AML Compliance | Teal Compliance

Anti-money laundering top 10 tips

Anti-Money Laundering, Blogs, Legal Compliance / Amy Bell

The legal sector is vulnerable to money laundering – and we’re here to help law firms with compliance and training, and make sure you’re fully equipped to ‘stop the baddies’.

The credibility of a law firm makes it an obvious target for money laundering criminals and having weak processes or staff that aren’t properly trained is like leaving your front door open.

So, here are our top 10 Anti-Money Laundering tips:

1. Evidence

All firms have to show regard to their supervisor’s risk assessment when preparing their own. (Reg 18 (2)). Make sure it is mentioned in the steps you’ve taken in preparing the risk assessment. If your assessment of risk differs with theirs, explain why.

2. Client account focus

In your Firm Risk Assessment, don’t forget to include the risk from the client account. It’s referenced in the National Risk Assessment and the Supervisors Risk Assessment, so it should be in yours. Often the focus is solely on the work types and firms don’t always identify the more generic operational risks. Detail what you do to protect the client account in the risk mitigation section. Also, don’t forget to include or cross reference your accounts procedures (for example, the timing of accepting funds and refusing to provide banking facilities and how you deal with funds from third parties) in your AML policy.

3. Source of funds and source of wealth

Tell people what you want them to do, ask them to record the steps they’ve taken, check that they’ve reviewed the information and most importantly remember their assessment of risk, having considered the information they have. I ask lawyers all the time.

“If I were to look at your files tomorrow, would I be able to see you have considered the source of funds and source of wealth?”

4. Client communication

Help your lawyers with what to say to clients about why your firm carries out Customer Due Diligence (CDD), in particular source of funds and wealth enquiries. If I had a pound for every time I heard the concern that

“Clients will think they are being accused/would be insulted if we asked.”

… Actually, clients don’t mind being asked nearly as much as we think they do – everyone asks all the time. But it does help if you give your lawyers some wording to explain the rationale for the checks. Clients understand this and are often appreciative of your efforts.

5. Timing of verification

You know the law, you must complete the ID&V part of CDD before the establishment of a business relationship or before carrying out a transaction. Some firms won’t issue a file number until it’s done. The Solicitors Regulation Authority certainly seem in favour of that approach.

However, many firms open the file first but require CDD to be completed soon thereafter, using the exception in Regulation 30(3). If you are going to do that, make sure you monitor that ID&V is in fact completed ‘as soon as practicable’. Make sure you can track the files and that CDD is obtained.

I see many policies which say the CDD must be obtained in, say, seven or 14 days, or work must stop – but it’s not always clear how that is managed. Is it a system issue – the file locks to prevent any further work – or is it manual, with compliance checking and chasing? Whatever it is, include it in your written procedure and be ready to show an auditor/the regulator the records of the monitoring.

6. CDD on existing clients

Something I hear all the time is:

“We will rely on existing client due diligence unless we become aware of a change in the client’s identity, risk profile or there is a three year gap in instructions”.

That’s because it is in the guidance. However, in theory, for an existing client that instructs once every two years, the CDD would never be refreshed if the lawyer doesn’t ‘become aware’ of a change. When considering a private individual, they are unlikely to change their identify, but a company could, and their beneficial owners could. So, where you don’t act for the beneficial owners, how would you know? I have always preferred to give the CDD a ‘shelf life’ – the longest we will rely on existing CDD is x months/years and then we will refresh. I would also capture the consideration of whether the fee earner thinks anything has changed in the matter risk assessment.

7. ‘purports to act’

The regulations require that, where a person purports to act on behalf of the customer, you verify the person’s authority to act and ID&V them. Some people have taken that to mean a director, but, if you look at the guidance for the legal sector, it refers to a ‘representative’. Most firms take the view that a director does not ‘purport’ to act, they do act for the company. Usually, I see firms apply Regulation 28(10) when they have an agent or attorney situation. That said, I’m still a fan of ID&V-ing at least one director because I like to know a ‘real’ person is attached to the corporate client.

8. Information for clients

The Money Laundering Regulations 2017 were amended by the Data Protection Act 2018. Make sure you’re giving your clients the required information.

9. Know your searches

Know how your electronic verification searches work. Many firms now have electronic verification of ID as part of their CDD processes. I was an early adopter in 2006 and I’m still a big fan but I say be careful. I find that many people can’t explain to me how they work, what they are checking and how many matches are required to pass.

