Can my client use bitcoin to purchase property?
I’m the money laundering reporting officer of a specialist conveyancing firm instructed to act in the cash purchase of a local property for £795,000. Customer due diligence checks uncovered that the money is from the client’s investment in bitcoin. Does the Law Society have guidance on bitcoin?
Bitcoin is a type of digital currency which some individuals and businesses now use. It operates independently of a central bank.
There is no specific Law Society guidance. You need to reflect this source of new finance in your practice-wide and matter-level risk assessments.
You may wish to consider the following:
- this is a cash transaction so there is a high risk of money laundering
- under regulation 33 of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, you must apply enhanced due diligence (EDD) measures dictated by the level of risk and obligations on source of wealth and source of funds
You must also consider what additional measures are appropriate to deal with the risks presented by the transaction. See regulation 33(5) and section 6.17 and 6.18 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 – for example, if derived from salary then obtaining pay slips
- verifying that the original funds were in fact invested in bitcoin – for example, by obtaining bank statements showing the transfer from the bank account to a bitcoin exchange
- verifying that the bitcoin investment has in fact generated 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
Consider whether the crypto provider is reputable and regulated by the Financial Conduct Authority (FCA).
Where the crypto-asset wallet provider is supervised for anti-money laundering to a comparable standard, this may be seen as presenting a reduced risk.
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, consider whether you should decline to act on the basis that you cannot adequately manage the money laundering and other risks.
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 more information, see:
- section 5.6 and 5.11 of the anti-money laundering guidance for the legal sector
- our blockchain: legal and regulatory guidance report (second edition)
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.
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