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 from Monday to Friday between 09:00-17:00 and you can call us on 020 7320 9544.
Below is a selection of questions and answers compiled by the service.
I am acting for the purchaser of residential property. The client has advised me that he is a member of a political party in the UK. Should I treat him as a politically exposed person (PEP) pursuant to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 ('the Regulations')? His wife will be living with him in the property - so do the PEP rules apply to her as well?
Regulations 35 and 36 deal with PEPs. The definition of a PEP applies to all persons appointed by governments and authorities anywhere in the world, including in the UK. A PEP is a person who has been entrusted within the last year (or for a longer period if you consider it appropriate to address the risks in relation to that person) with a prominent public function by a community institution, an international body, or a state. Middle ranking and junior officials are not PEPs. Members of political parties would not be regarded as PEPs nor will members of their family. However, members of the governing body of a political party with some representation in a national or supranational parliament and their family members and known close associates will be regarded as PEPs. Generally, this will only include members of the national governing body of the party who have significant executive power (for example, significant power in the selection of candidates or the distribution of party funds).
If your client's wife is not going to be a co-owner of the property or a client of your firm then the Regulations are not applicable to her.
A full list of who would be regarded as a PEP is set out in Regulation 35.
For further information please see the Legal Sector Affinity Group’s anti-money laundering guidance for the legal sector.
You should also refer to the Financial Conduct Authority's (FCA) Guidance on the treatment of politically exposed persons for anti-money laundering purposes at www.fca.org.uk.
I am a Money Laundering Reporting Officer and have recently reviewed a file which was dealt with by a junior solicitor where we acted for a buyer who bought a house for cash. The transaction has now completed and the bill has been paid by the client. The junior solicitor was aware that the client was in receipt of benefits and has no legitimate source of income. The file disclosed no further source of funds enquiries and the fee earner accepted payment of his bill in cash despite having a suspicion that the cash may have been the proceeds of crime.
The fee earner was told by his head of department that he could accept the cash payment for his bill as the provision by him of the conveyancing services amounted to adequate consideration and that therefore his conduct is covered by the adequate consideration defence. Was the advice of the head of department correct?
The advice may well have been incorrect. It is highly probable that the fee earner was suspicious about the house purchase transaction. If that was the case, then completing the house purchase may amount to an offence under section 328(1) of the Proceeds of Crime Act 2002 which provides that:
'A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.'
In addition, the adequate consideration defence could not apply to payment of the bill of costs if the fee earner suspects that the services have helped the client to carry out criminal conduct. For further information on the adequate consideration defence and on the importance of ensuring that internal compliance procedures are adhered to please see the Legal Sector Affinity Group anti-money laundering guidance for the legal sector.
My firm deals with commercial clients with complex structures and often receives funds from third parties. How far do we have to go to establish the source of funds in fulfilling our obligations under the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘the Regulations’)?
Regulation 28(11) relates to the legal obligation to undertake scrutiny of transactions including, where necessary, the source of funds.
Firms should monitor whether funds received from clients are from legitimate sources. For example, you might consider it is reasonable for monies to be received from a company if your client is a director of that company and has the authority to use company money for the transaction.
If funding is from a source other than your client, you may need to make further enquiries, especially if the client has not told you about this before depositing the funds into your account or if you had not expected to receive the funds from a third party. If you decide to accept funds from a third party, perhaps because time is short, ask how and why the third party is helping with the funding.
You will also need to decide whether, and to what extent, you need to undertake customer due diligence in relation to any such third party.
Please see Chapter 12 of the Legal Sector Affinity Group’s anti-money laundering guidance for the legal sector.
I do not, as a rule, make or receive third party payments, and I make sure my firm does not act as a banker, yet clients may arrange for payments to third parties under a Deed of Variation of benefits. The beneficiaries may all agree to send the money to anyone. Is there any potential for money laundering or tax evasion?
Where there is no suspicion that the funds to be paid are proceeds of crime, it is not a money laundering offence as there is no existing criminal property. However, solicitors are duty-bound to uphold the rule of law and always need to be on their guard not to allow their services to be used in the commission of a crime.
Where it is clear that the purpose of the variation is to facilitate tax evasion, you need to advise the clients that this is a criminal offence with significant consequences. If the clients insist on proceeding, you will need to advise them that you are unable to continue acting, in accordance with the SRA Code of Conduct 2011, Principles 1, 2, and 6, and Outcome O (1.3).
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.