Money Laundering Compliance Policy
This document explains the firm’s policies and procedures. It has been approved by the senior management of the firm. It supplements the training with which you have been provided. It is important that you read this policy, and refer to it when relevant issues arise.
Our Money Laundering Reporting Officer (MLRO) is Hilary Green. Consult her in cases of difficulty. In her absence, consult the deputy MLRO who is Anna Orpwood.
Revised July 2019 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.
- The Money Laundering Regulations 2017
These regulations require us to follow procedures to prevent criminals from being able to use our services to launder money or to finance terrorism. All references in this manual to money laundering include terrorist financing.
- Regulated Work
The Money Laundering Regulations only fully apply if we are doing certain types of work. Litigation work, and certain other work which does not involve any 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 with important exceptions only for the following:
- Child Care
- Community Law
This is because of the important points set out in Section G paragraphs 6.3 and 6.4.
- Record Keeping
The firm is required to maintain records (including records of client identification and about their transactions) for at least five years from the end of our business relationship with a client. 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.
- TrainingThe firm must ensure that you receive training about avoiding money laundering. The firm’s policy is that:
- all fee-earners should receive online training bi-annually, and
- relevant support staff (including members of the Accounts team) should also receive online training bi-annually.
- You must undertake such training, and read this policy.
The firm’s MLRO will also provide ad hoc guidance and training in the event of material developments particularly in the property department.
- Your RoleYour main obligations are
- to carry out “customer due diligence,”
- monitor transactions including the source of funds, and,
- recognise and report suspicious transactions.
- 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.
B) Customer Due Diligence
- What is “Customer Due Diligence”?
The Money Laundering Regulations require you to carry out “customer due diligence” (“CDD”) when you do regulated work. This involves several elements.
- Client identification.
- Identifying the person who instructs us on behalf of an entity (such as a person who represents a company) and checking they are authorised so to act.
- Identifying any beneficial owners where the client is a company or trust.
- 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. Assessing risk includes checking if a client or beneficial owner may be “politically exposed” (see the note below on that subject).
- Ongoing monitoring of the business relationship, including where necessary the source of funds.
- The Importance of Thorough CDD
2.1 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.
2.2 When taking instructions from new clients, explain our obligation to do due diligence, and the reason for that obligation. Where appropriate 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. Our Money Laundering Statement explains our CDD obligations, and you may wish to draw that explanation to clients’ attention
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 in any 28 day period, you should normally report the request to the MLRO.
- The CDD Form
(This requirement does not apply to crime, community law and child care work)
- The firm has devised a CDD Form (attached, FORM A), to help you to carry out due diligence in an organised and reliable manner. It includes detailed notes. You must always complete the form. For the avoidance of doubt this applies both:
- when taking on a new client, and
- when opening a new matter file for an existing client (whenever you open a file, you should complete a fresh CDD form even if we have previously checked ID). This is to record the risk assessment which is a requirement under the new regulations.
Even in cases where we routinely act on similar matters for the same client there should be a CDD form to record whether the matter is considered low medium or high risk. (See Section E regarding Risk assessment).
- You must also run fresh checks and fill in the form again if:
- the client’s risk profile has changed significantly (especially if it is a company or other entity),
- if there is any indication that the beneficial owner of a client has changed, or
- if you suspect money laundering, or doubt the veracity of due diligence documents previously supplied.
- Where the previous evidence of identity is more than 3 years old
4.3 The completed form, along with evidence of identity, should be filed in the firm’s central records which are kept in TFB. You must open a progress file titled ‘CDD’ in each case, file the CDD form and either
- File certified copies of ID and verification of address; or
- Indicate where such information can be found within TFB
4.4 You must also send to the firm’s MLRO the CDD form and evidence of ID and address in the following cases:
- Where the client is resident overseas for all or part of a year
- Clients who are not UK registered companies
- Trusts or unincorporated organisations.
- Where you have any suspicions of money laundering
C) Client Identification
- 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 and address.
- 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. No money other than money which is on account of bona fide advice and/or representation should be paid in to our account until verification has been completed. Do not accept more than £750.00 as money on account until verification has been completed or you have the consent of the MLRO
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.
- Verification Where Clients Are Not Physically Present
You should normally verify identification in person. A client who is evasive or secretive and not willing to meet in person without good reason should be treated with suspicion. Nevertheless where clients are geographically distant or there is some good reason why they cannot attend, we can accept verification by others.
Where the client is not physically present for verification of identification you should normally ask them to have their identifying documents 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, and
- include their own contact details so we can check with them if we think necessary.
