Anti-Money Laundering and Counter Financing of Terrorism Compliance Policy (May23)

This document explains the firm’s policies and procedures in respect of anti-money laundering and countering terrorist financing. All references in this document to money laundering include terrorist financing, and references to anti-money laundering (AML) include countering the financing of terrorism (CFT).

It has been approved by the senior management of the firm and it is available to all staff. It supplements the AML and CFT training with which you are provided. It is important that you read, understand and apply this policy.

As required by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 as amended 10 January 2020 (‘MLR’) the firm has assessed the money laundering risks to which it is subject and drawn up a firm-wide risk assessment. This policy reflects that risk assessment.

The MLR require that we appoint a Money Laundering Reporting Officer (MLRO) to deal with internal suspicious activity reports where there is knowledge or suspicion of money laundering and to report to the National Crime Agency where appropriate.

Our MLRO is Timothy Halliday. Consult the MLRO in any circumstances where you have knowledge or suspicions about a client or a transaction. In the MLRO’s absence, consult the deputy MLRO who is Nicholas John.

WARNING

Failure to comply with the firm’s anti-money laundering policies may be treated as gross misconduct and result in disciplinary action. Such failure may also put you at risk of prosecution under the Proceeds of Crime Act 2002 (POCA).

A Introduction

1. The MLR

The MLR require us to follow procedures to prevent criminals from being able to use our services to launder money or to finance terrorism.

2. Regulated work

The MLR only apply if we are doing certain types of work. Litigation work, and some other work which does not involve a financial or real property transaction is not regulated. Nonetheless the firm has decided that the procedures set out in this policy should be applied to all clients and all matters.

3. Record keeping

The firm is required to maintain records (including records of client identification and about their transactions) for a minimum of five years beginning on the date on which we knew or had reasonable grounds to believe:

that the transaction is complete, for records relating to an occasional transaction; or
that the business relationship has come to an end for records relating to:
any transaction which occurs as part of a business relationship
CDD measures taken in connection with that relationship.

We are not required to retain CDD records, relating to a transaction which occurred as part of a business relationship, for more than 10 years.

Personal data received from clients is protected by data protection law. It must be used or processed only for the purposes of preventing money laundering unless authorised by law or the client consents to any other use.

4. Screening of staff

All employees whose work is relevant to AML risks (including all fee earners) are subject to screening by way of initial and ongoing assessments of skills, knowledge, expertise, conduct and integrity. We achieve this through our recruitment induction and appraisal procedures which require consideration and review of these attributes. Please see our AML Employee Screening Policy for more information.

5. Training

The firm must ensure that you receive training about avoiding money laundering. The firm’s policy is that:

all new starter fee earners and relevant support staff should receive AML training, tailored to their position, which includes the following key areas as a minimum: recognising suspicious circumstances/ red flags to look out for, what the law on AML is, how to undertake CDD checks in accordance with the firms procedures, when and how to carry out a sanctions check, how to report suspicions internally, non-reporting of suspicions is a criminal offence, an understanding of what tipping off is and how to avoid doing it and record keeping and data protection requirements.
all fee earners should receive AML awareness/refresher training, which is reflective of the AML risks associated with their role, annually.
relevant support staff (including members of the finance team) should also receive online AML awareness/refresher training, with is reflective of the AML risks associated with their role, annually, and
agents such as consultants, locums and temporary staff who are involved, on our behalf, with regulated work will also be provided with appropriate training dependant on and proportionate to the extent of the terms on which they are engaged.
A thorough debrief session will take place following the completion of annual AML training to ensure that the MLRO, and all relevant staff are on the same page in terms of understanding, key messages and objectives, performance measures to ensure learnings are applied and also to identify what additional training or support might be appropriate and a date for review.
The MLRO will undertake regular file reviews and circulate details of the findings/areas for improvement/learning points to all relevant staff thereafter.
The MLRO will circulate summaries of relevant case law, regulatory decisions and legal press articles relating to real-life examples of where AML has come into play, as and when they come to light, by way of learning points and reminders to all relevant employees.
Any material change to the legislative AML regime or the firm’s internal policies will prompt a training review and refresher training for all relevant staff.

You must undertake such training and learning opportunities, reflect on the risks covered and the learning outcomes achieved and keep your training records up to date.

You must also read and ensure that you understand the requirements set down in this policy.

6. Your role

Your main obligations are to carry out “customer due diligence”, monitor transactions including the source of funds, and recognise and report suspicious circumstances. You must also avoid tipping off a suspect about a report. This policy explains more. If you are unsure how to apply this policy consult the MLRO.

7. Responding to AML enquiries from the authorities

We may receive enquiries about AML issues from bodies including the police, the National Crime Agency and the Solicitors Regulation Authority. All such enquiries must be referred immediately to the MLRO who will investigate the matter and make what response is appropriate.

8. Sanctions

A sanction is a punitive measure levied by a regulatory body in order to change behaviour or impede high-risk entities.

