Below is a selection of popular questions and answers related to anti-money laundering (AML). The questions have been compiled by the Practice Advice Service - a free and confidential helpline for solicitors.
The service operates Monday to Friday, 9:00-17:00 and you can contact the PAS team on 020 7320 5675 for advice on AML and other compliance areas.
You can find further AML related Q&As by filtering the news articles on the Law Society’s AML webpage. This can be done by clicking 'Q&A' under the 'most relevant types' filter tool on the bottom right-hand side of the AML page.
More FAQs can be found on the Practice Advice Service webpage.
1. I am a money laundering reporting officer (MLRO). I have been consulted by a fee earner about potential money laundering by a conveyancing client, where the information comes to us in ‘privileged circumstances’.
If the fee earner receives information in ‘privileged circumstances’ (within the meaning of the Proceeds of Crime Act 2002 (POCA) s330 (6)(b)) and then proceeds to make a disclosure to me, may I still rely on the exemption based on ‘privileged circumstances’ (as defined in s330(10)) to avoid my obligation to make a disclosure to the National Crime Agency (NCA) under s331?
Section 330(9A) allows for a fee earner to consult with their MLRO without necessarily triggering an obligation on the MLRO to make a suspicious activity report. This provision affords an MLRO in a law firm the opportunity to consider the circumstances in which a suspicion may have arisen, before deciding whether a report to the NCA is the correct course of action. To come within s330(9A) the communication from the fee earner to the MLRO must be for the purpose of obtaining advice about making a required disclosure under s330.
Here there appears to be no basis for making a required disclosure under s330. The information giving rise to the suspicion came to the fee earner in privileged circumstances. Unless the information was communicated in furtherance of a criminal offence the obligation to make a report will not arise. The Legal Sector Affinity Group’s Anti-money laundering guidance for the legal sector ('the Guidance’) states at chapter 7: ‘If the communication was received in privileged circumstances and the crime/fraud exception does not apply, you are exempt from the relevant provisions of POCA, which include making a disclosure to the NCA.’
The fee earner has consulted you in your role as MLRO as to whether there is a requirement to make a disclosure under s330. You have satisfied yourself that no requirement arises. In these circumstances the fee earner’s internal report is not considered a disclosure for the purposes of s331, and you are not obliged to make a disclosure to the NCA under that section.
This is where training and also the design of the reporting procedure is important. Chapter 6 of the Law Society’s Anti-Money Laundering Toolkit advises that a firm will need to decide the procedure for making internal reports and whether a report should be made only after a request for guidance from the MLRO has been considered.
The firm’s procedure should make it clear that fee earners must report internally to the MLRO and not report directly to the NCA, giving the MLRO the opportunity to assess whether he should be making a disclosure.
For further information, please see Chapter 7 of the Anti-money laundering guidance for the legal sector, and the Law Society’s Anti-money laundering Toolkit, (2nd edition) which is a book available to purchase from the Law Society's online bookshop.
2. I am the Money Laundering Reporting Officer (MLRO) and have received a production order from the local tax inspector for a former client's conveyancing file. The work was carried out by a junior colleague and, on looking at the file, I have some concerns about the client’s source of funds. If I had been dealing with the matter, I would have asked the client more questions and obtained more information about where the money originated.
Now that I have been served with a production order must I make a report to the National Crime Agency (NCA)?
The tax authorities cannot transfer to you their suspicion that a client has been involved in money laundering. However, once they have advised you that they are investigating a client for a criminal offence, you have been alerted that a client may be involved in money laundering.
You should review the file and assess whether you now have a suspicion of money laundering. You might need to ask your colleague for more information about the matter but neither you nor your colleague should contact the client to avoid any possibility of committing a ‘tipping off’ offence.
As the MLRO, if you now have a suspicion, you should look at the provisions of s331 of the Proceeds of Crime Act 2002 and consider whether you are required to make a report to the NCA.
As you say that you would have asked for more information if you had been dealing with the matter, you should consider whether there is a need for more training on money laundering issues for staff members and whether the firm’s policies and procedures should be updated.
For further information, please see the Law Society's practice note on responding to a financial crime investigation and chapter 6 of the Anti-money laundering guidance for the legal sector.
3. I have been asked to act on the sale of a property by someone who says that she has a power of attorney for the owner who is working abroad. What should I be thinking about in terms of identification in order to comply with the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 ('the Regulations')?
You should be alert to the possibility that purported agency arrangements can be used to facilitate fraud. Understanding the reason for the agency will assist to mitigate this risk.
First consider who is the client. On these facts, the owner of the property should be treated as the client, acting by the attorney. Therefore you should carry out customer due diligence (CDD) on the owner as required by Regulation 27. As you will not be meeting the owner, you will need to apply enhanced due diligence pursuant to Regulation 33.
You should also consider obtaining evidence of identity from the attorney notwithstanding that she is not the client in the transaction.
For further information please see the anti-money laundering guidance for the legal sector
4. Do sections 19 and 21A of the Terrorism Act 2000 override Legal Professional Privilege?
No. Section 19(5) does not require disclosure by a `professional legal adviser` of either information which they obtain in `privileged circumstances`, or a belief or suspicion based on information which they obtain in `privileged circumstances`, in each case without an intention of furthering a criminal purpose.
Section 21A(5) provides that a person does not commit an offence under the section if they are a `professional legal adviser` and the information or other matter came to them in `privileged circumstances`, again without an intention of furthering a criminal purpose.
