Regulatory Oversight

This policy is an update to the 2020 policy that updated matters based upon the 5^th Directive that was implemented by the Money Laundering and Terrorist Financing Regulations 2019.  It also follows the 2023 amendments.

The cash limit is again £5000.  This may be regarded as too high but as time passes it is not in context extreme because final hearing fees and counsel costs can easily exceed £2500.  Inflation has also been high over the recent period.

This policy should be read in conjunction with the HRS 2012 money laundering policy, updated in 2017 and 2018 and 2019, and the operations manual that set out the firms procedure to combat the risk that HRS may inadvertently become involved in a criminal enterprise.

All staff receive training annually in respect of Money Laundering, AML practices and the HRS approach to minimising risk.  This consists of mandatory internal training and for fee earners an external seminar or online course.  It is mandatory and checked by our HR Officer.

The 2017 Money Laundering Regulations took effect from 26^th June 2017.  CIR is the firm’s MLO / Money Laundering Compliance Principal (MLCP).  We carried out an independent firm-wide AML audit and developed a new risk assessment.  This was amended in 2018.  It has now been reviewed in 2020. The fifth Anti-money Laundering Directive (PDF 38 pages, 895KB) [http://www.legislation.gov.uk/uksi/2019/1511/made/data.pdf] was published on 10 January 2020.  New key changes relevant to HRS are;

Policies, Controls and Procedures (r19) provide for identification and scrutiny of transactions that are either complex or unusually large (formerly only transactions that were both had to be identified and scrutinised) r19(4)(a). Whether a transaction is “complex” or “unusually large” should be judged both in relation to the normal activity of the practice and the normal activity of the client.

When new technology is adopted, appropriate measures must be taken in order to assess and mitigate any money laundering or terrorist financing risks this adoption may cause. This requirement has now been extended to require that this same process be followed when new products or business practices are introduced. This may be included in your Practice-Wide Risk Assessment.

New products or business practices (for example entry into new areas of legal practice or changes to the structure or operational model of the practice) must be assessed in terms of AML risk and incorporated into your practice-wide risk assessment and PCPs

Training Requirements (r24): Under the amended regulations, the existing training requirements on staff under r24 are extended to include any agents a practice uses for the purpose of its business. The test for whether an agent or employee needs training is if their work is relevant to the AML compliance of the practice, or they are involved in the identification, mitigation, prevention or detection of money laundering or terrorist financing risk within the business. This may not include all staff in a practice (e.g. maintenance or catering staff) but should be considered on a risk basis.

How supervisors approve individuals (r26): r26 now includes a more explicit statement that supervisory authorities must collect sufficient information to determine whether a sole practitioner, or a Beneficial Owner, Officer or Manager of a firm has been convicted of a relevant offence. In practice, this means obtaining a criminal record check. You should check your supervisor’s process for this.

Client Due Diligence (r27 and 28) For existing clients, Client Due Diligence must be renewed when a practice has any legal duty in the course of the calendar year to contact a client under the International Tax Compliance Regulations 2015 or to review information: • relevant to their client risk assessment (or where appropriate practice-wide/matter risk assessment) or • concerning beneficial ownership information of the customer, including information which helps them understand the ownership or control structure of any entity that is the beneficial owner of the client. r28(3): In addition to existing requirements under r28(3) in relation to undertaking due diligence on a non-natural person (including trusts), the practice must now also take reasonable measures to understand the ownership and control structure of that person.

Enhanced Due Diligence (r33) There are three key changes to enhanced due diligence requirements. The first two (red flag transactions and high risk third countries) expand the situations in which Enhanced Due Diligence must be applied. The final changes add additional factors to be considered in assessing risk, and therefore whether EDD should apply. EDD – Red Flag Transactions Changes to existing Enhanced Due Diligence (EDD) requirements mean that you must apply EDD in all the following circumstances (formerly it was only necessary if all the listed elements were met):

• where the transaction is complex
• where the transaction is unusually large or
• where there is an unusual pattern of transactions, or the transaction or transactions have no apparent economic or legal purpose (formerly both conditions had to be satisfied).

