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Anti-money laundering Q&As

29 August 2018

The Law Society's anti-money laundering helpline is a confidential telephone service for solicitors. Our team of solicitors answers questions on a wide variety of subjects, including anti-money laundering, costs, conveyancing, client care and complaints handling.

The service operates Monday to Friday 9:00am-5:00pm and you can call us on 020 7320 9544.

Below is a selection of questions and answers compiled by the service.

I am the Money Laundering Reporting Officer of a law firm specialising in conveyancing. We have been instructed to act in the cash purchase of a local property for £795,000. The customer due diligence checks have uncovered that the purchase money is from the client's investment in bitcoin. Is there any Law Society guidance in relation to bitcoin.

Bitcoin is a type of digital currency that some individuals and businesses now use. It operates independently of a central bank.

There is no specific Law Society guidance and you need to take extra precautions. You may wish to consider the following:

  • This is a cash transaction so there is a high risk of money laundering and so in accordance with regulation 33 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘the Regulations’) you must apply enhanced due diligence measures dictated by the level of risk. You must also consider what additional measures are appropriate to deal with the risks presented by the transaction. Please see regulation 33(5) and section 4.12 of the Anti-Money laundering Guidance for the legal sector.
  • You may consider that a significant risk in this transaction is that the bitcoin may be derived from criminal activity. You would need to take steps to establish that the original funds used to buy the bitcoin are from legitimate sources and then trace these funds through to the funds that will be used for the purchase. This could include:
    • obtaining evidence that the source of the funds used to invest in the bitcoin are from legitimate sources (eg if they were derived from salary then obtaining pay slips)
    • verifying that the original funds were in fact invested in bitcoin (eg by obtaining bank statements showing the transfer from the bank account to a bitcoin exchange)
    • verifying that the bitcoin investment has in fact generate the funds intended to be used to purchase the property
    • obtaining evidence that the bitcoin proceeds are deposited in the account used to provide the purchase monies
     

There may be other risks the firm needs to consider and mitigate based on the information provided by the client on a risk-based approach.

If you consider that you do not have sufficient skills or time to undertake the necessary checks and analysis, you should consider whether you should decline to act on the basis that you cannot adequately manage the money laundering risk. Alternatively, you could engage an expert, such as an accountant, to assist you in performing the necessary source of funds analysis. It would be open to you to agree the costs of the expert with your client.

For further information on charging, please see the SRA's guidance.

Two years ago I acted for a client in relation to the sale of a property. The client has now instructed me to purchase a business on her behalf. Are we required to carry out further customer due diligence (CDD) checks under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 ('the Regulations')?

When you receive new instructions from an existing client In accordance with Regulation 27(9) you must apply CDD to existing clients on a risk-sensitive basis and when you become aware that the circumstances of the existing client have changed.

    In determining this, you must take into account:
  • any indication that the identity of the client, or beneficial owner, has changed
  • any transactions that are not reasonably consistent with your knowledge of the client
  • any change in the purpose or nature of the relationship
  • any other matter that may affect your assessment of the money laundering or terrorist financing risk in relation to the client

It is good practice to refresh the CDD if there has been a gap of over three years between instructions. You must update the CDD when you become aware of any changes to the client’s identification information. This will include change of name, address or business. You are not required to undertake a renewal of CDD if there has been no change in the risk profile of the client, the type of work you are undertaking or their personal details.

Considering the above factors and conducting a further risk assessment in accordance with your firm’s CDD policy will have a bearing on whether you consider further CDD checks are necessary for this particular client and the type of business she is buying.

For further information, please see the anti-money laundering guidance for the legal sector.

When advising on employment settlement agreements, does the provision of advice on the taxation of compensation payments mean that a solicitor is acting as a 'tax adviser' and therefore must comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 ('the Regulations')?

Under the Regulations, a tax adviser is a firm or sole practitioner who by way of business provides advice about the tax affairs of other persons when providing such services. Generally, this should be interpreted broadly given the intention of the Regulations.

However, it is the Law Society's view that it is unlikely that merely saying to a client 'there are tax implications as a result of this payment; you can find out more information at X website or you should get specialist advice' would be covered. Even if your firm were to take a broad interpretation in these circumstances, Regulation 31(3) would permit the firm to specifically exempt such retainers from Customer Due Diligence.

You should however be alert to warning signs of money laundering. While we have not been advised of instances of laundering through settlement agreements, sham litigation within this field is still a possibility.

The usual warning signs for sham litigation apply, such as poor documentation (eg the settlement agreement is missing standard clauses) or either party settling too easily (eg if the figure in the agreement seems unusual for the type of role or length of service). If the employee seems unusually uninterested in the proceedings, provides incorrect information, or seems not to know key details - such as who his employer is or how long he has worked there - you may want to consider whether the employee is actually simply a front person.

Where there are warning signs, you should raise the matter with your firm's Money Laundering Reporting Officer (MLRO) who is likely to advise you to ask more questions about the matter and the client by, for example, requesting some form of identification.

If the MLRO is still concerned whether he has a suspicion of money laundering, he may decide to call the Law Society's Practice Advice Service. Although such work is non-regulated, as a result of s332 Proceeds of Crime Act 2002, the MLRO may need to make a report if certain conditions are satisfied.

For further information, please see the anti-money laundering guidance for the legal sector.

Disclaimer

While every effort has been made to ensure the accuracy of the information in this article, it does not constitute legal advice and cannot be relied upon as such. The Law Society does not accept any responsibility for liabilities arising as a result of reliance upon the information given.

This article is compiled by the Law Society's Practice Advice Service. Comments relating to the questions should be sent by email to Mrs Anjali Mouelhi, Practice Advice Service Manager.

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