Money Laundering Regulations
The 2007 Money Laundering Regulations came into force on 15th December 2007. Although they replaced the 2003 Regulations they enhanced many of the requirements of the earlier Regulations rather than changing them. Solicitors' practices come within the regulated sector and are therefore required to meet the requirements of the legislation.
Money Laundering is covered by three main pieces of legislation namely the Terrorism Act 2000, Proceeds of Crime Act 2002 and the Regulations themselves brought in under Statutory Instrument 2157. Between them they create a number of offences which are:
Money Laundering - being involved in an arrangement which facilitates the retention or control of terrorist or criminal property or participating in a transaction by assisting in the planning or execution of the transaction on behalf of the client.
Failing to Disclose or Report - not reporting where there are reasonable grounds for a suspicion that an offence has been committed.
Tipping Off - informing the person concerned that a report has been made to the authorities.
The 2007 Regulations introduced additional requirements for Solicitors and made some significant changes to steps already being taken. The main points can be summarised as follows:
A change to a risk assessment approach of both the client and also the matter in question.
The introduction of Customer Due Diligence and Enhanced Customer Due Diligence which means accurately verifying the client's identity with documents, data or information from a reliable independent source. Identifying if there are beneficial owners, again risk assessing and verifying identities, and in the case of a legal person, trust or similar legal arrangement understanding the ownership and control. Finally obtaining information on the purpose and intended nature of the business relationship. In cases where the client is not physically present for identification or in the case of a ‘politically exposed person' or their families enhanced Customer Due Diligence has to be applied. This requires additional steps to be taken by obtaining additional information and verifying or certifying them perhaps by a credit or financial institution and ensuring that the first payment is made through an account in the client's name.
- The introduction of ongoing risk assessment of the client and the matter. If for example there is a sudden change in funding arrangements for a matter the reason must be established and understood.
- The need to risk assess existing clients and their matter when they next instruct the firm.
- The need to keep copies of documents and record the information in respect of steps taken in exercising Customer Due Diligence and for this to be kept centrally for a period of five years.
A change in so far as training for staff and in particular the Fee Earners (the ‘relevant person' in terms of the Regulations) must now be regular. The suggestion is every two years but annually in the case of Conveyancing staff.
All Solicitors firms will have had systems in place under the 2003 Regulations and will have an appointed Money Laundering Reporting Officer so it really has been a case of enhancing what already exists to ensure that the 2007 Regulations are complied with. The Law Society has produced a helpful practice note that can be found on their website from ‘Anti-money laundering' on the homepage. Chapter eleven in particular gives information on warning signs for Solicitors to look out for under the risk based approach.
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