Whether a transaction is “complex” or “unusually large” should be judged in relation to the normal activity of the practice and the normal activity of the client. EDD – When assessing whether something is high risk (and thus whether EDD should be applied), new factors to consider include:

• whether the person is a beneficiary of a life insurance policy (1) S.I. 2009/2436.
• whether the person is seeking residence/citizen rights in exchange for investments in that EEA state
• whether the firm is operating without face to face meeting and without electronic identity systems to mitigate this or
• whether the person is involved in the trade of oil, arms, precious metals, tobacco products, cultural artefacts, ivory and other items related to protected species, and other items of archaeological, historical, cultural and religious significance, or of rare scientific value.

For HRS whether the person is a beneficiary of a life insurance policy is only likely to be indicative of higher AML risk where the retainer bears direct relevance to the policy.

EDD in relation to high risk third countries: Enhanced due diligence and ongoing monitoring are now required when either the client or counterparty to a transaction is “established in” a high-risk third country r33(1)(b). A “high-risk third country” means a country which has been identified by the European Commission in delegated acts adopted under Article 9.2 of the fourth money laundering directive as a high-risk third country. As at 10 January 2020, those countries are: Afghanistan Lao PDR Yemen Tunisia Bosnia and Herzegovina Syria Ethiopia Pakistan Guyana Uganda Sri Lanka Iran Iraq Vanuatu Trinidad and Tobago Democratic People’s Republic of Korea A client or counterparty is to be treated as “established in” a country, where any of the following apply:

• it was incorporated in the country;
• it has a principal place of business in the country;
• (if a financial institution or credit institution) its principal regulatory authority is based in the country or
• (if a natural person) being resident in, but not merely because they were born in the country. r33(3A) stipulates that where EDD is to be applied due to a party to the transaction being “established in” a high risk third country, it must include:
• obtaining additional information on the client and on the client’s beneficial owner
• obtaining additional information on the intended nature of the business relationship
• obtaining information on the source of funds and source of wealth of the client and of the client’s beneficial owner
• obtaining information on the reasons for the transactions
• obtaining the approval of senior management of the practice for establishing or continuing the business relationship and
• conducting enhanced monitoring of the business relationship by increasing the number and timing of controls applied and selecting patterns of transactions that need further examination.

There is an additional requirement that will apply in a narrow set of circumstances. Where a client is a body corporate and the practice has exhausted all possible means of identifying their beneficial owners but has not succeeded or is not satisfied that an individual is the beneficial owner, the practice must take reasonable measures to identify and verify the identity of the senior person responsible for managing the body corporate and record in writing all actions and difficulties encountered in doing so. This is further to previous requirements under r28(6). Clarification is provided that an electronic identification process using electronic identification services means and trust services (as defined in EU Regulation 2014/910/EU) may be regarded as reliable, where they are secure from fraud and misuse and capable of providing appropriate assurance customers are who they say they are.

CDD or EDD?

Ask yourself;

• Where does the money come from?
• What is the source of the wealth?
• Are you meeting the client face to face, by video?
• What ID have you got?
• Do you need to speak with the MLRO?

Discrepancies on Registers (r30A) Before establishing a business relationship with a: • company (registered or unregistered as defined in the Unregistered Companies Regulations 2009(1)) • Limited Liability Partnership or • Scottish Partnership. – a practice must collect proof of registration or an excerpt from the relevant register. r30A(3) A significant change in the regulations is that practices will have a responsibility to report discrepancies between information collected (as above) from the relevant Register, and information collated while undertaking duties and responsibilities under the regulations (e.g. due diligence or ongoing monitoring). Practices that encounter such discrepancies while fulfilling their AML duties, must report them, but it is not a requirement for practices to actively seek out such discrepancies. This responsibility to report does not apply where the information is subject to Legal Professional Privilege. Any discrepancy should be reported to Companies House (via the new online reporting tool available on the Companies House website) as soon as reasonably possible.

