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Summary of changes from draft to final AML guidance

19 March 2018

The final version of the legal sector AML guidance was approved by HM Treasury in early March.

Pending approval, an earlier draft version was posted on our website in September 2017. Several changes have been made to this draft. For a quick overview, we have listed these below.

Please contact our free AML Helpline if you have questions on the changes.

Chapter 2 - Risk-based approach

SectionChange
2.1 General comments‘Appropriately’ inserted into the sentence ‘risks must be appropriately identified, assessed and mitigated…’
2.3 Assessing your practice’s risk profile‘[M]anage these risks and reduce their significance to an acceptable level’ changed to ‘a proportionate and acceptable level’.
2.3.1.2 Clients based in high risk jurisdictionsSentence added:
‘[c]onversely, where your clients or the beneficial owners of your clients are based or operate their business in low risk jurisdictions this should be reflected in your risk assessment’.
2.3.1.3 Clients in higher risk sectors‘Implement procedures for closer scrutiny on client and matter acceptance’ changed to ‘proportionate procedures’.

Chapter 3 - Systems, policies, procedures and controls

SectionChange
3.4.4 Customer due diligence‘Demonstrate to your supervisor that your CDD measures are appropriate’ changed to ‘appropriate and proportionate’.
3.4.4 Customer due diligence‘What steps need to be taken to ascertain whether your client is a PEP’ changed to ‘what steps need to be taken to ascertain whether your client is a high risk or low risk PEP’.
3.6.1 CDD materialReference to ‘express consent’ for keeping personal data in CDD material changed to ‘consent’.
3.6.5 Data protectionReference to ‘express consent’ for keeping personal data in CDD material changed to ‘consent’.
Reference to s 16 of the Data Protection Act 1998 changed to paragraph 2(3) in Part 2 of Schedule 1 to the Data Protection Act 1998.
3.7 Communication and trainingSentence added:
‘You may consider providing relevant employees with appropriate training and equipment to help identify forged documents’.

Chapter 4 - Customer due diligence

SectionChange
4.3.3 DocumentsSentence added:
‘You may consider providing relevant employees with appropriate training and equipment to help identify forged documents’.
4.3.3 Electronic verificationStatement that electronic verification ‘will confirm only that someone exists, not that your client is the said person’ replaced with: ‘[y]ou should consider whether any electronic verification system you use properly establishes the client’s identity, rather than just establishing that the identity exists’.
4.9.1 CDD on natural personsAdditional paragraph following the list of useful sources for verification of UK-based clients:
‘Adopting a risk-based approach you may consider confirming these sources as valid by checking with the issuing authority. If the issuing authority is not able to confirm the validity of the source this does not necessarily mean it is invalid. For example, the issuing authority may decline to tell you whether it is valid because to do so would reveal someone’s personal data’.
4.10.1 General comments (CDD on a beneficial owner)‘Note that this definition goes beyond the traditional understanding of the meaning of a beneficial owner’ changed to ‘the definition of a beneficial owner is broad’.
4.10.1 General comments‘Simply ticking boxes is unlikely to satisfy the risk-based approach’ changed to ‘… will not satisfy the risk-based approach’.
4.10.2 Assessing the risk‘Issues you may consider when assessing the risk of a particular case include’ changed to ‘[a]n effective risk-based assessment of a particular case may include’.
4.12.2.1 PEPsSentence added:
‘Section 2.16 of the FCA guidance… sets out the FCA’s view of what categories of person should be treated as PEPs in the UK’.
4.12.2.2 PEPsFinal paragraph replaced with:
‘Where you suspect a client is a PEP but cannot establish that for certain, you should consider what steps you could take in order to resolve this uncertainty. If you are not able to resolve the issue to your satisfaction, you may consider on a risk-sensitive basis applying aspects of enhanced due diligence procedures (as a lack of clarity as to whether a person is a PEP could, in and of itself, be indicative of a heightened risk of money laundering)’.
4.12.2.5 Establishing source of wealth and funds (PEPs)Sentence added:
‘In cases identified as lower-risk, you should minimise the amount of information relating to source of wealth that you seek to collect directly from clients and make use of information which is readily available’.
4.13.1 Financial restrictions - generalParagraphs added:
‘Other financial sanctions provisions, such as investment bans, can be imposed. These provisions are always contained in clauses in the regime-specific Statutory Instruments. OFSI will always aim to update guidance as soon as possible following a change to the financial sanctions provisions for a regime. Regime specific guidance can be found on https://www.gov.uk/government/collections/financial-sanctions-regime-specific-consolidated-lists-and-releases’

Chapter 5 - Beneficial ownership information

SectionChange
5.2 Obligations on UK body corporatesReference to the definition of body corporate including listed and unlisted companies, LLPs and Scottish LLPs changed to ‘includes but is not limited to’.
5.3 Obligations of trustees‘Records’ changed to ‘written records’ throughout Chapter 5. Sentence added to the end of paragraph 1:
‘The trustees must also provide this information to HMRC through the Trust Registration Service (TRS) each tax year in which the trustees incur a liability to UK tax in relation to trust income or assets. The information on the Trust Register will be available to law enforcement agencies in the UK and EEA member states’.