Where clients are based overseas you should obtain verification from a consulate or Notary Public. Evidence in such cases should be referred to the firm’s MLRO and the identity of the person verifying ID should be checked.
- Reliance on others
N.B Please note that “reliance” is the process whereby a third party carries out full due diligence on our client or an associated third party. It is not intended to refer to the situation in paragraph 4 where we simply have not meet the client in person.
- Our default policy is that we do our own due diligence checks. Our policy is not to rely on checks done by others nor to agree to others relying on our checks. There may be exceptional circumstances where this is not possible. Exceptions can only be made with the prior agreement of the MLRO.
- In exceptional circumstances where the MLRO agrees that you may use. “reliance” the following points will apply: Regulation 39 states that instead of carrying out identification ourselves, we may rely on due diligence conducted by other organisations which are covered by the Money Laundering Regulations (or equivalent abroad) such as other law firms, external accountants, estate agents, insolvency practitioners, auditors or tax advisers.
- Before we can rely on the due diligence of another organisation we need:
- the due diligence information they have obtained to be provided to us
- their written agreement that they will provide us with copies of any identification and verification data and any other relevant documentation on the identity of the customer or its beneficial owner; upon request, and that they will retain such data and documents.
- The firm has devised a form of words to be used in such cases to obtain the necessary agreement (attached, FORM G).
- We remain liable for any failure by the other party to apply verification correctly. Accordingly only rely on organisations which you have reason to believe are reputable and take their responsibilities in this area seriously. Do NOT use reliance if the client appears to be higher risk for money laundering.
- If other organisations ask to rely on our due diligence, refer the question of whether to agree to the MLRO. If we do agree, use the form of words attached as FORM G.
- Evidence Required
More guidance about the evidence required in different circumstances is in the notes which accompany the CDD Form. If in doubt consult the MLRO.
D) Beneficial Owners
- 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
- establish if there is 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).
- Checking Beneficial Owners
The goal is to understand who is the natural person or people 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.
- More guidance about who is a beneficial owner and the evidence required is in the notes which accompany the CDD Form. If in doubt consult the MLRO. However bear in mind these principles.
- 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.
E) Risk Assessment
- What is Risk Assessment?
- You must make enquiries about the client, the source of funds and the purpose and nature of the transaction so you can make an initial assessment of the money laundering risk. These are the normal inquiries you make of any new client.
- 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.
- Your risk assessment will determine the approach you take to CDD in general, and ongoing monitoring.
- The firm has assessed the risk profile of the firm’s departments as follows:
- Residential Conveyancing: high (particularly when acting for buyers).
- Commercial property: high (particularly when acting for buyers / investors and non-institutional lenders; lower when dealing with the grant or assignment of business leases at market rent)
- Corporate: high
However, factors such as the length of the business relationship and whether the circumstances of the matter fit in with the known profile of the client may mean that this could be regarded as medium risk. (Risk will rarely be low in such matters)
Wills and Probate
- Trusts: high
- Probate: medium
- Wills: low
- Divorce, Financial Settlement – low to medium
- Childcare: low
Civil Litigation: low to medium
Criminal litigation: low.
Community Law: low
However, the factors in the following paragraphs may lead you to assess a particular client or matter as a higher risk.
- Enhanced Due Diligence – High Risk Matters and Clients
- We must carry out “enhanced due diligence” in any case where there is a high risk of money laundering. The law says that includes the following.
- We are dealing with a person established in a high-risk 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.
- 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.
- The corporate structure of the client is unusual or excessively complex.
- A transaction is complex and 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.
- In addition you should be aware of the following risk factors which particularly apply in the context of this firm
- 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.
- 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 act for businesses which handle cash.
- 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.
- Politically Exposed Persons (“PEPs”)
- You must get approval from the firm’s MLRO before accepting a PEP as a client.
- 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.
- You should make enquiries to establish if a client is or may be a PEP. You must also check if:
- they have been a PEP in the recent past (certainly in the last 12 months);
- they are immediate family members of a PEP;
- they are known close associates of a PEP.
- The firm’s Customer Due Diligence Form (Form A) refers to the enquiries you must make, reflecting the risk levels which exist in this firm.
- 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 which are involved. You must also conduct enhanced ongoing monitoring of the business relationship.
- Simplified Due Diligence – Low Risk Clients and Matters
- You do not have to check the beneficial owners of listed companies or their subsidiaries (if listed on a main market; this does not include AIM companies, which you must check).
- Generally if a client and a matter are low risk for money laundering, (for example because the client is well known and reputable, or well regulated) you may take a proportionate approach to due diligence. For example simplified due diligence may be appropriate when instructed by:
- financial businesses which are regulated by the FCA
- public bodies
- regulated professional firms, such as accountants and solicitors
- reputable charities registered with the Charity Commission.