Note that the EU list of high risk countries is subject to change and that Wills with a Trust of more than two years duration are registrable.

SAR’s to the NCA

In the event of a suspicious client, scenario or transaction it is the duty of every member of staff, no matter what their position in the firm, to compete a Money Laundering form and pass it to the MLO.

The National Crime Agency under the Proceeds of Crime Act (POCA) 2002 run a system whereby the firm is required to submit a Suspicious Activity Report to the NCA if we know or suspect, or have reason to know or suspect, that an individual is engaged in money laundering and the information has come to us in the course of our business. There are similar obligations to submit SARs in relation to terrorist financing offences under the Terrorism Act (TACT) 2000.

Our Expectations

All fee earners should have regard to the SRA Principles and Code of conduct in relation to the Money Laundering Regulations 2017; and generally with legislation such as your legal obligations under POCA 2002 and TACT 2000. They should also be up to date with the constantly evolving regulatory environment and the SRA approach to that.

We also expect all staff and individuals employed by us to comply with the NCA guidance in relation to submitting consent SARs.

The NCA has stated that one of the causes behind delays in the turnaround of consent requests is poor quality information or missing out one or more of the elements required of a submission, namely:

1. The information or other matter that gives grounds for knowledge, suspicion or belief;
2. A description of the property that is known, suspected or believed to be criminal property, terrorist property or derived from terrorist property;
3. A description of the prohibited act for which consent is sought;
4. If known, the identity of the person or persons known or suspected to be involved in money laundering or who committed or attempted to commit an offence under any of sections 15 to18 of TACT 2000;
5. If known, the whereabouts of the property that is known or suspected to be criminal property, terrorist property or derived from terrorist property; and

If under (4) and (5) the identity of the person or persons and/or the whereabouts of the property is not known, then any information believed or reasonably believed that may assist in identifying (4) or (5) or both.

What the SRA want from us

In order to achieve compliance with the SRA warning notice on Money Laundering, we are expected to have systems and procedures in place which are adequate to prevent, detect and report money laundering; and that firms monitor the efficacy of such systems to ensure that any risks to compliance are identified and addressed. This includes ensuring that relevant staff are appropriately trained and regularly updated in respect of the relevant legislation and their professional obligations, including the NCA’s requirements referred to above.

 

The SRA have published a warning notice to all firm’s to remind us that we have a legal obligation to ensure that we:

• do not facilitate money laundering or terrorist financing
• do report any suspicious transactions.

This notice highlights warning signs we should be aware of, and which may require you to take action in order to avoid committing a criminal offence or breaching your professional obligations under the Solicitors Regulation Authority (SRA) Handbook.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) came into force on 26 June 2017 replacing the now repealed Money Laundering Regulations 2007. As a result we reviewed our procedures and system of AML. Now updated again in 2020.

We expect all staff to comply with money laundering legislation including taking appropriate steps to conduct customer due diligence when required to do so by the Money Laundering Regulations 2017. We expect you all to be aware of, and act properly upon, warning signs that a transaction may be suspicious.

The warning signs highlighted by FATF include:

If the client:

• Is secretive or evasive about who they are, the reason for the transaction, or the source of funds.
• Uses an intermediary, or does not appear to be directing the transaction, or appears to be disguising the real client.
• Avoids personal contact without good reason.
• Refuses to provide information or documentation or the documentation provided is suspicious.
• Has criminal associations.
• Has unusual level of knowledge about money laundering processes.
• Does not appear to have a business association with the other parties but appears to be connected to them.

If the source of funds is unusual, such as:

• Large cash payments.
• Unexplained payments from a third party.
• Large private funding that does not fit the business or personal profile of the payer.
• Loans from non-institutional lenders.
• Use of corporate assets to fund private expenditure of individuals.
• Use of multiple accounts or foreign accounts.