The government imposes serious and extensive sanctions on some regimes, entities and individuals who are listed on the UK sanctions list. Sanctions can include asset freezes, trade embargoes, and travel bans. The usual purpose is to pressurise a regime or person into changing unacceptable behaviour or to prevent terrorism.

It is an offence to deal with or provide financial assistance to anyone that is subject to sanctions. That may include a client, a beneficial owner or the intended recipient of funds from a transaction.

Factors that may increase the risk of a person being on the sanctions list include:

clients or transactions with links to jurisdictions subject to sanctions, even if the clients are based locally.
clients or transactions involving politically exposed persons from jurisdictions subject to sanctions.
clients or transactions involving complex corporate structures in jurisdictions with high terrorist financing risks.
clients who seem unable to receive funds or send funds from a bank account in their name, for no good reason.

You must carry out sanctions checks in every matter and on a regular basis thereafter. Our procedure for checking whether someone is subject to sanctions is by using an electronic ID Verification provider.

If you receive a “refer” or “alert” in your electronic ID checks yet conclude that it is reasonable to override these findings and proceed, you must ensure that you clearly record your reasons for doing so in the file.

Where you suspect that someone involved in a matter is the subject of sanctions or has committed an offence under sanctions regulations, you must inform the MLRO without delay and take no further action in the relevant matter unless your MLRO tells you otherwise. He will look into the matter, and where appropriate, will make a report to the Office of Financial Sanctions Implementation (OFSI) to request a license to proceed.

9. Transferring clients between departments of the firm

When a client is transferred between departments a fresh AML assessment must be carried out. This is particularly important if they are transferred from a department which is low-risk for money laundering (such as litigation or employment) to one which is high risk (such as property or corporate).

It is the responsibility of the department taking on the client to ensure that is done. The checks should include:

A fresh AML risk assessment.
Consideration of the Customer Due Diligence information we hold, including not just client identity, but also information about beneficial owners, politically exposed person (PEP) status (see below) and the source of funds.
Obtaining appropriate evidence to address any deficiency.

Consideration must also be given to any new conflict of interest issues that may arise. If there are new parties involved in the matter fresh conflicts checks must be carried out.

B – What is Money Laundering?

Money laundering means doing almost anything that involves “criminal property”. Under the POCA 2002 money laundering is a serious offence, carrying up to 14 years imprisonment. Specifically, it is an offence to acquire, use or have possession of criminal property, or to conceal, disguise, convert or transfer criminal property, or to be involved in an “arrangement” which facilitates money laundering.

“Criminal property” includes anything which is or represents a person’s benefit from criminal conduct, where the alleged offender knows or suspects that it is such. It will include money or property acquired from tax evasion, benefits fraud, theft, bribery, drugs offences or any other crime. It includes property partly acquired through criminal conduct (e.g., a house bought partly with criminal funds). It includes things acquired through criminal conduct abroad or long ago.

The Terrorism Act 2000 also makes it an offence to be involved in any way with terrorist financing. You must report any suspicions not just about money laundering but also about property which is likely to be used for terrorism or may be derived from terrorism. Failure to do so is a serious offence. As above, references in this document to money laundering include terrorist financing.

C Client and Matter Risk Assessment

1. What is a risk assessment?

For every new client and matter, you are required to:

Complete the firm’s CDD and Initial Risk Assessment (this is also to be updated as the matter progresses and in the final stages. This also concludes whether the money laundering risk for the matter overall is low, normal or high risk

For each client and matter you should:

Identify the client and the beneficiaries of the matter and obtain an understanding of the source of funds and wealth of the client/owners and the purpose of the matter;
Understand the service you are going to provide, whether you have the expertise to deliver it, and whether/how the service could lead to the laundering of money;
Understand why your services are needed, whether there is a personal or commercial rationale and whether it appears reasonable or genuine;
Be vigilant to red flags; and
Make a determination as to what action you need to take, including what evidence you need to collect and ongoing monitoring requirements.

Based on those enquiries, you are required to make a written risk assessment when completing the CDD form. But in addition, you must continue to assess risk throughout a client relationship.

2. Why undertake risk assessments?

Complying with the MLR requires undertaking client and matter-level risk assessments. These risk assessments will help you:

consider whether you are comfortable acting for a client and/or on a matter;
determine what approach you take to CDD in general, and ongoing monitoring.
decide on what risk mitigating controls will be necessary.

3. Client-level risk assessments

As outlined above, you must record a risk assessment for every client you act for and keep this updated as the matter progresses. The risk assessment must be signed off by the fee earner before the substantive work on the file begins. The initial risk assessment should always be completed at the outset of a client relationship and in conjunction with undertaking CDD checks.

Regulation 28(13) requires that in assessing the level of risk, you take into account:

the purpose of the matter or business relationship;
the size of the matters undertaken by the client; and
the duration of the business relationship including accounting for any significant gaps.