For further information please refer to chapters 6 and 8 of the anti-money laundering guidance for the legal sector
5. I have been instructed by a local client who is purchasing business premises. I have carried out the relevant customer due diligence checks and I am satisfied as regards to my client’s identity. However, I have some concerns about his source of funds. I am worried that if I raise these with my client that I will be 'tipping off'. Does the Law Society provide any advice on how to deal with such a situation?
You should make enquiries of your client to help you decide whether you have a suspicion of money laundering. You may also need to ask questions during the course of the retainer to clarify issues about the client’s source of funds.
There is nothing in the UK’s anti-money laundering legislation which prevents you from making normal enquiries about your client's instructions, the proposed retainer and the source of funds in order to identify any concerns and to enable the firm to decide whether to take on or continue a retainer.
These enquiries will only be tipping off if you disclose that a Suspicious Activity Report (SAR) has been made to the National Crime Agency or that a money laundering investigation is being carried out or contemplated. The offence of tipping off applies only in the regulated sector.
For further information, please see Chapter 6 of the Anti-money laundering guidance for the legal sector.
6. I am the Money Laundering Reporting Officer (‘MLRO’) in a firm which does personal injury work. One of the partners has approached me with concerns about an accident claim which a client wanted to pursue where it transpired that the client was not actually involved in the accident. The partner has terminated the retainer and would like to know whether there is a reporting obligation under the Proceeds of Crime Act 2002 (‘POCA’).
Since the matter involved the provision of legal advice and/or participation in litigation, it appears to fall within the non-regulated sector. Accordingly, any reporting duty would fall on you as the firm's MLRO and not on the partner. Section 332 POCA states that an MLRO in the non-regulated sector would commit an offence "if, as a result of a disclosure, he knows or suspects that another person is engaged in money laundering and fails to make a disclosure as soon as practicable to the National Crime Agency".
The statutory defences need to be considered before a decision to disclose is taken by an MLRO, in particular whether there is a reasonable excuse not to report and/or whether the information giving rise to suspicion has been obtained in privileged circumstances.
For there to be a money laundering offence, criminal property needs to exist, that is a criminal offence must have been committed which has generated criminal property. In this case, whilst there appears to have been an attempted fraud, from the facts presented, this has not generated any criminal property and, in the absence of any other information, there appears to be no reporting duty.
7. A woman living abroad has emailed asking my firm to recover monies due to her from her ex-husband pursuant to a divorce settlement. She has provided a copy of the agreement. The terms are very vague and there is no court or jurisdiction reference. She said that her ex-husband lives in England although she has not supplied an address. She has provided documents of her identity by email certified by a foreign lawyer practising in the country where she lives. I have spoken to the lawyer who says he has no recollection of such certification.
A cheque for the full settlement monies has just arrived in my office drawn on a foreign bank account and payable to my firm. The woman is chasing for payment of the settlement monies as her ex-husband has told her the monies have been paid. What should I do?
You should not pay the cheque into your client account until further checks are carried out. If you are not your firm's Money Laundering Reporting Officer (MLRO), you should discuss this with the MLRO immediately. There are a number of warning signs of sham litigation and this may be an attempt to launder money through your client account.
While Bowman v Fels  EWCA Civ 226 held that conducting litigation is not entering into an arrangement contrary to section 328 of the Proceeds of Crime Act 2002 (POCA), this does not extend to sham litigation.
You will need to consider whether it is ethically appropriate to continue with the retainer. Consider seeking further information by searching the names of the parties on the internet as sometimes that will link to information about known sham litigation methodologies.
With regard to whether a report to the National Crime Agency (NCA) is necessary, your MLRO will need to consider whether you hold the existing proceeds of crime. Technically, a "stolen cheque" is criminal property whereas a "fraudulent cheque" is an instrument of crime rather than criminal property, unless funds have been drawn down against the cheque. You may not know which type of cheque you have and it may be prudent for the MLRO to consider making a Suspicious Activity Report (SAR) to the NCA under section 332 of POCA.
The NCA will not be able to advise you as to whether the cheque is a ‘stolen’ or ‘fraudulent’ instrument nor advise you about what to do with the cheque. If it is a stolen cheque, you would need consent from the NCA to do anything with it or indeed to hold onto it.
The firm may also wish to make a separate crime report directly to the police, as a SAR is not a crime report. You may wish to hold the cheque on file as evidence of a crime or potential crime.
For further information, please see the Anti-money laundering guidance for the legal sector.
8. We are a niche litigation firm. We are unclear as to our obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Are we obliged to conduct Customer Due Diligence on our clients?
Regulation 19 of the Money Laundering Regulations 2017 (‘the Regulations’) requires firms in the regulated sector to have written policies, controls and procedures in place.
HM Treasury has confirmed that participation in litigation is an activity which is not covered by the Regulations and you are therefore not obliged to identify and verify your clients (see Chapter 1 of the Legal Sector Affinity Group’s Anti-money laundering guidance.
However, you should still consider how such systems can assist you to comply with your obligations to report suspicious transactions in accordance with the Proceeds of Crime Act 2002 and the Terrorism Act 2000 (see Chapters 6 and 8 of the Guidance).
As the firm specialises in litigation, you should also be familiar with Bowman v Fels  EWCA Civ 226, further information on which is set out at Chapter 6 of the Guidance.
Disclaimer: Whilst 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 the 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 to Mrs Anjali Mouelhi, practice advice service manager.