If the transaction has unusual features, such as:

• Size, nature, frequency or manner of execution.
• Early repayment of mortgages/loans.
• Short repayment periods for borrowing.
• An excessively high value is placed on assets/securities.
• It is potentially loss making.
• Involving unnecessarily complicated structures or steps in transaction.
• Repetitive instructions involving common features/parties or back to back transactions with assets rapidly changing value.
• The transaction is unusual for the client, type of business or age of the business.
• Unexplained urgency, requests for short cuts or changes to the transaction particularly at last minute.
• Use of a Power of Attorney in unusual circumstances.
• No obvious commercial purpose to the transaction.
• Instructions to retain documents or to hold money in your client account.
• Abandoning transaction and/or requests to make payments to third parties or back to source.
• Monies passing directly between the parties.
• Litigation which is settled too easily or quickly and with little involvement by you.

If the instructions are unusual;

• Outside our firm’s area of expertise or normal business, or if the client is not local to you and there is no explanation as to why a firm in your locality has been chosen.
• Willingness of client to pay high fees.
• Unexplained changes to legal advisers.
• Your client appears unconcerned or lacks knowledge about the transaction.

If there are geographical concerns such as:

• Unexplained connections with and movement of monies between other jurisdictions.
• Connections with jurisdictions which are subject to sanctions or are suspect because drug production, terrorism or corruption is prevalent or there is a lack of money laundering regulation.

 

Our procedure 

Having thoroughly reviewed the firm procedure we, again, do not believe that there is any need for a material change to the system for protecting the firm.

You must always undertake a risk assessment on the initial attendance note.  This must record CDD or EDD and the reasons why?

For private clients use Video instead of telephone where possible for the first free interview.

1. For every private paying client you must complete a money laundering form. The Supervisor will pass them all to CIR at the end of every month.
2. Also, if you have any suspicions you must again complete a money laundering form and email it to CIR.
3. CIR will then consider it and may ask for further information by email.
4. In conjunction with you a decision will be taken on what further action to take which may include a SAR to the NCA or the requirement for further information from the client without which the file shall be quarantined.
5. If you disagree with the view that CIR has taken it remains open to you to report via a SAR to the NCA on your own account.
6. Never tell the client about your suspicion, the referral to the MLO or the report of a SAR to the NCA.
7. In January 2014 the NCA issued a guidance note on making a report.
8. The Head of Legal undertakes an annual audit of ML procedures in reality by consideration of randomly selected files etc and then reports to the MLO. This has been done in each of the last three years.

Making a SAR

We are registered with the NCA.  We can log in to make a report electronically, which has a number of advantages:

• we save a copy of the report for your records
• we receive an email confirming receipt of the report, and
• it speeds up the consent process.

If you have queries about registration, contact the UK FIU on 020 7238 8282 (press 2 for SAR management enquiries, 3 for SAR online enquiries and 4 for consent).

Although the online form is designed with financial institutions in mind, you should be able to identify which parts are relevant. You should also familiarise yourself with the NCA’s glossary of codes for use in making a SAR.

Before you report

Before you are ready to make a SAR, you will have reviewed the file and considered:

• Is there criminal property?
• Which offence is involved? (See the flowcharts in chapter 12 of the practice note and chapter 6 of the AML Toolkit)
• Is there a defence?
• Is the information subject to legal professional privilege or received in privileged circumstances?
• Ask CIR if you need assistance in this regard

You will also decide:

• whether to terminate the retainer (in conjunction with the compliance officer for legal practice (COLP));
• whether to report but stop acting, or
• whether to seek consent and keep acting.

Depending on the circumstances, you will be reporting on your own behalf and that of the client. If you are continuing to act, you will need to provide support and guidance to the fee earner, particularly in relation to the tipping off offences.