Definition of a relevant trust amended: ‘A relevant trust is a non-UK express trust which has UK source income or UK assets. A taxable relevant trust arises when the trustees of a relevant trust have incurred a liability to UK tax in relation to trust income or assets in a given year’.
5.3.1 Obligations of trusteesOrder of paragraphs changed.
Sentence added:
‘A trust is a non-UK express trust if it is not a UK trust and it receives UK source income or has UK assets on which it is liable to pay a UK tax’.
5.3.2 Which beneficial owners do the trustees need to note and record‘Beneficiaries named in the trust deed, once it has been determined they will benefit from the trust, or pending that determination (e.g. in the case of a discretionary trust in relation to which the grant of any beneficial interest has yet to be determined) the class of persons in whose main interest the trust is set up’ deleted and replaced with ‘actual or potential beneficiaries’.

‘Where the beneficial owner (but note, not a potential beneficiary) is a corporate body’ - section in brackets deleted.

‘Note the requirement to maintain these records does not extend to the beneficial owners of corporate bodies where a corporate body is a beneficial owner of a relevant trust’ - deleted.

'As the statement of accounts specifies a value date which is not the acquisition date, the trustees would appear obliged to obtain market valuations for each category of trust asset year on year'. Deleted and replaced with: ‘The details of trust assets have to be based on market value at the date on which the asset(s) was placed in the trust by the settlor, when the settlement was first created. To keep administrative burdens on trustees to a minimum HMRC are not expecting any formal valuation but as was done with the previous 41G form, HMRC would expect trustees to provide a good estimate of the market value of the assets. If trustees are registering a trust where the value of assets were notified to HMRC previously through either a 41G form or SA900 tax returns then trustees should just complete the ‘Other Asset’ field using the term – ‘Already notified’, leaving all other asset fields marked as ‘£1’. The details of trust assets have to be provided only once at the first point of registration.’
5.3.4 When does the information need to be obtained and updated?Clarification that the requirement to notify HMRC of a change and the date of a change arises prior to 31 January after the end of the tax year in which the trustees are liable to pay any of the specified UK taxes.

Sentence added to paragraph two:
‘Information provided in relation to beneficial owners should be current at the date the register is updated and not as at the tax year which triggered the registration’.
‘Person’ changed to ‘relevant person’ where appropriate.
5.3.6 Obligation on trustees to provide records to any law enforcement authorityClarification that the obligation to provide information about beneficial ownership to any law enforcement authority on request must be ‘in compliance with the deadline set by the law enforcement authority’.
5.3.8 What information do trustees need to provide to HMRC for the register and whenClarification that HMRC ‘are expecting trustees of a taxable relevant trust (or agent…) to submit the first the on or before 31 January 2018’ (no longer relevant).

Clarification that the reporting obligation only arises if the trustees incurred a liability to pay any of the specified UK taxes in relation to trust income or assets in the preceding tax year.

Last two paragraphs deleted and replaced with:
‘Trustees that submit the trust tax return will be asked to confirm in Q20 of the return whether they have registered or updated the details of their trust on the TRS.’
5.3.9 How will relevant information be provided to HMRCFirst paragraph deleted and replaced with:
‘The TRS will be an online register and therefore trustees will need to submit information about their taxable relevant trust online. For further information on how to register a trust on the TRS trustees should visit www.gov.uk’.
5.3.10 With whom can HMRC share the information on the registerList of law enforcements agencies added.

Chapter 6 - Money laundering offences

SectionChange
6.8.1.2 Prejudicing an investigationSub-heading changed from ‘prejudicing an investigation - outside the regulated sector’ to just ‘prejudicing an investigation’.
Clarified that the s 342(1) offence applies to those both within and outside the regulated sector.
6.8.2.1 Tipping OffCircumstances in which a legal professional will not commit a tipping off offence amended:
  • the disclosure is to a professional legal adviser or a relevant professional adviser
  • both the person making the disclosure and the person to whom it is made carry on business in an EEA state or in a country or territory imposing equivalent money laundering requirements
  • those persons perform their professional activities within different undertakings that share common ownership, management or control. 
  • Chapter 9 - Making a disclosure

    SectionChange
    9.3.6 Getting consent/DAML from the NCA to proceed ‘The NCA will contact you by telephone to advise that consent/DAML has been provided and will then send a follow up letter’ - deleted.
    9.3.7 Risks of tipping offFirst paragraph deleted and replaced with:
    ‘Despite the fact that these amendments allow a maximum moratorium period of 217 days, the extent to which the tipping off provisions have been dis-applied for the purposes of extension proceedings is specifically limited. Once a firm is on notice of an application to extend the moratorium period, it may inform its client of the existence of the application to extend the moratorium period without committing the tipping off offence. However, the firm is permitted to disclose ‘only such information as is necessary for the purposes of notifying the customer or client that an application…has been made’ and no more than that. In effect the risks of tipping off are still present as the firm cannot disclose in those discussions the content of the SAR to the client, or even the basis for its suspicion’.
    9.3.8 Contacting the NCA/UKFIUContact details for NCA changed.