Is it checking what you think it’s checking?

Sometimes, I see examples of CDD searches passing with the wrong date of birth included! Also, if the contract with the provider was agreed with the previous MLRO and you are the new one, make sure you are fully briefed.

10. Certifying copy ID

Be careful who you ask to certify copy ID. I prefer to rely on someone who is either well briefed or is familiar with the AML legislation, like lawyers or accountants. Also, you (or indeed the police) may want to speak to the certifier in the future so make sure it’s someone who can be traced.

That’s going to be difficult if you rely on post office or bank counter staff. Make sure they’ve signed and dated the certification and their name is printed in a way that you can read it.

I find giving the client an explanation of requirements that they can then hand to the certifier is the most effective way of getting it right.

Get in touch

If there are any burning questions or issues you want to discuss, our Ask Teal service can help. Simply contact one of our team of experts today.

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Two women, one advising the other on paperwork

Think you’re not a Tax Adviser? Think again!

Anti-Money Laundering, Blogs, Legal Compliance, Regulatory Compliance / Balkar Bains

On 23 November 2020 the SRA released guidance that may have been missed by many of you.

What’s the purpose of the SRA Guidance?

The purpose of the guidance was to draw to the attention of firms the need to consider whether they fell within the new definition of a tax adviser under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘the regulations’) which, on 10th January 2020, widened the scope to be:

“a firm or sole practitioner who by way of business provides material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services.”

What’s the consequence of the SRA Guidance?

The consequence of the guidance issued in November 2020 was that:

“If the change in definition to tax advisers that came into force on 10 January 2020 brought your firm into scope of the regulations, you must tell us and apply for approval of your beneficial officers owners and managers before 10 January 2021”

For those of you who don’t ordinarily provide tax advice, the pertinent words in the new definition of a tax adviser are “provides material aid, or assistance…, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services.”

The SRA defines material aid and assistance as ‘Non-advisory services that are in scope and that will help the client to comply with their tax responsibilities eg filing papers with HMRC on behalf of a client’.

The SRA’s broad definition of through a third party includes the instruction of a tax specialist, accountant etc on behalf of your client.

In short completing and/or filing an IHT form on behalf of your client, instructing an accountant on behalf of your client to advise on the tax implications of a matrimonial or employment settlement, or drafting a trust to manage a PI settlement will all likely fall within the scope of being a tax adviser.

What you need to do

If you believe you fall within the scope you will need to give consideration to whether your CDD processes (particularly within your private client, matrimonial, and litigation and employment departments) satisfy the requirements of the regulations.

If you are a firm that already provides tax advice, and particularly where you are instructed by another professional on behalf of their client, you may be in scope of the regulations to the extent that you will need to consider carrying out appropriate CDD on the underlying client. According to the SRA the question of ‘who is the client’ when services are provided via a third party is clear, it is always the person whose tax affairs are the subject of the advice, assistance or material aid.

And, not forgetting your obligations to the SRA, you should also give consideration to informing the SRA and seeking the appropriate approval of your beneficial officers, owners and managers by completing the FA10 (for firms newly authorised or newly in scope of AML authorisation) or FA10b (for firms who already have AML authorisation) as soon as possible.

Read the full SRA Guidance.

Get in touch

If you’re still unsure and would like further guidance or support, why not find out about our Ask Teal service which covers all things compliance. Alternatively contact one of our experts today.

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Money bag with the letters AML on the front and a magnifying glass

New AML Guidance needs a careful review

Anti-Money Laundering, Blogs, Legal Compliance / Amy Bell

On 20th January 2021 the Legal Sector Affinity Group (LSAG) finally issued their new draft AML guidance for law firms.

Since 2017 LSAG have agreed to issue one sector wide piece of guidance rather than different versions for each type of lawyer.

We were told to expect this guidance with both the Law Society of England and Wales and the Solicitors Regulation Authority talking about the project at events last year. However, it’s no surprise it’s taken a while to finalise since it does represent a comprehensive refresh of the existing guidance.

Part one (which applies generally to all legal professionals) is some 212 pages (about 50 more than the previous version) while part two contains specific guidance for Barristers and Notaries, but that is yet to be released.

Only a couple of pages in, you can detect a change in emphasis in the guidance, from focusing previously mainly on interpretation of the legislation for the sector to now setting out the Regulators expectations of good practice.