If you are terminating the retainer then you should not say why to the client as that might be tipping them off which is a serious criminal offence.

Foreign nationals – If your client is a foreign national or holds a foreign passport then you must take a copy of the passport and email that with the ML form to the MLO who will then assess risk based on the country involved and any other factors that are raised.

Drafting the reason for suspicion

Before you draft your reason for suspicion, you need to be clear about who you are reporting and why. Is your client the suspect or the victim? Why are you suspicious and what is the transaction in which you are involved?

If you start by drafting the reason for suspicion (in a separate Word document), you can clarify why you are reporting and expose any gaps. Sometimes, as a result of that analysis, you may realise that you should not report e.g. because there is a defence.

If you decide not to report, make sure you have a clear note as to why you reached that decision.

Your reason for suspicion should set out:

• the background to the matter
• who is involved
• which offence is involved (e.g. section 328)
• the nature of the criminal property
• the prohibited act (eg the purchase of the property)
• details of your suspicion
• the next steps in the transaction and the timescale/agency and
• whether you are seeking consent.

You should also set out clearly what activities you are proposing to carry out and make it clear that you are seeking consent to carry out those activities.

Once you are satisfied that your reason for suspicion is accurate and complete, it is sensible to ask the fee earner to check it in case there is something that you have misunderstood or overlooked.

A well drafted reason for suspicion which provides all essential detail but is concise, is more likely to enable the NCA (and law enforcement, where relevant) to give consent quickly. (If the NCA want more information, they will ask you for it, but do not give privileged information.)

Completing the form

Although the form is designed for financial institutions, there are a number of sections which are common to all reporters. You do need to complete as many as you can. If you are seeking consent, remember to tick the box.

You will need to provide all the ID information that you have. Once you have decided to make a report, the confidentiality of such information is overridden. The key pieces of information are:

• full names,
• addresses, including postcodes,
• dates of birth,
• phone numbers including mobile phone numbers,
• passport or driver’s licence numbers
• company registration numbers.

If you do have other information such as a National Insurance number, that should be included.

Next steps

Once the form is complete, it is prudent to ask a colleague to check it again.  You should advise CIR as MLO / COLP and VJH as the COFA by email that you are about to report, although you will ensure that the information is not disseminated widely.

You will submit the SAR electronically, saving a copy for your own records first and you will receive an acknowledgment.

If you are asking for consent and your reason is clear and concise, that will assist the NCA to give consent quickly. The NCA has produced guidance on obtaining consent. If the SAR is sent to a law enforcement agency, the NCA will have to wait for their response before making a decision.

If you need to contact the NCA about a consent issue, use the telephone number.

If you are concerned that the confidentiality of your SAR has been breached or you are concerned about the inappropriate use of a SAR by an end user (eg a law enforcement agency), you should contact the confidentiality breach line on 0800 234 6657. If you feel threatened, you should contact the police.

Consent

If consent is granted, you will be able to do the ‘prohibited act’ but you should keep the matter under regular review, submitting a new SAR or updating an existing one if new information comes to light.

Obtaining consent only protects you from committing a money laundering offence under part 7 of POCA and you will need to consider the civil liability position as a separate issue. Chapter 10 of the practice note considers the issue in more detail.

If consent is refused, the NCA has a moratorium period of 31 calendar days from the date of refusal, during which time you must not do the prohibited act. Further guidance is available at chapter 8 of the practice note.

You will need support and guidance during this period and must inform CIR of the updated position as matters develop.

Whilst the idea of submitting your first SAR may seem daunting, if you take a calm, careful and logical approach and follow the practice note you should find that it was not as challenging as you had expected.

• Keep CIR informed
• Do not tip off the client
• Use your common sense

HRS AML rules

Risk – You are required to consider the risk of Money Laundering at each stage of the representation process and must record thoughts enquiries and further action needed on the file.

You should email the MLRO with any queries.