- In such low-risk cases you may be able to accept assurances (in writing) from the person instructing you as to the identity of beneficial owners, rather than insisting on seeing their identifying documents.
- Needless to say simplified due diligence is not appropriate if you doubt information you have been given or you suspect money laundering. It may cease to be appropriate if the risk profile changes for the worse.
F) Ongoing Monitoring
- 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, his business and risk profile. It also involves keeping our due diligence documents and data up to date.The Law Society states that “ongoing monitoring will normally be conducted by 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 risk the client and the transaction, the more rigorous should be your ongoing monitoring.
- 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 Form B below (“Source of Funds Questionnaire”). This is now automatically attached to the Money Laundering Statement. Alternatively you can complete and sign the form yourself, based on discussions with the client.
It is not normally necessary to inspect bank statements or other documents to verify the information given. However if the client gives inconsistent or implausible information you should seek further evidence and discuss the matter with the MLRO.
G) Reporting Suspicious Transactions
- Why Report?
You must report anything that should give you grounds to suspect that money laundering has taken place or is being attempted, to the MLRO. To fail to do so is a serious criminal offence, under s330 Proceeds of Crime Act 2002.
- Information received from a client, or from the representative of a client, for the purposes of legal advice may be covered by legal advice privilege. If so, that may prevent you from making a disclosure. The law on privilege is complex and if it may apply you should discuss the issue with the MLRO.
- Even if information is privileged it will still be an offence to be involved in a money laundering transaction (s327 – 329 Proceeds of Crime Act 2002). So even if privilege prevents you from making a report, you may still need to cease to act, if to continue would involve you in, for example, facilitating a money laundering transaction.
- 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.
- Tipping Off / Prejudicing an Investigation
If you decide you have grounds to suspect money laundering it is important that you only report this to the appropriate persons within the Firm. You must not tip off the person suspected, even if it is a client. Otherwise you may commit an offence under s333A or s342 Proceeds of Crime Act 2002. The MLRO will guide you as to what information you may properly give, and to whom.
- How to Report
- If you need to report a suspicion of money laundering, a form has been designed for this purpose (attached, FORM D). In view of the need to maintain strict confidentiality in such cases, the report should be placed in a sealed envelope sent to the addressee personally and marked ‘Strictly Private & Confidential’. At the same time telephone to check that the MLRO is available. If he is unavailable refer the matter to the deputy MLRO and if she is unavailable report to the senior partner.
- The MLRO will then consider the problem and will decide whether to report the matter to the National Crime Agency (NCA).
- The NCA will consider the report and may pass the intelligence on to the enforcement agency with the power to investigate further.
- Authorised and Protected Disclosures
You need not fear that making an erroneous report will expose you to legal or professional sanctions. Sections 337 and 338 Proceeds of Crime Act 2002 provide that a report of suspicions of money laundering is not to be taken to breach any duty of confidentiality.
H) Detecting Money Laundering
- SuspicionThis 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.
- Grounds for Suspicion – GeneralIn 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 transaction. 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.
- 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 country. The client or a beneficial owner is resident in or has a substantial connection to a high-risk country, or relevant assets are in a high-risk 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.
- 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.
- Grounds for Suspicion – PropertyIn 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.
- 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.
- During due diligence it may become apparent that some or all of the assets owned by a business represent criminal property, due to tax evasion or other offences by the seller.
- 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.
- 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.
- Grounds for Suspicion – Litigation
- Even though litigation is not regulated work you should report suspicions of money laundering based on information received when undertaking litigation work so that the MLRO may make appropriate judgements, including as to risks we might run by holding money on account.
- However you may normally continue with a litigation matter without being guilty of an offence, even if it involves the transfer of criminal property. Litigation work is exempted from normal money laundering rules by the judgment in Bowman v Fels (2005) EWCA Civ 226. That decided that s328 Proceeds of Crime Act “is not intended to cover or affect the ordinary conduct of litigation by legal professionals”.
- The protection only applies to legal professionals. Clients may still be committing an offence under s327 – 329 Proceeds of Crime Act 2002, unless they make a disclosure to the NCA and are granted a defence (formerly known as obtaining consent to proceed). They should be so advised.
- Bowman v Fels does not apply to “sham litigation” e.g. where litigation or settlement negotiations are fabricated by the parties to launder the proceeds of crime. A more common example is where a dishonest claimant fabricates a claim or category of loss against an innocent defendant. By acting in sham litigation we could be guilty of money laundering. There may also be other legal and ethical issues.