Call for evidence: UK AML regulatory and…
We responded to HM Treasury's call for evidence on the effectiveness of the UK's anti-money laundering regulatory and supervisory regime.
The UK sanctions regime can apply to persons and entities where the UK government has:
The relevant pieces of legislation are:
The sanctions regime imposes serious and extensive restrictions on dealing with people who are listed. Under the legislation they’re referred to as “designated persons”.
The law restricts you from:
The Terrorist Asset Freezing etc. Act 2010 created a series of criminal offences. It prohibits:
Additionally, you must not knowingly and intentionally participate in activities that would directly or indirectly circumvent these financial restrictions or enable or facilitate the commission of any of the above offences.
You can act for someone who’s on the sanctions list, but you must apply for a licence from the Office of Financial Sanctions Implementation (OFSI) before you start work.
When you carry out your firm’s anti-money laundering (AML) risk assessment, you should consider how likely it is that your clients may be on the sanctions lists.
It’s difficult to categorise the clients that may need to be checked simply by their nationality or country of residence. UK nationals and UK residents can be on the sanctions lists, so you may still be at risk even if you only act for local clients.
The regimes list can help you assess risk but bear in mind there may be some retainers where it’s not immediately apparent that a person or entity may have some connection to a relevant regime.
You cannot limit your risk assessment to the work regulated under the AML regulations. Examples of unregulated work that the sanctions regime may affect include:
You’d also need a licence from OFSI to use legal aid payments for the benefit of a person on the list.
You may apply a risk-based approach to setting up a system that checks your clients against the sanctions lists.
Factors that may increase the risk of a person being on the sanctions list, and so increase the reason for checking the list, include:
If your firm has a low general risk of working for clients on the sanctions list, but individual clients have higher risks, you can check directly against the Treasury’s consolidated list by pressing Ctrl+F to do an in-page search.
If a client comes up as a possible sanctions match, you should review all the client identity information you hold against the sanctions list, to make sure you do not have a false positive identification. The UK sanctions list includes information on:
If your firm has a higher risk of dealing with clients on the sanctions list, you may want to use an e-verifier. These services incorporate the sanctions list into the databases they use to check identity information.
If you have a high risk of dealing with clients on the sanctions list, you should also have processes in place to help you find out whether key beneficial owners, or the intended recipient of funds from a transaction you’re undertaking, are subject to the restrictions.
You can check individual clients against the sanctions lists.
There are also lists of regimes to which financial sanctions have been applied that may provide some assistance in assessing the risk.
If you decide you still want to act, you’ll need to apply for a licence from OFSI before proceeding.
The last point is important because the sanctions regime applies in addition to reporting obligations under anti-money laundering and counter-terrorist financing legislation, including the 2011 regulations. For example you’ll need to consider whether to apply enhanced due diligence measures when dealing with a person or entity from a high-risk third country.
There may be circumstances where a report to the NCA is not required. For example, a person on the sanctions list may be suspected of terrorist involvement but may not have received a benefit from, or been involved in, raising funds for those activities.
The transaction they may be asking you to undertake could have no involvement with their alleged terrorist activities, for example a divorce or personal injury claim.
Even where you’re satisfied you do not need to make a report to the NCA you must not deal with the resources of the designated person without OFSI’s approval.
You can discuss the person’s sanctioned status with them without being concerned about tipping off, as the sanctions list is public information.
OFSI has the power to grant licences exempting certain transactions from the financial restrictions. It considers requests on a case-by-case basis, to make sure there’s no risk of funds being diverted to terrorism.
It has also issued general licences that govern certain situations, such as the use of legal aid payments.
You must contact OFSI even if you decide not to act for a person you know, or have reasonable cause to suspect, is a designated person.
These changes, now found in Schedule 1 of the 2011 Regulations, were introduced by the European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017.
The requirements apply to all practices, not just those regulated for AML purposes. Under the 2011 Regulations an independent legal professional is defined as “a firm or sole practitioner who by way of business provides legal or notarial services to other persons, when providing such services”.
You’re required to make a report to OFSI if, because of information that has come to you in the course of your practice, you know, or have reasonable cause to suspect, that someone:
If you fail to notify OFSI you’re committing a criminal offence. However the obligation only applies in respect of information received by relevant businesses on or after 8 August 2017.
You must provide:
You do not have to report privileged information.
However, you’ll need to state clearly whether privilege applies and what information it applies to. Blanket statements of privilege could be challenged.
The Sanctions and Anti-Money Laundering Act 2018 enables the UK to achieve international compliance with sanctions regulation after Brexit.
In the event Britain leaves the EU without a deal, the government intends to repeal Part 1 of the Terrorist Asset-Freezing Act 2010 and revoke the 2011 Regulations. The asset-freeze offences will be reproduced across three Regulations, which are not yet in force:
The government has produced additional guidance on the existing regime and the implications of Brexit.