You must fill out a High Risk form in the event that a private client case exceeds £25,000 in costs or has a value in excess of £1M.

Training – Whilst the firm will ensure that you receive training each year in AML it is also your responsibility to satisfy yourselves that you are fully equipped to identify risks. 

Therefore, as part of the appraisal process ask yourself; do I need extra training on the subject?

Solicitors, in particular are under an SRA duty of continuing compliance as per our training policy.  You must ensure you have the necessary skills.

ID is required as per the Operations Manual.  One item from each list.  If that is not possible for good reason record the same on the file and discuss with a Supervisor or the MLO / HofL.  Sometimes there are legitimate reasons for people not being able to produce ID but remember that you must weigh the risk.

Financial limits are absolute for any cash payments, namely, £5000 per transaction and £10,000 in any calendar month, unless it is counsel fees or disbursements.  Again even if a client is paying less than that sum in cash ask yourself why?  Weigh the risk.

Failure to follow this policy is a disciplinary matter that is of such seriousness that it may involve dismissal for gross misconduct

In summary –

Fill out the ML form for each private client

Contact the MLO by email if there is any issue of any kind .

Always obtain ID

Use the lists in the Operations Manual.

Do a risk analysis at each material stage of the case

Types of risk

Geographical – Countries with lesser AML regulations, high corruption or subject to sanctions.

Source of funds – Payments to or from third parties, combining services, remote instruction / working.

Transaction risk – Complex transactions, new products, unusual or transactions out of our comfort zone, size or method of payment.

Client risk – PEPS, difficulty establishing identity, high risk industry,

Our products – Conveyancing, client a/c, Company law or trusts.

HRS risk assessment

Keeping the profession free of money laundering is in everyone’s interest. It is a key way of disrupting serious crime – crime that funds everything from terrorists to people traffickers. It is not a victimless crime.

Money laundering is a priority risk. The credibility of law firms make them an obvious target for criminals.  We must ensure that our processes are robust and our staff well trained.

At HRS we have always taken ML seriously.  Our credibility is a priority.

Given the type of work we do, private client and Legal Aid for family law, the risk is relatively low.  We do not do conveyancing other than for existing clients for whom we have acted in their family law case.  We have very little international and no corporate exposure.

That said we have recently seen more instructions from people who have a background abroad and for this reason we have brought in a new system for the assessment of risk in such cases.

 

Key points;

1. Speak to / report to the MLO with any suspicions. Do not engage with any client from outside the UK, even the EU, without permission.  They cannot be retained without the express written consent of the MLO.
2. Never tell the client that you are suspicious.
3. Do not worry about being “wrong” As MLO CIR is here to help. Your first stop is the H of L for advice.
4. Remember that you must always be able to justify your actions or lack thereof.
5. You can send an SAR to the NCA if you disagree with the MLO.
6. Do not take any work from abroad without CIR’s permission.
7. For foreign nationals you must take a copy of the passport and provide that to the MLRO CIR before you take any money and then require his permission to proceed.
8. Undertake a risk assessment at the outset of every case and from time to time, as required. Note the same in the first attendance note.  Repeat if there is any change in the financial basis for the case.
9. Chase the money. Where does it come from?  Is the amount and method of funds being paid consistent with the client and their financial history.
10. Get additional evidence as to source of funds if you have any concerns.
11. Complete the ML form for every case and forward to CIR with an explanatory email if you have a reasonable suspicion or query.

 

For further help and information from the SRA

Guidance and warnings

The fifth Anti-money Laundering Directive (PDF 38 pages, 895KB) [http://www.legislation.gov.uk/uksi/2019/1511/made/data.pdf] was published on 10 January 2020.

The Legal Services Affinity Group (LSAG) is producing guidance on the regulations which we will publish here soon. In the interim, a summary guidance of changes to the regulations (PDF 5 pages, 197KB) [/globalassets/documents/solicitors/firm-based-authorisation/interim-legal-sector-affinitygroup-guidance.pdf?version=48dd5d] has been produced to help firms comply with the new requirements.

