Once again, the topic of money laundering compliance is in the news for solicitors with the recent publication by HM Treasury of a further review of the Money Laundering Regulations 2017, following hard on the heels of the ML Amendment Regulations that took effect at the start of 2020. The Treasury has also now has issued its approval to the contents of the Legal Sector Affinity Group Anti-Money Laundering Guidance Note as first published in January 2021. The significance of this is that a formal defence will be available to any practitioner who is unfortunate enough to be prosecuted for any relevant alleged offences, though in practical terms this probably counts for very little as the prospects of solicitors being prosecuted for conduct that is in any event compliant with the professional guidelines, remain very remote.
The announcement does, however, indicate some changes of emphasis, if not direction, which should be addressed in any forthcoming AML policy reviews.
Beneficial ownership
One of the main areas where the requirements affecting practitioners has been updated is in relation to the degree of checking required on beneficial owners. The requirements here have been for a lower level of checking on all such individuals as they are seen to have a lower level of involvement than the main client – the company in commercial matters, or the other parties to a trust in private client work. In the case of companies the holding of more than 25% of the issued shares will qualify those involved as beneficial owners, as will those who are entitled to more than 25% of the capital or profits of a partnership or more than 25% of its voting rights. In both cases those who otherwise exercise control over the management of that concern will also qualify as such and the revised guidance note confirms that it is important to review both shareholdings and voting rights to be confident about meeting the need to identify such parties.
Greater care is now required in relation to checking on new beneficial ownership details with the suggestion that it will no longer be sufficient to rely merely on the company’s shareholding records. As to the degree of checking required on those who are identified as such it may be appropriate to conduct a full personal check on those concerned, but the guidance provides that the “reasonable measures” required to conduct checks on beneficial owners referred to at MLR 2017 r.28(4)(b) may still differ from those required to identify an individual client. Rather than the documentary evidence commonly required of individual clients by way of passports and driving licences it is suggested that e-verification checking may instead “present an effective way to verify the identities of beneficial owners”, which is already common practice in many firms in any event. Whatever the customer due diligence processes adopted, however, the aim is stated to be to adopt “a tailored and risk sensitive approach” to ensure that the firm’s relationship with the client concern is understood.
High risk territories
The next change of note follows on from the departure of the UK from the EU in 2020. In place now of the EU list of high risk territories where enhanced due diligence will be required under r.33(1)(b) of the MLR 2017 the UK has its own separate list which should be referred to instead, which does of course closely mirror the EU’s list in any event. Changes to the current list are now pending with the Financial Action Task Force having agreed to remove Malta from its list of such jurisdictions, but to add Gibraltar instead. Since these various lists are subject to regular change we would recommend that in place of a list of countries a link to a relevant website should be edited into firms’ AML policies instead. Perhaps the best such source is the now recently updated Law Society list at https://www.lawsociety.org.uk/en/topics/anti-money-laundering/high-risk-third-countries-for-aml-purposes.
Arrangements and the adequate consideration defence
The most complex aspect of the AML regime that reporting officers might have to contend with is the issue of legal professional privilege and how this affects the duty or need to make disclosures of known or suspected money laundering activity when encountered in practice. Described as “small clarifications” the point is made that where the crime/fraud – or “iniquity” principle – arises the information will no longer be privileged and so it may be necessary to make a disclosure if a money laundering offence has already arisen. Finally, further explanation has been provided as to when an arrangement offence might arise under s.328 POCA 2002, and in this regard the extent of the adequate consideration defence to s.329 in relation to the receipt of funds from clients in relation to their legal fees and expenses.
There is a requirement for an audit of firms’ anti-money laundering arrangements at r.18 MLR 2017, with an exemption for very small firms. In addition, the larger the firm the more will be the expectation that it should be conducted independently of the practice. We are currently undertaking a number of such reviews for our members, and are also providing in-house training sessions for fee earners and admin/secretarial staff where required. If this might be of interest please let Infolegal director and author of our materials on this subject Matt Moore know, and we will be pleased to explain in more detail how we are able to help.
Infolegal is able to undertake such reviews, and can also provide in-house training sessions for fee earners, administration and secretarial staff where required. For more information contact Matthew Moore (mattmoore@infolegal.co.uk). Infolegal is in the process of updating its template Office Procedures Manuals on this and many other topics and the revised versions will be available shortly.