Cash-based money laundering

In 2020, the UK National Risk Assessment of Money Laundering and Terrorist Financing[1] highlighted an increase in criminal abuse of cash deposit services such as those offered at the Post Office.  

Since then, the National Economic Crime Centre (NECC) has estimated that hundreds of millions of pounds is laundered each year through the cash deposit channel at the Post Office. 

Banks offer personal and business customers a range of banking services, including cash deposit services, through the Post Office via the Everyday Banking[2] facility, governed by the Banking Framework Agreement[3]. Our work has brought together agencies including the NECC, industry, banks and the Post Office, to address an identified weakness in anti-money laundering controls relating to cash deposits.

The work has focused on the joint aims of reducing the money laundering risk associated with cash deposits at the Post Office, whilst recognising the importance of the role of the Post Office in ensuring legitimate customers, both personal and business, can still access the cash[4] they need. 

Financial crime controls

Reducing and preventing financial crime is one of the public commitments published in our 3-year strategy[5]. It forms part of our ‘reducing and preventing serious harm’ strategic priority and its objective is to measurably reduce financial crime (and the risk of financial crime), partnering effectively with the UK’s whole-system approach to tackling fraud and financial crime.  

Reducing the risk of money laundering is a key part of this, and one of the best ways to mitigate that risk is to make sure our defences against financial crime are as strong as possible.  

Before we started the work, banks had limited controls specific to their cash deposit services at the Post Office. Some banks placed over-reliance on the limit of £20,000 per transaction, which is set out in the Banking Framework Agreement. We know that this was abused by criminals who were carrying out multiple deposits of £20,000 each day to launder large amounts of cash quickly. We carried out research, which included a visit to the model Post Office branch, to understand why criminals might prefer to use a Post Office branch rather than a bank branch to launder money.

We held workshops with the Post Office, banks, government and the NECC targeted at reducing the money laundering risk whilst limiting unintended consequences for legitimate customers. 

Our expectations

Following our workshops, and based on our interim findings, our current expectations of banks fall into the following key areas:

• Transaction verification: a move towards card-based transactions and away from paying-in slips, where possible, to reduce the opportunity for third party deposits being made into accounts and to allow for enhanced monitoring. 
• Staff training: staff training should include typologies and patterns of suspicious activity identified through Post Office cash deposits. 
• Transaction monitoring (TM): banks to have TM capabilities which allow them to identify suspicious activity in non-branch cash deposits and to detect deviations between expected and actual activity. 
• Deposit limits: banks to reduce cash deposit limits, subject to their customer arrangements, to below the existing £20,000 per transaction. The limit of £20,000 per transaction, with unlimited transactions per day, could not be justified for legitimate businesses or personal customers and presented a material risk for money laundering.  
  • For personal accounts we proposed a limit of £1,000 per 24-hour period (which is the minimum amount law enforcement are allowed to seize under the Proceeds of Crime Act) and £10,000 per 12-month period.  Firms should also have considered whether a tailored approach for personal customers is appropriate.  
  • For business accounts, we asked banks to consider adopting a tailored approach based on expected business customer activity. Recognising that business customer profiles between banks differ, it was not appropriate to set a single specific limit or approach but rather, to ask banks to take a data-led approach using their own customer information. 
• Suspicious activity reports (SARs): banks to reduce the time taken to submit SARs to the National Crime Agency (NCA), as some maximum Service Level Agreements were deemed too high and could reduce the opportunity for law enforcement to take timely action.  
• Intelligence sharing: banks to use intelligence to identify Post Office locations where large amounts of cash are being laundered and to share intelligence on a regular basis with other firms, law enforcement and us. 

Access to cash

For many consumers and businesses, ongoing access to cash is a necessity. Our Financial Lives 2022 survey found that 6% of adults in the UK used cash to pay for everything over the 12 months since May 2021, with this figure increasing (9%) for those in vulnerable circumstances.

Our data shows that most people currently have reasonable access to cash through a combination of bank, building society, or Post Office branches and ATMs. But the long-term decline in the use of cash through technology and social change has made it more expensive for individual firms to maintain their existing infrastructure. 

Along with the Payments Systems Regulator (PSR), the Bank and Treasury we’re committed to protecting access to cash. Read more about our work, including how proposed new powers will help us to ensure people can continue to access the cash[4] they need in future. 

As we look towards legislation coming into force in 2023, it is important that a practical system for cash access continues. With firms continuing to close branches, there is pressure on remaining cash services, such as the Post Office to meet the cash needs of communities. Our branch closure guidance[6] sets an expectation that when considering closing a branch, firms must analyse the needs of customers currently using the site, including business customers, the likely impact of the closure, and the alternatives that are or could reasonably be put in place to continue to meet those. 

It is crucial that the additional controls required for cash deposits at the Post Office do not disproportionately impact legitimate customers. We have stressed the importance of firms considering a tailored approach to cash deposit limits particularly for business customers. 

Systems and controls - mitigating the risk

Throughout 2022 banks made significant progress in designing and implementing controls to respond to this threat. In particular: 

• the average time taken for banks to report suspicious activity relating to cash deposits at the Post Office has reduced by 43%, from an average of 54 days to 31 days 
• all banks have improved their approach to transaction monitoring in relation to Post Office transactions and all banks can now differentiate between Post Office and other cash transactions, which was not the case when we started this work 
• most banks have moved away from paper paying in slips and towards more traceable card-based deposits 
• working closely with partners such as the NECC, banks have taken a more positive approach to intelligence sharing and this continues to be an improving picture with further initiatives planned for 2023 

The introduction of deposit limits posed a challenge for some customers, particularly some businesses, who have a legitimate requirement to deposit higher amounts than the limits set by their bank would allow.  

We have strongly encouraged banks to work with the Post Office and their customers to understand their customer needs and to create a tailored approach that will help ensure legitimate customers have access to the cash services they need.  

This is particularly important for business customers. Some banks are now putting in place exceptions processes to allow customers to deposit additional cash and others are keeping their approach under review.

Next steps

Our current expectations apply to all firms who are part of the Banking Framework Agreement.  

We expect firms to keep their controls, including those newly introduced, under review to help ensure they are proportionate to the risk and suitable for the firm’s own customer base.  

It is important to keep the impact of the controls under review to ensure that the balance between money laundering controls and the impact on legitimate customers is right. We expect firms to use their own data to continue to refine these controls where needed as the money laundering risks evolve.  

As part of our next phase of cash-based money laundering work, we plan to test firms’ approaches to reducing money laundering risk for cash deposits at the Post Office and deposits through other channels.  

This work will include consideration of what steps firms have taken to help ensure legitimate customers have not been disproportionately impacted. We will continue our work with all firms who allow their customers to use the Post Office. We will also consider the use of other channels, such as in-store payment services, to deposit cash. 

We also expect firms to continue to focus on appropriate communication with their customers. Legitimate customers, in particular businesses, need to understand where they can deposit and withdraw the cash they need. Firms should also continue to communicate with the Post Office in relation to the continued implementation and embedding of the new controls and to ensure they minimise detriment to legitimate customers.  

As part of our future cash-based money laundering strategy, we will continue our focus in this area. We will be looking to measure the impact of the enhanced controls in place, and our view will evolve as the data evolves; and we will assess the risk posed by different routes that cash can enter the financial system and how these may be exploited by criminals.