LSAG has produced guidance (PDF 156 pages, 1.4MB) [/globalassets/documents/solicitors/code/lsag-anti-money-laundering-guidance.pdf?version=4a8a4b] on complying with your anti-money-laundering obligations.

We have produced guidance [/solicitors/guidance/ethics-guidance/the-money-laundering-terrorist-financingand-transfer-of-funds-information-on-the-payer-regulations-2017/] that accompanies this.

A risk assessment [/sra/how-we-work/reports/aml-risk-assessment/] for the legal sector.

Suspicious Activity Reports

All solicitors need to understand what they need to do under the Proceeds of Crime Act 2002 and Terrorism Act 2000.

If you have a suspicion that the firm is being used to launder money, CIR as the MLRO must submit a SAR to the National Crime Agency (NCA). It’s

important that everyone understands their responsibilities and their firm’s processes.

The NCA have concerns about the number and quality of SARs being submitted by law firms, and have produced guidance to help you, including:

SARs Regime Good practice (PDF 15 pages, 238KB) [https://nationalcrimeagency.gov.uk/who-weare/publications/167-defence-against-money-laundering-daml-faq-may-2018/file]  Guidance on submitting better quality SARS (PDF 23 pages, 397KB) [https://nationalcrimeagency.gov.uk/who-we-are/publications/42-guidance-on-submitting-better-quality-sars/file] The correct glossary codes for reporting (PDF 19 pages, 241KB) [https://www.nationalcrimeagency.gov.uk/who-we-are/publications/388-glossary-codes-and-reporting-routes-new/file]

There is also a published Warning notice: Money laundering and terrorist financing suspicious activity reports [/solicitors/guidance/warning-notices/money-laundering-and-terrorist-financing–suspicious-activ ity-reports–warning-notice/] .

Good practice and legal sector reviews

We have also carried out a number of recent reviews into how firms are doing  including:

a review of whether firms are complying [/sra/news/press/2019-press-release-archive/aml-warning-noticeguidance/] with anti-money laundering regulations by having an appropriate firm risk assessment in place a thematic review of law firms [/sra/how-we-work/reports/aml-thematic-rev iew/] providing trust and company services to see if they are doing enough to prevent money laundering. A 2018 thematic review of how firms are operating [https://www.sra.org.uk/link/d2e2a1264d094353996dbc7ab1582ef8.aspx]  in light of the new Government regulations, identifying good and poor practices.

These documents add to previous, similar resources. Such as our 2016 report on money laundering in the profession (PDF 37 pages, 316KB) [/globalassets/documents/sra/research/antimoney-laundering-report.pdf?version=4a1ab0] .

Information on people within your firm

The SRA hold information on those working in the profession that hold certain roles.

Change your information [/solicitors/firm-based-authorisation/anti-money-laundering-authorisation/]

Who needs approval [#7004] Who to contact [#2924]

Definition of positions

This guidance is to assist firms when deciding who in their firm falls under the definitions of beneficial owner, manager and officer contained in The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR).

While we want to assist you in interpreting the Government regulations, you will of course need to satisfy yourself on the legal position. The obligation to identify who are your beneficial owners, officers and managers is on you as a firm. If having read this guidance you are still unsure, you should consider obtaining specialist advice on your position.

Beneficial Owner

While the MLR definition of ‘beneficial owner’ and our definition of owner differ, in practice we believe it is unlikely there will be any ‘beneficial owners’ not already approved by us, provided you have kept your records up to date. We have formulated some guidance to try and help your firm determine who these individuals are.

If you are a “body corporate” (ie company (not listed) or a limited liability partnership (LLP)):

A beneficial owner is:

1. any individual who exercises ultimate control over the management of the body corporate

This would mean an individual who, regardless of their position as director, shareholder or member is able to exercise control over the management of the body corporate in the sense of being able to control the composition and/or voting of the board of directors and the decisions they take.

