The 153 page report covers in detail the steps that law firms should take to avoid sanctions, penalties and reputational damage. Here, we summarised the main guidance from the report to prepare for new requirements under the anti-money laundering act.
Lawyers should adopt a risk based approach focusing on the areas of greatest risk. The benefits from this approach are more efficient use of resources, minimising compliance costs and adding greater flexibility when responding to emerging risks.
The risk of not being compliant with regulations can be sanctions and fines for the firm, the individual involved and reputational damage.
If lawyers know and understand the risks and where they are likely to face them, then there is much less chance of falling foul of the law. Money laundering and terrorist financing risks vary across the legal sector and lawyers should be wary of these. The risk based approach should be built upon the activity undertaken; existing ethical and professional rules; and your firm’s susceptibility to money laundering.
All compliance systems and policies should be recorded and documented. These policies should be proportionate and utilise a risk based approach. By documenting the controls in place, staff will be able to implement them effectively and demonstrate their ongoing use.
Customer Due Diligence (CDD) is a requisite part of the anti-money laundering act regulations, and must therefore take place on all new clients and existing clients. It involves identifying the client and verifying their identity by obtaining enough evidence to support the identity claimed. A risk based approach is to be applied whereby the extent and quality of information obtained is determined by the risk level in each matter.
It’s important to remember that this isn’t a once-and-done activity – effective due diligence requires ongoing monitoring of not only the regulations but also of your client’s circumstances to ensure you remain compliant once they have been onboarded. Implementing an effective Know Your Customer (KYC) remediation strategy of your existing client book is now an essential component of your customer due diligence processes.
When firms onboard new clients who are body corporates, they are obliged to gather information that can help them identify and understand the constitution of the corporate client. The information includes, registered business name, number and address; details of board of directors and senior persons responsible for operations; the law to which the business is subject; legal owners; beneficial owners, and; articles of association.
The 2002 Proceeds of Crime Act (POCA) created a UK wide single set of money laundering offences for proceeds from criminal activities. It also makes it an offence not to disclose information or suspicion of money laundering.
Legal professionals have a duty to keep all matters related to their client confidential. However, under the Proceeds of Crime Act (POCA) a firm must make available information to the National Crime Agency (NCA) where they know of or suspect criminal conduct. When a Suspicious Activity Report (SAR) is made, sections of the regulations prohibit information being disclosed to the client.
The Terrorism Act 2000 criminalises not only the participation in terrorist activities but also the provision of monetary support for terrorist purposes. All legal professionals are subject to the terrorist property offences under the Act including fundraising, use or possess money, become involved in money arrangements for terrorist purposes.
The financial intelligence unit of the National Crime Agency handles all enquiries in relation to money laundering and terrorist financing. All regulated firms and individuals have a duty to make a disclosure of potential money laundering or terrorism financing to the NCA under POCA and Terrorism Act 2000. This should be done through a Suspicious Activity Report.
The UK has one of the most robust regulatory regimes in the world. Regulators are committed to working with firms, and AML supervisors are on hand to offer assistance. For those that fail to adhere to the regulations however, the fines and sanctions can be very serious.
Victims of crime can take civil action against wrongdoers and those who have assisted them. Those who believe they may have assisted in money laundering/terrorism financing should seek legal advice.
The Proceeds of Crime Act 2002 requires legal professionals to report any and all suspicious activities. Law firms need to conduct ongoing monitoring of their business relationships to be aware of money laundering warning signs to ensure that suspicious activity is reported accordingly. Warning signs include secretive clients, unusual client instructions or client work such as unusually large transactions and more.
To read the full report, please visit The Law Society website.
If you’d like to learn more about how your business needs to respond to MLR 2017, watch our on demand webinar with Amy Bell, legal industry advisor to encompass and member of The Law Society’s Anti-Money Laundering Task Force.
Joe is a business consultant specialist at encompass, working with firms to identify process improvements and solutions within their KYC and AML compliance functions. Bringing over a decade of experience working within the technology sector, his broad experience has enabled him to focus on working with businesses across professional services including legal, accountancy, property and consultancies globally.
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Founded in 2011 by entrepreneurs Roger Carson and Wayne Johnson, and operating from the UK, encompass is the creator of unique, innovative Know Your Customer (KYC) software for banking, finance, legal and accountancy that enable better, faster commercial decisions. The company is driven by the belief that the best decisions are made when people understand the full picture.
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