As part of your assessment, you should also consider whether:

the client’s financial circumstances, main business activities, source of wealth and source of funds align with the background and wider profile of the client;
the structure, complexity or nature of the client entity or relationship makes it difficult to identify the true beneficial owner or any controlling interests;
the client appears to be attempting to obscure understanding of their business, ownership or the nature of their matters;
the client is a PEP, or is closely related to or associated with a PEP;
the instruction from the client is channelled through a 3rd party and there is a lack of direct interaction with the client;
there are any geographic risks associated with the client;
the client wishes to conduct the business relationship or request services in unusual circumstances;
the firm is aware that clients hold residence rights or citizenship in a jurisdiction in exchange for capital transfers, purchase of property or government bonds, or investment in corporate entities in that jurisdiction;
negative/adverse media or press coverage is apparent regarding the client; and
the client is seeking advice or implementation of an arrangement that has indicators of a tax evasive purpose, whether identified as the client’s express purpose, in connection with a known tax evasion scheme or based on other indicators from the nature of the matter.

4. Matter-level risk assessments

A matter-level risk assessment should generally be undertaken on every new matter, updated as the matter progresses and signed off by the fee earner and their supervisor. However, you may decide to forgo a matter risk assessment where:

matters undertaken for a client are highly repetitive in nature, with risk remaining consistent between matters and the risk is addressed comprehensively by the client risk assessment; and

The following client- and matter-level risk factors should be considered as part of your matter risk assessment:

the size, nature, purpose, commercial rationale, context or complexity of the matter are unusual or unclear;
the source of wealth or funds involved in the matter is unclear or obscured;
there is involvement of or payment to or from 3rd parties, especially where the relationship between the parties does not be appear clear or the payments do not make sense in the overall transaction;
there is difficulty in identifying structures/beneficiaries/interests involved in a matter;
the matter involves structuring of a transaction which obscures understanding of the nature of the transaction or ownership of the entities involved; and
the level and type of matter does not fit the client’s profile or involves a sector in which the client would not ordinarily operate.

5. Risk assessments and CDD

Client and matter risk assessment results will dictate the level and extent of due diligence undertaken on a client or matter.

Pursuant to Regulation 33(1), for clients or matters that are determined to be high risk, enhanced due diligence (EDD) must be applied. Simplified due diligence (SDD) may be applied to certain low risk cases in line with the requirements in Regulation 37. See below sections on EDD and SDD.

D Customer Due Diligence

1. What is “Customer Due Diligence”?

The MLR require you to carry out “customer due diligence” (“CDD”) when you do regulated work. This involves several elements:

client identification and verification thereof;
understanding the client’s background and circumstances (including financial position) and assessing whether the legal services provided to the client are in keeping with your understanding of that background and circumstances;
identifying the person who instructs us on behalf of a client (such as a person who represents a company) and checking they are authorised so to act;
taking reasonable measures to understand the ownership and control structure of any company, trust or other entity we act for;
identifying any beneficial owners and taking “reasonable measures to verify the identity of the beneficial owner” so we are satisfied that we know who the beneficial owner is;
assessing the purpose and intended nature of the business relationship or transaction and where necessary obtaining information on that subject;
assessing risk – CDD and ongoing monitoring must be done on a risk-sensitive basis and this includes checking if a client or beneficial owner may be “politically exposed” (see section below covering PEPs);
ongoing monitoring of the business relationship including where necessary the source of funds.

You cannot forgo CDD requirements on the basis of long-standing or personal relationships with the client or beneficial owner. However, these factors may influence your risk-based approach to CDD in such cases.

2. The importance of thorough CDD

Our reputation is our greatest asset. Thorough CDD will not only ensure compliance with the law but will tend to deter undesirable clients from instructing this firm.

When taking instructions from new clients, explain our obligation to do due diligence, and the reason for that obligation. Ask questions about the source of the client’s wealth, and how any transaction is to be financed. Few honest clients will resent such questions, on the contrary, they are likely to expect to be asked such questions. Our client care letter explains our CDD obligations, and you may wish to draw that explanation to clients’ attention.

3. Cash

Explain to clients that the firm’s policy is that we do not accept money in cash (save for money for our fees and disbursements, and then up to a limit of £500 in any 28-day period). This rule is explained in our client care letter. If anyone asks you to accept more than (£500) in cash, you should normally report the request.

E Client Identification

1. Identification and verification

Identification of a client or a beneficial owner is simply being told their identifying details, such as their name, address and date of birth. Verification is obtaining evidence which supports this claim of identity.

2. Timing

You should normally verify the identity of the client (and any beneficial owner) before accepting instructions to act. But Regulation 30 allows verification to be “completed during the establishment of a business relationship if (a) this is necessary not to interrupt the normal course of business, and (b) there is little risk of money laundering and terrorist financing.”

However, verification must be completed as soon as practicable after contact is first established. Do not accept money on account (other than for necessary modest disbursements) or carry out any substantive work until verification has been completed.