Practices must now pay attention to the parts of the guidance which LSAG think they should be doing, and if a practice decides to deviate from that, they need to be prepared to explain why. Clearly MLROs and MLCOs are going to have to consider this guidance carefully to ensure they’ve picked up all the areas of mandatory and recommended practice and that they can demonstrate they’ve thought about what is appropriate for their firm. This is not a small task!

That said, the guidance really is very good at setting out in some detail how to comply. In my experience many firms will welcome this additional detail, particularly for example the table listing out how to approach screening of staff, and a clear remit for senior management and nominated officers in the firm.

There are new chapters on the use of Technology and Internal Controls and a rewrite of the Privilege content.

With any new piece of writing which is over 81000 words long, there are some minor inconsistencies which will be resolved hopefully in the next draft. From our brief reading of the document there are some differences between early parts of the document (in the compliance principles) and the more detailed parts of the document further on. Therefore, we recommend reading the document cover to cover to ensure you pick everything up.

Conspicuous by its absence is the recent SRA Guidance on Tax Advisers, which if you’re not aware, could have some very substantial implications for the way your firm operates. It’s not that easy to find, but you can view it here.

Do consider this at the same time as the guidance because it may be that for parts of your practice where you’d previously not considered the need to comply with the Regulations (Family Law, Employment and Litigation specifically) you may now have to.

One point we should make is that the guidance is draft, and it could be some months before it receives Treasury approval. From experience, any changes are likely to be minor but you should be aware of the possibility, particularly if you’re investing in new solutions.

Get in touch

We’ve put together a package of support to help law firms implement the new guidance.

If you need any support, please contact our experts today.

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laptop, phone, mug of coffee and pad on a desk

A look at the new Freelance Solicitor Model

Anti-Money Laundering, Blogs, Legal Compliance, Regulatory Compliance / Gill Crennell

In November 2019, the SRA introduced a new model of operating for so-called ‘freelance solicitors’. The intention of the freelance solicitor model was to allow solicitors greater flexibility when providing services. We were told that the changes took place as the regulator felt that the previous arrangements created an unnecessary and restrictive ‘artificial entity’ model around solicitors operating as individuals. Prior to the changes, sole practitioners were required to have their practice authorised as a ‘recognised sole practice’.

What is a Freelancer?

A good starting point is to look at what the SRA means by ‘freelance solicitor’. This term is used to describe a self-employed solicitor who:

is practising on their own;
doesn’t employ anyone else in connection with the services they provide;
is practising in their own name (rather than using a trading name or through a service company);
is engaged directly by the client with fees payable directly to the solicitor;
and without that practice being authorised. So, essentially, we’re talking about individuals who are genuinely self-employed.

Rules and Regulations

Freelancers are subject to various rules and regulations. The three key ones to note are as follows:

The SRA Authorisation of Individuals Regulations 2019 (the Regulations)

You must have practised as a solicitor for a minimum of three years since admission or registration.
You are self-employed and practise in your own name, and not through a trading name or service company.
You must take out and maintain indemnity insurance that provides adequate and appropriate cover in respect of all of the services that you provide or have provided (this includes both reserved and unreserved legal services), and that takes into account any alternative arrangements you or your clients may make.
You are not permitted to employ anyone.
You are engaged directly by the client, and the client pays their fees directly to you.
You may only hold client money in limited circumstances, i.e. when it’s for payments on account of costs and disbursements that you have not yet billed where:
1. any money held for disbursements relates to costs and expenses incurred by you on behalf of your client and for which you are liable, and
2. you have told the client in advance where and how that money will be held.

SRA Code of Conduct for Solicitors, RELs and RFLs (the Code)

Freelance solicitors are regulated in the same way as other solicitors and are subject to the provisions of the Code.

The Transparency Rules

Those freelancers providing reserved legal services are also subject to the requirements of the Transparency Rules. This includes publishing costs information where they offer any the services listed in the rules, publishing details of their complaints’ procedure, and telling clients that they will not be covered by insurance on the SRA’s minimum terms and conditions and that alternative arrangements are in place.

As a more general rule, freelance solicitors will need to ensure that clients fully understand the implications of their “freelance” status and any additional risks to the client. This should include informing clients if they are unable to benefit from the SRA Compensation Fund.

