Invoice Finance Companies offer a range of products to fund the working capital requirements of their Clients: these agreements generally fall into two categories; Factoring Agreements and Invoice Discounting Agreements.
As with any financial services activity, invoice finance products are susceptible to use by Criminals to launder money. Both Factoring and Invoice Discounting products facilitate third party payments and may therefore be used by Criminals for Money Laundering activity.
The main risks of Money Laundering within the Invoice Finance Sector are payments against invoices where there is no actual movement of goods or services; the value of goods is overstated to facilitate the Laundering of Funds. Factoring should be considered to be a lower risk than Invoice Discounting, in view of the fact that direct contact is maintained with the Debtor. Invoice Discounting represents a greater risk due to the “hands off” nature of the product.
Invoice Finance Companies should recognise within their risk assessment that even though they may appear to be the only party affected by the Client’s action, the action in itself may represent an offence under POCA (Proceeds of Crime Act) and as such the Invoice Finance Company is obligated to file an appropriate report with SOCA (Serious Organised Crime Agency).
In the Invoice Finance Sector the party with whom the Factoring Company holds a contract to provide the finance is usually referred to as a “Client” and the Client’s Customers as either “Debtors” or “Customers”. Therefore the identification requirements will only apply to the Invoice Finance Company’s clients i.e. the parties with whom they have a contractual agreement. Whilst the Client’s Debtors may be identified for routine credit risk or collection purposes by the Invoice Finance Company the requirement to identify, or verify the identity of these Customers does not apply.
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