3. Documents

You should be satisfied that any documents offered to verify identity are originals, to guard against forgery. Ensure that any photographs provide a likeness of the client. Take copies of the relevant evidence, and sign and date the copies, to certify that they have been compared with the originals.

4. Clients who are not physically present

There may be instances where you are unable to meet with a client in person for CDD purposes. You should also be alert to risk regarding clients who are evasive about proving their identity, who produce non-standard documentation or who wish to have undue control over how a service is provided. Not meeting a client in person does not necessarily mean you cannot verify the client’s identity, but you should adopt a risk-based approach and consider taking additional steps in the verification process.

Such steps can include (but are not limited to):

using digital identification and verification (ID&V) services that meet the MLR requirements;
gathering and analysing additional data to triangulate evidence provided by the client, such as geolocation, IP addresses, and verifiable phone numbers;
verifying phone numbers, email and/or physical addresses by sending codes to the client’s address to validate access to accounts; and
using live and/or recorded digital video of the customer showing their face and original photo identification documents so that you can compare them to scanned copies of the same documents (e.g., passport or driving license).

Where the client is not physically present for identification you should ensure that their identifying documents are checked by a trusted third party (such as a local solicitor, accountant or doctor). That person should:

certify on it that the copy is a true copy of the original
also certify that they have checked the person presenting the document is the person named i.e., that they have seen the person, and
include their own contact details so we can check with them if we think necessary.

Suggested wording for third parties certifying documents should include confirmation that they have seen the original document, the copy is a true copy of that document and the person presenting the document shows a true likeness to the person in the photograph.

The above steps alone may not be sufficient where the money laundering and terrorist financing risks inherent in the particular client or matter are greater. In higher risk situations, further verification will likely be required.

5. Intermediaries, agents and representatives

Anytime your client is represented by an intermediary, agent or representative (i.e., someone purporting to represent them), you must identify and verify the intermediary’s identity and their authority to act on behalf of your underlying client.

If your client is a law firm or other professional intermediary and your services are ultimately for the benefit of their client, you will need to undertake CDD on the firm/other professional, though you may consider using simplified due diligence. The law firm’s/other professional’s client is a beneficial owner for CDD purposes, and you must undertake reasonable measures to identify and verify their identity.

Note that when a law firm or other intermediary refers a client to you and you have a direct relationship with that client, you should treat the referred entity as your client and carry out CDD on them.

6. Renewing ID evidence

You should operate a system of regular review and renewal of CDD and take a risk-based approach to such activity. You should consider reviewing (although not necessarily redoing) the CDD upon each new matter. Where there has been a significant gap between instructions (anything above a year may be considered a significant gap in relation to those clients or transactions assessed as higher-risk), you should consider refreshing the CDD. You must update the CDD when you become aware of any changes to the client’s identification information. This would include change of name, address, beneficial owner or business.

You must also carry out CDD in relation to existing clients if you at any point suspect money laundering or terrorist financing or doubt the veracity or adequacy of documents or information previously obtained for purposes of identification or verification.

F Source of Funds and Source of Wealth

What are source of funds and source of wealth?

According to the Legal Sector Affinity Group AML Guidance, ‘understanding the source of funds and source of wealth is a key protection for your practice, and it should be approached as an opportunity to protect your practice from being used for money laundering.’

Source of funds refers to the origin of the funds used to fund the specific transactions or activities that occur within the client’s business relationship with you. Checking this means looking into:

(a) where those funds came from;

(b) how they were accumulated by the client;

The information obtained should be substantive and establish a provenance or reason for having been acquired e.g., salary, gift etc.

Checking source of funds often requires some understanding of the client’s source of wealth.

Source of wealth refers to the origin of the client’s total assets and checking this involves asking why and how the client has the amount of overall assets they do and how did they accumulate/generate these?

Evidence must be obtained to support information provided by the client – it is never sufficient to rely on anecdotes or perceptions of how a client acquired their wealth.

The amount of verification necessary will depend on the amount of risk presented by the client and matter. Enhanced checks will need to be carried out in high-risk circumstances; in which case you should consult the MLRO to decide on approach to be taken.

It is very important to document the source of funds and source of wealth checks carried out clearly on the file as evidence of the enquiries made and the thought process behind decisions. A summary of the checks must be clearly identifiable, should a third party such as an auditor or regulator, review the file.

Best practice is to carry out source of funds and source of wealth checks at the earliest opportunity as any issues are likely to be far more disruptive if they come to light in the later stages of a transaction e.g., exchange or completion in a property transaction.

Source of funds – property purchase, etc

When acting for someone who is purchasing property or entering into any other large financial transaction you should understand how they will be funding the transaction. This is both to meet our “ongoing monitoring” obligation and to check that their funding arrangements comply with their mortgage offer.

Ask the client to complete a Source of Funds and Source of Wealth Questionnaire or alternatively, you can complete and sign the form yourself, based on discussions with the client.