Other key regulations to think about

Freelance solicitors will also need to consider whether they are an “’independent legal professional” (ILP) for the purposes of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). The MLR 2017 apply to freelancers providing legal or notarial services to others as part of financial or real property transactions. If you are an ILP, you’ll need to comply with the regulations, which includes having a risk assessment, policies and controls and procedures in place. You’ll also need to separately register with the SRA to comply with the MLR 2017.

What activities can Freelancers undertake?

The Regulations differentiate between those performing reserved legal activities and those just providing non-reserved legal activities – essentially differentiating between the areas of law considered riskier and those of low-risk. As you’d expect, the restrictions are more stringent for those undertaking the former. There are six reserved activities which you’ll find listed at Section 12 and Schedule 2 of the Legal Services Act 2007. If you’re planning to work as a freelancer, it’s important that you familiarise yourself with these:

Exercise of a right of audience
Conduct of litigation
Reserved instrument activities (includes conveyancing and linked matters)
Probate activities
Notarial activities
Administration of oaths

Historically, you’ve only been able to provide these types of services as a solicitor through an entity that is authorised to do so. However, if you’re a solicitor practising on your own account, you can now provide these types of services without needing to be authorised as a recognised sole practitioner if you meet the conditions set out in Regulation 10.2(b) of the Regulations.

More on the Restrictions in Regulation 10.2(b)

Experience: Whilst solicitors solely providing non-reserved legal activities don’t need to meet the three years’ PQE requirement, newly qualified solicitors will need to be mindful of the need to satisfy the competency requirements set out in the Code, which still apply.

Employing others: Despite this restriction, the SRA Ethics guidance (“Preparing to become a sole practitioner or a freelance solicitor”) clarifies that this isn’t intended to stop freelancers from contracting with others to provide pure administrative support to help them to provide their services, so long as they don’t “employ” those people. This would, for example, enable you to work in a Chambers model where the Chambers provides administration and other business support. It would also enable freelancers to receive similar services from a serviced office type arrangement.

It’s also important to note that if you do decide to employ someone to assist you in connection with the services you provide (including a paralegal or secretary), your clients will not benefit from protection under the SRA Compensation Fund (see Regulation 5.2, SRA Compensation Fund Rules) – you must be genuinely practising on your own.

Professional Indemnity Insurance (PII): Another apparent rational for the introduction of the revised regime was the SRA viewing that the high cost of purchasing PII on minimum terms was deterring entry to the market of sole practitioners wanting to practise independently.

Now, freelancers who carry out purely non-reserved activities are not required to have any PII. However, prudent freelancers should consider whether having no cover is in their own, and indeed their clients’ best interests. Conversely, freelancers carrying out reserved legal activities must have “adequate and appropriate insurance” in place, but do not need to comply with the SRA’s minimum terms. Cover must be for all of the work done as a solicitor and not just any reserved activities. When speaking with insurers or brokers, it’s advisable to let them know if you’ll be seeing clients at home or working from home on a regular basis, to make sure you obtain appropriate cover. When arranging cover, factors to think about may include an assessment of maximum probable loss for each work type, your claims history (if any; number/type/value/frequency of client matters) and likely client profiles. You should also record how you reached your decision on the level of cover so you can produce this if asked to demonstrate that you meet the “adequate and appropriate” requirement.

Although the cost of insurance can sometimes be prohibitive, freelancers should also consider taking out run-off cover if they decide to stop practising – at least until the risk of claims has fallen away. If solicitors decide to move back into private practice, this may be something that new employers will look for.

Insurers will undoubtedly be looking closely at the risk and compliance framework that freelancers put in place to ensure that any risks are being properly managed before they offer cover; so this is likely to be a key focus for those wanting to take advantage of the new model of working. Here at Teal we work closely with insurers and can help you to ensure that you have an appropriate framework in place that will satisfy your insurers’ requirements. Please do not hesitate to contact us if we can assist.

Restrictions on holding client money: Given the limitations on holding client money, if a client needs to pay or is due to receive other types of client money (such as damages or money from an estate), a freelance solicitor will need to make alternative arrangements to safeguard these funds – for example via a third party managed account such as Shield Pay.

Structures

As a freelancer solicitor you’re strictly prohibited from adopting any kind of entity structure, such as a limited company, limited liability partnership or partnership and can only operate under your own name. This means that you’ll be personally liable for your actions in the same way as a sole trader.