1. any individual who ultimately owns or controls (in each case whether directly or indirectly), including through bearer share holdings or by other means, more than 25 percent of the voting rights in the body corporate

This means an individual who owns 25 percent or more of the voting rights in the body corporate. They could hold these rights directly, in their own name, or indirectly, for example, via a relative or a company.

1. an individual who controls the body corporate.

A person will control the body corporate if they qualify as a Person of Significant Control in accordance with the Companies Act 2006, or, if the person was an undertaking, the body corporate would be its subsidiary.

Guidance and examples on what constitutes exercising control:

For companies [https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/621687/pscstatutory-guidance-companies.pdf]

Our glossary definition of partner is wide, as we authorise all partners regardless of the level of interest they hold in the firm (and regardless of whether they are in fact a partner). Our definition of partner includes those who are held out as a partner by the firm, including ‘salary partners’, and therefore employees of the business having the job title “partner”, but who do not actually hold equity in the company.

The definition of “officer” in the MLR regulations is wider than those individuals who are legal officers of the company, or a “manager” as per our glossary definition. You will therefore need to consider the definition applicable to the entity of your firm. We set out some guidance below, however we would stress that the question of who is an officer in your firm is dependent on the individual management structure of each firm.

We cannot provide a list of job titles that would meet the definition of “officer” under the regulations, as it is a question of fact as to whether an individual exercises control, or purports to exercise control. In our view, an individual would not be purporting to have control simply by their job title, there would still need to be some element of control.

For example, an office manager who makes decisions on behalf of the managing partner and the managing partner allows this to happen without supervision or review is likely to be a person purporting to act as a controller.

Officer

An officer includes director, secretary, chief executive, member of the committee of management, or a person purporting to act in such a capacity, or an individual who is a controller of the body, or a person purporting to act as a controller.

If you have any directors, a company secretary or a Chief Executive that are not already approved, they will need approval and to be included in your application. You must also have approval for those who sit on either the most senior decision-making committee in your business (such as a board, an executive committee or an executive board in each case where there is no higher committee or board to defer to or to seek approval from) or a committee that has been given the authority to make decisions on behalf of the board/senior decision making committee.

An officer under this definition may consist of lawyer and non-lawyer employees such as HR and/or finance directors. In terms of who would have ‘control’ of the body, consider the persons of significant control guidance found above in relation to beneficial owners.

If you are a partnership:

Means a partner, and any manager, secretary or similar officer of the partnership, or a person purporting to act in such a capacity.

Given that we approve all partners in a partnership it is unlikely that there will be anyone in the MLR Regulation definition that has not been approved. However, you must consider the MLR definition above, and satisfy yourself as to whether anyone else in your firm is a manager, secretary or person purporting to act in such a capacity not already approved by us.

Manager

The MLRO definition is wider in scope than any of the persons we already authorise. It also appears that it is intended to be wider that the MLR definition of “officer”. Again, each firm will need to consider their own management structure against the below definition.

In relation to a firm, means a person who has control, authority or responsibility for managing the business of that firm, and includes a nominated officer.

This would include any person who has sufficient authority to take decisions and who exercises control over the management of the business. It includes your Money Laundering Reporting Officer (MLRO) and any others who have sufficient knowledge of your firm’s money laundering and terrorist financing risk exposure and have the authority to take decisions

around this.  CIR is the MLRO.

Urgent matters / A request from the Authorities

 

In the event of contact from the authorities, be it the Police, the NCA or otherwise, the member of staff is required to telephone Clive Rebbeck without delay.  If contact cannot be achieved they should email both Clive Rebbeck and William Raine immediately.

Who to contact?

If you want advice you can contact the Professional Ethics Guidance helpline [sra/home/contact-us/] .

If you need help with the form, call our Contact Centre [sra/home/contact-us/] .

 

CIR 16.08.24 v10.1