When applying standard CDD, you should request some form of evidence of source of funds, such as bank statement, Wills, full payslips, audited financial accounts and sales/purchase agreements. You need to be satisfied that you understand where the money is coming from and why and that the transaction makes sense.

Adopt a risk-based approach to weigh up the information provided and whether it is consistent with what you know about the client. If the client gives inconsistent or implausible information, you should seek further evidence and discuss the matter with the MLRO.

G Simplified Due Diligence (‘SDD’) and Enhanced Due Diligence (‘EDD’)

SDD – Low risk clients and matters

Whilst the MLR permit simplified due diligence measures to be applied where there is a low risk of money laundering, we take the view that at least our standard identification procedures should be applied in all cases except where the MLRO agrees otherwise.

EDD – high risk matters and clients

We must carry out EDD in any case where the client or the transaction presents a higher risk of money laundering or terrorist financing. As the Solicitors Regulation Authority asks firms for data on how many clients have been subject to EDD, it is worth keeping a specific list of these matters.

The law says that always includes the following:

we are dealing with a transaction in which any party is established in a high-risk third country;
the client is a PEP, or a family member or known close associate of a PEP;
the client has provided false or stolen identification documentation or information, and we still propose to deal with them (It is inadvisable to continue acting for a client who has behaved dishonestly).
the corporate structure of the client is unusual or excessively complex;
a transaction is complex or unusually large, and has no apparent economic or legal purpose, or there is an unusual pattern of transactions with no apparent economic or legal purpose;
Any other case which by its nature can present a higher risk of money laundering or terrorist financing.

In addition, you should be aware of the following risk factors:

we may act for clients who use complex corporate or trust structures which may aid anonymity, or who otherwise make it difficult for us to obtain complete and reliable information about beneficial ownership;
the client is a legal arrangement or vehicle for holding personal assets;
the client is a company that has nominee shareholders or shares in bearer form.
the client is a cash-intensive business (e.g., a retailer);
we may act in transactions in which funds are coming from a high-risk country;
we may act for clients we have advised in contentious matters where we are aware of dishonesty or criminal associations;
we may be asked to act in a matter outside our normal experience;
we may act for clients who may have sympathies for terrorism;
property work carries a particularly high risk of money laundering. Factors which may make property work particularly high risk include:
high value purchases, particularly if they do not involve a mortgage;
funds being provided by someone other than the client or a mortgage lender;
clients who are otherwise unable to provide convincing explanations of their source of funds;
rapid purchase and sale of property.

In such cases you should discuss what extra precautions are required with the MLRO. Precautions may include fuller evidence of identification (for example of beneficial owners), taking up references, and monitoring rigorously the source of funds both initially and throughout the matter.

Where any party to a transaction on which we are instructed is established in a high risk third country (as defined by the UK) the MLR specifically require that EDD measures must include:
obtaining additional independent, reliable evidence to verify the information provided by the client and the client’s beneficial owner;
taking additional measures to better understand the background, ownership and financial situation of the client and if appropriate the other parties involved – which will include source of funds and source of wealth evidence for the client and the client’s beneficial owner;
taking further steps to ensure that the transaction is consistent with your understanding of the client’s financial profile;
obtaining additional information on the incidental nature of the business relationship;
obtaining information on the reasons for the transaction;
obtaining the approval of senior management for establishing or continuing the business relationship;
conducting enhanced monitoring of the business relationship by increasing the number and timing of controls applied and selecting patterns of transactions that need further examination.

3. Ongoing monitoring

You must conduct ongoing monitoring of business relationships. Ongoing monitoring is defined as:
scrutiny of transactions undertaken throughout the course of the relationship, (including where necessary, the source of funds), to ensure that the transactions are consistent with your knowledge of the client, their business and their risk profile; and
undertaking reviews of existing records and keeping the documents, or information obtained for the purpose of applying CDD, up to date.
You must also be aware of obligations to keep clients’ personal data updated under the Data Protection Act 2018 and the UK GDPR or their equivalent.

H Beneficial Owners

1. Our duty to investigate beneficial ownership

Money launderers may seek to hide their identity behind nominees, or corporate or trust structures. So, when we are instructed on behalf of any company, partnership, trust or other principal we must:

check the identity of the person instructing us;
check they are authorised to act;
take measures to understand the client, including its ownership and control structure;
identify any beneficial owner who is not the client, and take adequate measures, on a risk-sensitive basis, to verify their identity, so that we are confident about the identity of the ultimate beneficial owner(s);
check that clients have properly recorded their beneficial owners in any applicable register e.g. private companies in their Register of People with Significant Control (PSC Register) and express trusts with the Trusts Registration Service – any discrepancies or errors (relating to beneficial owners) discovered in the PSC Register or otherwise registered at Companies House must be reported immediately to the Registrar at Companies House unless the discovered discrepancies or errors are protected by legal professional privilege. Also, note that you cannot rely solely on the PSC register for the purpose of identifying beneficial owners.

