s resourcing model to tackle economic crime. Other components include additional public sector funding (to be finalised at the upcoming Spending Review), updating the Asset Recovery Incentivisation Scheme, and exploring whether suspended funds can be unlocked to pay for economic crime reform.

The consultation will seek views on; the levy principles, what the levy will pay for, how government can ensure there is transparency over levy spending, how levy liability will be calculated, which businesses should be paying the levy and how it will be collected and enforced.

The consultation will be open until 13 October 2020 and the government intends for the first set of levy payments to be made in the Financial Year 2022/23.

Serious and Organised Crime, much of which is driven by economic crime, is estimated to cost the UK £37bn a year, according to the 42-page consultation document, Economic Crime Levy: Funding New Government Action To Tackle Money Laundering.