Law Society guidance (see link below) envisages that individuals may consider working together with other like-minded solicitors in a Chambers-style arrangement, with practices complementing one another. Each freelancer in the arrangement remains individually regulated and may, for example, just offer non-reserved legal activities, whilst others may offer reserved activities or perhaps offer both.

The process for getting set up as a freelancer

To get started, you will need to notify the SRA that you intend to practise on your own and whether or not you will be providing reserved legal services. If so, the SRA will then check whether you meet the conditions set out in the Regulations mentioned above.

Risks for law firms

Law firms should consider training staff on freelance solicitors and the implications for firms – for example, given the restrictions on holding client money, freelancers will be limited in the undertakings that they will be able to give.

Given the requirements for freelancers to contract personally for services, and the ban on freelancers holding client money, the SRA considers that the arrangements are unlikely to appeal to a sole practitioner who is currently running a business and employing staff and instead, are more likely to appeal to those who wish to undertake ad hoc freelance work or set up in a chambers style model.

When the new model for freelancers was first discussed, it received a considerable amount of negative commentary in the press, mostly relating to lack of regulation. However, as mentioned above, the Code still applies to all freelancers.

The Gazette reported back in early March 2020 just prior to lockdown, that 71 solicitors had already registered with the SRA as freelancers. The model is likely to be attractive to solicitors with a good client following or with small practices – so clearly poses a threat to firms, although quite how extensive the threat will be, only time will tell.

Useful links

Here are some useful links

Law Society Practice Notes – Click here
SRA Freelancer Notification – Click here
SRA Guidance – Preparing to become a sole practitioner or SRA regulated solicitor – Click here
SRA Guidance – Third party managed accounts – Click here
SRA Compensation Fund Rules 2021 – Click here

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If you’d like to know more about our regulatory services, please contact one of our experts today.

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What is a Politically Exposed Person (PEP) and how do I know if my client is one?

Anti-Money Laundering, Blogs, Legal Compliance, Regulatory Compliance / Kayleigh Smale

The SRA expect solicitors and firms to continue to meet the high standards the public expect (which includes upholding the rule of law). It’s therefore important to ensure that all staff are aware of their obligations when onboarding clients, and this includes understanding what a politically exposed person is.

On a number of occasions, we’ve seen panic set in as soon as someone sees the words “match” for their client on a politically exposed person screening request, but there’s no need to panic! Just because someone is classified as a politically exposed person does not necessarily mean they are a “baddie”!

What is a politically exposed person and why are they considered high risk?

A politically exposed person is a person who is or, within the last year, has been a:

Head of State/Government
Minister
Assistant Minister
MP
Member of judiciary
Member of Courts
Member of Auditors
Member of boards
Member of central banks
Ambassador
High-ranking officer in the armed forces
Member of administrative management
Member of supervisory bodies
Member of state-owned enterprises Member of governing body of a political party
Board of an international organisation (for e.g. FIFA)

In addition, a person will also be classified as a politically exposed person if they are:

A member of a politically exposed person’s family
A known close associate of a politically exposed person (whom the politically exposed person is in business with)
A beneficial owner of the politically exposed person’s property (someone who enjoys the benefits of ownership even though the title of the property is in another person’s name)

Why is a politically exposed person deemed high risk?

A politically exposed person is deemed high risk because they generally present a higher risk for potential involvement in bribery and corruption due to their position and the influence that they may hold.

Therefore, the main aim of applying Enhanced Due Diligence (EDD) to work involving a politically exposed person is to mitigate the risk that the proceeds of bribery and corruption may be laundered.

A politically exposed person is also an easy target for identity theft due to a great deal of their personal information being publicly available.

How do you find out if your client is a politically exposed person?

The best way to check whether someone is a politically exposed person is through politically exposed person screening solutions (PEP screenings) online. Many firms already have electronic verification which will normally include PEP screening as part of the checks that are carried out. Some online screening solutions will also provide additional information, such as adverse media and any criminal conduct – a good way to check whether your politically exposed person is a “baddie” or not!

Don’t forget Google, it is amazing what information you might find from a Google search.

The Regulations

Regulation 33 (1)(d) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) states that EDD is required in situations where the client is a politically exposed person, or a family member or known close associate of a politically exposed person. Therefore, it is important to establish whether or not your client is a politically exposed person at the outset.