A “beneficial owner” is broadly:

in the case of a body corporate or partnership, an individual who ultimately has control over the management of the entity or an individual who owns or controls (directly or indirectly) more than 25% of the shares or voting rights in the entity;
in the case of a trust or similar arrangement, each of the settlor, the trustees and the beneficiaries.

2. Checking beneficial owners

The goal is to understand who are the natural persons who own and control the client, and in whose interests, it is operating. It will rarely be necessary to consult the detailed definition of a beneficial owner if you keep that principle in mind.
If in doubt, consult the MLRO – however, bear in mind these principles:
you do not always have to see evidence to verify the identity of all beneficial owners. It depends on the risk level;
if we are instructed by a business, in most cases you should obtain the same evidence to verify the identity of the beneficial owner(s) you would if they had instructed you directly as the client. However, in the case of large, well-established businesses with many people involved you may not need to see the documents of all beneficial owners;
if it seems the client may be a mere nominee or front for another person, insist on full and strict verification of that other person’s identity, as well as that of the client. Also discuss the matter with the MLRO.

I Politically Exposed Persons (PEPs)

1. Approval requirement

- You must get approval from the MLRO before accepting a PEP as a client. As the Solicitors Regulation Authority asks firms for data on how many clients have been identified as PEPs, it is worth keeping a specific list of these matters.

2. Who is a PEP?

A PEP is a person who is entrusted with prominent public functions, whether in the UK or abroad, other than as a middle-ranking or more junior official. Examples include:

heads of state, heads of government, ministers and deputy or assistant ministers;
members of parliament or similar legislative bodies;
members of governing bodies of political parties;
members of the supreme court;
members of courts of auditors or of the boards of central banks;
ambassadors, diplomats and high-ranking officers in the armed forces;
members of the administrative, management or supervisory bodies of State-owned enterprises;
directors, deputy directors and members of the board or equivalent function of an international organisation.

A person must also be treated in the same way as a PEP if that person is a family member or known close associate of a PEP

If a person has been a PEP but no longer holds the relevant public function, that person must nevertheless be treated as a PEP for at least 12 months after ceasing to hold the public function. A period of more than 12 months may be appropriate for some former PEPs due to the positions they held and the corresponding risk.

3. PEPs and CDD

Our procedure for determining whether a client is a PEP or a family member or known close associate of a PEP by using electronic ID searches.

If you act for such a person, you will also be required to take extra measures to establish the source of wealth and the source of funds involved.

You must also conduct closer enhanced ongoing monitoring of the business relationship for the lifespan of the matter. The extent of the extra measures and ongoing monitoring should be discussed with the MLRO.

J Ongoing Monitoring

1. What is ongoing monitoring?

We are required to undertake ongoing monitoring of business relationships. This means scrutiny of transactions, including where necessary the source of funds to ensure they are consistent with our knowledge of the client, their business and risk profile. It also involves keeping our due diligence documents and data up to date.

Ongoing monitoring should normally be conducted by the fee earners handling the retainer and involves staying alert to suspicious circumstances which may suggest money laundering, terrorist financing, or the provision of false CDD material. The higher the risk the client and the transaction pose, the more rigorous should be your ongoing monitoring.

As outlined above, you should operate a system of regular review and renewal of CDD and take a risk-based approach to such activity. You should consider reviewing (although not necessarily redoing) the CDD upon each new matter. Where there has been a significant gap between instructions (anything above a year may be considered a significant gap in relation to those clients or transactions assessed as higher-risk), you should consider refreshing the CDD.

CDD must also be updated when you become aware of changes to the client’s identification information (e.g., changes of name, address, beneficial owner, etc.). And according to Regulation 27(9), you must apply (or re-apply) CDD measure to an existing client on a risk-based approach when circumstances of that client relevant their risk assessment have changed. In determining this, you must consider:

any indication that the identity of the client or beneficial owner has changed;
any transactions which are not reasonably consistent with your knowledge of the client;
any change in the purpose or nature of the relationship; and
any other matter which may affect your assessment of the money laundering or terrorist financing risk in relation to the client.

K Reporting Suspicious Circustances

1. Why report?

You must report anything that should give you grounds to suspect that money laundering or terrorist financing has taken place or is being attempted, to the MLRO. To fail to do so is a serious criminal offence.

2. Privilege

Some information may be covered by legal professional privilege. There are three recognised types:

Common law legal advice privilege – applies where a client comes to a lawyer seeking advice. Communications between the lawyer and the client are privileged i.e., they are to be kept private and confidential.
Common law litigation privilege – protects communications between the client and the parties involved in the litigation.
Statutory privileged Circumstances provided in section 330 (6) POCA – applies only to the requirement to report money laundering activity under the POCA, by way of a Suspicious Activity Report. Under s330, there is a responsibility to report others who are suspected of carrying out money laundering activity in circumstances where you are dealing with them in the course of business.

You should not report those circumstances if the information or material communicated is provided in privileged circumstances, namely:

by your client/their representative in connection with the giving of legal advice;
by your client/their representative in connection with them seeking advice; or
by any person for the purpose of or in connection with actual or contemplated legal proceedings.

Where you do not report circumstances due to privilege, you must clearly document your decision-making process in the file as evidence that you have considered the matter properly.

NOTE – a client cannot expect to claim privilege in circumstances where they are intending to use the firm’s services to launder money. This is known as the crime/fraud exception.

Where information is covered by legal professional privilege, this may prevent the firm from making a money laundering report. The law on privilege is complex and if it may apply you should discuss the issue with the MLRO before determining how to progress further.

Even if information is privileged it will still be an offence to be involved in a money laundering transaction (s327 – 329 POCA), therefore where privilege prevents us from making a report you may still need to cease to act. The MLRO should decide.

3. Asking the client to clarify

If there is something unusual it is normally appropriate to make inquiries of your client, or a third party, to clarify and to help you decide whether you have a suspicion. Such inquiries will not amount to tipping off.

4. Tipping off, prejudicing an investigation and terminating the retainer

If you decide you have grounds to suspect money laundering or terrorist financing, it is important that you only report this to the MLRO (unless the MLRO authorises you to speak to another person).

Once you have done this you must not tip off the person suspected, even if it is a client. This includes informing the person that an internal report or external report to the NCA has been made or that a criminal investigation for money laundering is being carried out or is being contemplated.

Otherwise, you may commit a “tipping off offence under the POCA. The MLRO will guide you as to what to do and what information you may properly give, and to whom, including how to explain to a client that you are declining to act further, if this is deemed the most appropriate way forward.

5. Exceptions/Defences to tipping off offences

Disclosures to others within the firm (S.333B POCA) – whilst you can talk to anyone within the firm about your suspicions/reporting etc, as outlined above, we recommend that you only speak to the MLRO to ensure that the information remains confidential.
Disclosures to other law firms (made for the purpose of preventing money laundering) (S.333C) where they relate to:

A client or form client of both firms or;
A transaction or service involving both firms.

It is an option to speak to another firm involved in the transaction about the potential money laundering offence as the other firm will also be regulated and subject to the same tipping off provisions etc. This is a useful tool to have at your disposal, however, please seek prior approval from the MLRO before disclosing information to another firm.

Disclosures made by a professional legal adviser to a client with a view to dissuading the client from engaging in money laundering activity (s.333D.)

It is acceptable to inform the client (provided that approval has first been obtained from the MLRO) that by continuing, a criminal offence may be committed and if they insist on doing so, you will have to terminate the retainer.

6. How to report

Before you formally make a report, it is always best to talk to the MLRO about your concerns. The MLRO will consider all the circumstances (including whether privilege applies) and advise you what to do. All internal suspicious activity reports should be made to the MLRO (or if he is unavailable, the deputy MLRO). If, having first discussed the circumstances of a case with the MLRO, you are advised to submit a formal disclosure – the MLRO will provide you with a form upon which to do so. See appendix – Money Laundering Internal Report Form.

The MLRO will then consider the problem and will decide whether to report the matter to the National Crime Agency (NCA), and whether to seek consent from the NCA to proceed with any transaction. The NCA will consider the report and may investigate or pass the intelligence on to other enforcement agencies.

L Detecting Money Laundering

1. Suspicion

This section contains guidance on when you should suspect money laundering and make a report to the MLRO. Note that for suspicion you would not be expected to know the exact criminal offence or that particular funds were definitely those arising from the crime. The “reasonable grounds for suspicion” test is objective. Generic or stereotypical views of which groups of people are more likely to be involved in criminal activity cannot be the basis of the “reasonable grounds”.

Well-documented due diligence procedures and ongoing monitoring will enable you to demonstrate that you took all reasonable steps to prevent money laundering.

2. Grounds for suspicion – general

In any practice area any of the following factors may make you suspicious.

Any party (whether our client or otherwise) proposes to pay significant sums in cash;
rapid transfers of funds – paying money into and out of our client account may be designed to conceal the true origin of the funds;
no commercial purpose – a transaction which has no apparent purpose and which makes no obvious economic sense is suspect;
unusual transactions – where the transaction is, without reasonable explanation, out of the range of services normally requested by that client or outside the experience of the firm;
a request to use junior or inexperienced staff may be suspicious;
if you are asked to serve as a director or trustee, bear in mind the risk that the client wishes to use you to project a legitimate image – only accept such invitations if you are confident that is not the case;
lack of concern about costs – a client who wishes matters to be done in an unduly complex manner, or who otherwise does not seem concerned to control costs;
secretive clients – the client refuses to provide requested information without reasonable explanation, including client identification information;
unusual sources of funds – the client provides funds other than from an account in his/her own name maintained with a recognised and reputable financial institution;
high-risk third countries – the client or a beneficial owner or third party involved in a transaction is established in or has a substantial connection to a high-risk third country, or relevant assets are in a high-risk third country;
you should assume any country to be high-risk EXCEPT Australia, Austria, Belgium, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Japan, Republic of Ireland, Italy, Luxembourg, Malta, The Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, UK, or the USA. Check with the MLRO when a transaction involves any other country however the MLRO checks the FATF’s list of jurisdictions under increased monitoring or its list of high-risk jurisdictions on a monthly basis. (Whilst Hong Kong in itself is not a high-risk country, it is important to be aware of the potential issues with funds that appear to come from Hong Kong which may in fact originate from China where the Chinese Foreign Exchange Rules (CFER) apply – you will need to go back and trace where the funds came from originally (source of funds checks and CDD enquiries) so you can rule out that they came from China. If the funds are found to originate from China, it is best practice to request a written consent to proceed (a DAML) from the NCA regarding the circumvention of the CFER to obtain consent to accept the funds and to use the funds for the intended purposes).
terrorism – particular care should be taken where the client or other party to a transaction is believed to have sympathies with a terrorist group – fund raising for apparently benevolent objects, or payments to accounts in politically unstable areas may in some circumstances give rise to suspicion.