In addition, under Regulation 35 of the MLR 2017, if your client is a politically exposed person you must:

Get senior management approval for the business relationship
Take adequate measures to establish the source of wealth and source of funds
Closely monitor the business relationship throughout

Get in touch

If you need any assistance when dealing with a politically exposed person, please get in touch and we would be happy to help.

Take a look at the compliance services we can offer or alternatively, get in touch with one of our experts.

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Who should certify client identification documents and what should they check?

Anti-Money Laundering, Blogs, Legal Compliance, Regulatory Compliance / Kayleigh Smale

Some of the certifications I’ve seen on client identification documents that fee earners have uploaded as part of their client due diligence checks, have led me to raise an eyebrow.

One of my favourites was a document certified by someone whose occupation was detailed as “Retired”!

Having worked in Risk and Compliance for over 7 years, one question I would regularly hear was “who can certify my client’s identification documents?”.

Firms will have different policies and procedures in respect of this. However, it is worth considering the following points when deciding whether you are happy to accept the certification on a document:

Is the person certifying the documents a professional person or ‘of good standing’ i.e. are they regulated, or do they work in a position of trust?
Is the certifier easily identifiable?
Would you be able to contact the certifier if needed to verify their certification? A bank, building society or post office official could move jobs/professions, making it difficult for you to contact them.
Does the certifier have the relevant skills to know whether what they are certifying is a true original document?
Has the document also been certified as a true likeness?

The majority of firms only accept certified client due diligence documents from a professional regulated person for example a solicitor, a banker or a notary. The reason for this being that they are then able to demonstrate to the relevant authorities, if necessary, that the person in question who certified the documents was of “good professional standing”, easily identifiable to contact if necessary and competent at document inspection and imposter detection.

We had a query a couple of months ago as to whether documents must also be certified as a “true likeness”. My view is that this wording should be used where the document being certified contains a photograph. If the certifier does not stamp a document containing a photograph with the wording a “true likeness”, and states a “true copy” then they are suggesting that they have ONLY seen the original document and therefore the individual who the document relates/belongs to was not present at the time the document was certified. This, to me, defeats the whole point of getting documents containing a photograph certified in the first place!

If you come across documents containing a photograph that are only certified as a “true copy” it is worth double checking with the certifier that the individual was present at the time the document was certified or that the certifier has met the individual in person previously and can confirm that it is a true likeness.

Don’t forget to make sure the document being certified is in date – It’s surprising the number of times I have seen client identification documents that have expired but have been recently certified.

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Man holding up in front of his face a picture of his face

The Benefits of Electronic Verification

Anti-Money Laundering, Blogs, Legal Compliance / Shazia Zamir

The world of electronic verification is an ever-evolving industry, with some providers supporting features like facial recognition, authentication of documents, direct access bank account information, and PEP and Sanctions screening.

Electronic verification should provide you with a level of certainty that the individual is who they say they are and, for corporate entities, that a legal entity exists and has an active company status.

Electronic identification can be used either as part of a wider process or, where appropriate, as the only source of identification. Before using any provider, you may want to consider the following:

The information supplied by the data provider is considered sufficiently extensive, reliable, and accurate.The provider allows users to capture and store the information they have used to verify an identity.

There are several benefits achieved by using electronic identification and verification (EV):

Improved Customer Experience

Using EV can assist in streamlining your current verification process. It can lead to enhancing the overall client experience making it easier for the client to submit identity documents securely in a matter of minutes ready for teams to receive and review.

Quicker Onboarding of Clients

Faster access to transmitted documents can reduce the time it takes to conduct Customer Due Diligence (CDD) and onboard the client. Adopting this approach may also help you carry out a risk assessment quickly to decide whether you would like to act for the client . It may even form part of your decision-making process when assessing any risks during the course of the instruction.

Document Verification

Most current providers allow you to verify documents. If you are interested in this feature just remember your provider is verifying the authenticity of the document having been issued using the machine-readable zone (MRZ code). It is important to remember a documentation verification check is not verifying the identity of the person, it is verifying the document.

Identity Verification

If you are a firm looking to verify the identity of a person some providers offer a different feature which includes biometric data and facial recognition. Here the client is usually asked to take a live photo of themselves using an app and identity documents are uploaded. The picture and identity documents are compared by the system and all including the results are transmitted electronically to the firm as a pass/fail. The system is verifying the identity of the individual, which can help firms address issues where obtaining a correctly certified identity is a concern.