3. Grounds for suspicion – property

In addition to the general risk factors listed above, factors particularly relevant in property transactions include the following:

clients (especially buyers) who do not have a convincing explanation for their source of funds, or whose arrangements about source of funds change during a matter without clear and convincing reasons;
transactions with no clear commercial motive;
property purchased and sold rapidly, for no clear reason;
insistence that a matter be completed very urgently, since this may be a tactic to distract you from making proper checks;
cancelled transactions, particularly where the client requests that funds s/he has provided should be paid out to a fresh destination;
properties owned by nominee companies, offshore companies or multiple owners, where there is no logical explanation;
difficulties with identification of client or beneficial owners, including reluctance to attend for identification processes, which may suggest impersonation;
a third party providing the funding for a purchase, but the property being registered in somebody else’s name – of course, people often assist relatives with purchases. However, if there is no family connection or other obvious reason why the third party is providing funding, this may be highly suspect;
a misleading apportionment of the purchase price, with the intention of avoiding tax. If you discover such tax evasion after it has taken place, this will normally trigger an obligation to report;
information about past tax evasion or welfare benefit fraud may also come to light in conveyancing matters, and may necessitate a report;
signs of mortgage fraud – any attempt to mislead lenders may indicate mortgage fraud, as may the use of shell companies or nominees, and the rapid re-sale of property – property lawyers should read the firm’s anti-mortgage fraud and property fraud policy.

4. Grounds for suspicion – corporate

Many of the issues that relate to property transactions may also be relevant to the buying and selling of businesses. Other issues may include the following:

it may become apparent that some or all of the assets owned by a business represent criminal property, due to tax evasion, bribery, fraud or other offences – if you discover large payments for unspecified services within a business your suspicions should be aroused;
when setting up or forming companies or other business structures, make sure you are satisfied that there is a good commercial reason for the company formation transaction – be aware of instructions where a client (particularly one unknown to the firm) simply asks you to form a company and nothing else;
requests for or use of unusual structures, including offshore companies, trusts or structures in circumstances where the client’s business needs do not support such requirements may be suspicious, in that they may suggest that the client is seeking to conceal the true ownership of assets;
check the source of funds being used to purchase shareholdings or other assets;
always be satisfied that each transaction is genuine and consider any significant over or under valuations;
those using companies for unlawful purposes may seek to delay filing statutory accounts -if this occurs satisfy yourself that there is a genuine reason for the delay;
if a client is using separate solicitors to deal with certain aspects of a transaction it may be that his intention is to avoid one firm seeing the overall picture;
discrepancies in the PSC Register of a private company we must normally inform Companies House of discrepancies even if we do not suspect money laundering.

5. Grounds for suspicion – private client

Wills and probate work is generally low risk, because transferring wealth on death provides few opportunities for professional criminals to hide or enjoy criminal property. However, the need to make a report may arise in a variety of circumstances:

a solicitor administering an estate may become aware that the deceased committed benefit fraud, for example, because the estate includes assets that exceeded the relevant limits for benefits the deceased was claiming;
if the deceased was known to have committed acquisitive crimes (for example because the firm acted for him in criminal matters), it may be suspected that his estate includes criminal property;
solicitors may suspect that a testator or beneficiaries have committed tax evasion. For example, it may be discovered that beneficiaries have failed to declare gifts received from the deceased before death;
if the estate includes assets in poorly regulated foreign jurisdictions, it may be appropriate to make further inquiries;
the trust was set up inter vivos and there is inadequate information about the source of the wealth used to fund the trust – discretionary trusts and offshore trusts can be used to conceal the ownership or origin of assets – take care if the trust has an unusual or complex structure, the assets are high in value, or there is no logical explanation for their origin, or there is difficulty obtaining evidence of identity;
trustees have failed accurately to record details of the beneficial owners with the Trusts Registration Service, where required to do so.

Review of policy

This policy will be reviewed at least annually by Timothy Halliday (MLRO).

May 2023

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