Clear Audit Trail

UK/EU providers are usually GDPR compliant, offering you a secure place to save all searches for a period of time, and helping you demonstrate a clear audit trail. Remember to check that your terms and data protection statements specify the use of authorised third parties to process personal data.

Increased Accuracy

Automating your CDD process can make a manual task easier to manage and give increased accuracy. Politically exposed persons and sanctioned designated individuals/entities are automatically highlighted as risks. In addition, automating your take-on process by using digital technology to compare documents can improve quality and eliminate human error when comparing documents using the untrained eye.

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For more information about how our services can help, contact our experts today.

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Two front doors. One with a correct number and one with a made up number

Preventing a repeat of Dreamvar

Anti-Money Laundering, Blogs, Legal Compliance, Regulatory Compliance / Kayleigh Smale

Dreamvar – more than a year on …….. so, what has changed?

It’s likely most conveyancers will shudder when they hear the name Dreamvar. It’s the case that changed the liabilities and responsibilities of lawyers and conveyancers when dealing with residential property transactions. But in practice, what has actually changed since this case?

Firstly, a brief background for those unfamiliar with the details of the case. The case involved the liability of solicitors in cases of identity fraud. A fraudster posed as the seller of a property in London worth about £1million and succeeded in selling the property to an innocent buyer, Dreamvar. Once the property was sold the fraudster seller and the purchase monies disappeared. Dreamvar went on to sue his solicitor, for negligence (in contract and tort) and for breach of trust. He also sued the fraudster seller’s solicitor in negligence, for breach of warranty and breach of trust.

The High Court ruled that only Dreamvar’s solicitor could be liable and dismissed all claims against the fraudster’s solicitors. This seemed a little harsh given the solicitors acting for the fraudster had not taken sufficient steps to verify their client’s identity as required by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

The case therefore eventually made its way to the Court of Appeal. The Judge ruled the solicitors representing the fraudulent property vendor should share responsibility along with those representing the duped buyer of any losses. The Court of Appeal ordered both firms involved to make financial contributions.

However, it wasn’t just the solicitors involved that were in the firing line, the Law Society was also criticised. The case discussed the Law Society’s Code for Completion by Post (“The Code”) and argued that its processes did not consider the prospect that a sale is not genuine.

The Law Society agreed that their Conveyancing Protocol (“The Protocol”) and The Code needed updating and confirmed they intended to take the courts comments into account when making the amendments. And true to their word, the Law Society updated The Code and The Protocol this year.

The Law Society have made it clear that there are no changes in substance to the Code. Their revisions to the Code aim to make it clearer that the seller’s solicitor only gives undertakings where there is a genuine sale, thereby providing better protection for purchasers.

Similarly, with The Protocol the Law Society confirmed the number of steps have been reduced, however the obligations under the Protocol remain the same. They have made some procedural changes that you should be aware of, especially if are acting for the seller. In particular, the Protocol now states that Solicitors in CQS firms who are acting for the seller must

Obtain instructions for dealing with remittance of gross/net sale proceeds and details provided by the seller of UK bank account for remittance of proceeds. Obtain evidence that the bank account is properly constituted as an account conducted by the seller for a period of at least 12 months. Confirm that remittance will be made to that account only.

This means the solicitor must, if they are a CQS firm, request details of the bank account for the sale proceeds and they must also obtain evidence that the account belongs to the seller, showing that they have had and been using the account for at least 12 months.

This is a great way to ensure the purchase funds are going to the correct person! Only last month a woman named Sarah Broadbelt was jailed for 20 months for fraud and possessing a false identity document, after she sold a property for £75,000 back in 2015, without the real owner knowing. This case shows the lengths criminals are willing to go in order to commit this type of crime. Broadbelt went as far as changing her name by deed poll to that of the property owner’s so that she could apply for a passport and open bank accounts! That is real dedication!

Had the new Protocol and Code been in place (and been followed) it would have been far more difficult for Broadbelt to pose as the real owner of the property given that she, as the seller, would have been required to provide at least 12 months bank statements to show that not only was the bank account in her name, but it had also been in use by her for those 12 months.

So, what should you be doing now?

If you haven’t already, review The Protocol and The Code and ensure you have the right policies and procedures in place to enable your staff to follow them – do your firm and staff know about the need for further details about the seller’s bank account?

Don’t forget to communicate the changes to the relevant staff – there’s no point in updating policies and procedures if no one is told they have changed (they don’t have a crystal ball!)

Even if you are not CQS Accredited, it is good practice to follow The Protocol and The Code, it is not only there to protect your client and your firm but you as their solicitor/conveyancer too!

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Someone speaking at a conference with a room full of delegates

Ark Group Conference Panel

Anti-Money Laundering, Blogs, Legal Compliance / Amy Bell

I attended the Ark Group Annual AML Conference in London yesterday to speak on the panel about the challenges for MLROs who are also fee earners in their firm.

The session posed questions to the audience, and we, the panel, put our two penneth in.

Joining me on the panel was Alex Ktorides from Ince Gordon Dadds, Colette Best from the SRA and the chair was my Taskforce colleague Guy Wilkes

The first question was about how challenging MLROs find combining their compliance obligations and fee earning roles.

Most voted very challenging, (4 out of 5), which I absolutely agree it can be. Interestingly, if unsurprisingly, nobody voted it not challenging!

The main points I shared were:

Culture is key – without strong support and a culture of buying into Compliance you will fail. If we fail to tackle non compliance in firms, our compliance programmes will collapse! Colette agreed, where a firm has a person who refuses to comply, they will expect a firm to deal with it and may themselves deal with that individual.

Don’t put things in your policies which you know don’t work – don’t set yourself up to fail. Check things work, introduce controls so you know things work. Don’t leave things for the SRA to discover. Make sure people can make an assessment of risk when you ask them to, don’t say people can’t open a file without the client ID if you know that’s impossible.

Have controls so you aren’t caught out. Audit the controls. If you let fee earners open a file before client ID is completed, make sure you’ve set a deadline and that that is monitored and enforced.

Litigation need to know too! Don’t forget to make sure your litigation teams also have AML training and appreciate the risk that on boarding a client they are happy to deal with may cause AML issues if they also instruct the firm to carry out transactions.

Get a process in place for source of funds and source of wealth. Tell your teams they won’t spot money laundering if they think the extent of their obligations is to get a passport and utility bill, that’s doesn’t prevent money laundering #baddieslivesomewhere!

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Lettered cubes spelling out the word "Consent"

Teal Tales: Consent for missing CDD information

Anti-Money Laundering, Blogs, Legal Compliance / Amy Bell

We get many calls from firms who have unusual compliance queries. They are my favourite calls!

Today’s tale is a common one, and the issue it raises is a common misconception. In fact, we had 2 calls about this on the same day, with similar issues.

“We’re ready to complete, there is a third-party funder, we’ve asked for source of funds information, but it’s not forthcoming. Can I get consent?”

The answer to that question will depend on the facts of each case, and whether there is a suspicion of money laundering.

Quite often in these situations I ask the firm what they are suspicious about, they will say, the fact the clients are refusing to provide the information is making me suspicious. And that is true.

However, consent, or a defence against money laundering will only be given if there is a suspicion of money laundering; for there to be money laundering, you need to know or suspect there is criminal property.

So, the next question I ask is what is the suspected criminal conduct, and very often the answer is, “I have no idea” or “I don’t think there is any”.

If the firm can not detail on the Suspicious Activity Report what they think the criminal property is, and the suspected criminal conduct from which it is thought to have come from, the NCA are unlikely to accept it as a valid SAR.

Having no idea won’t get you there, you won’t have the relevant suspicion.

If you can’t get consent for missing CDD information, what can you do?

Regulation 31 stipulates that you must not establish a business relationship with someone for whom you can’t complete your due diligence enquiries. So, if you’re in a position that you can’t complete your CDD enquiries because of an uncooperative client or third party, you may need to withdraw.

Many people who contact us about this are concerned about how to explain to their client without telling them they are suspicious. If you don’t already, you should consider setting out your source of funds and wealth policy at the very beginning, explaining to the client the depth you are likely to go to and then if they do not provide the information, you can point to the policy and withdraw from acting.

If you are already in receipt of funds, the situation will be a lot more difficult, you may need to press the client further for the information, and keep returning to the question, do you suspect any criminal conduct.

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If you have compliance questions and need help, why not try our Ask Teal service. For more information, contact our experts today.

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