Introduction to the Policy

Worthingtons Transport Ltd  is required under the Money Laundering Regulations 2007 to put in place appropriate systems and controls to forestall money laundering and terrorist financing. This policy contains the procedures that we have developed in order to comply with these obligations.

The Money Laundering Regulations require that a firm has a Nominated Officer to ensure that there is up-to-date knowledge of issues relating to Anti-Money Laundering and Counter-Terrorist Financing throughout the Firm, implement appropriate policies and procedures and receive reports of suspicious activity. The Nominated Officer (Money Laundering Reporting Officer) for Worthingtons Transport is James Worthington.

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What is money laundering and terrorist financing?

Money laundering is the process through which proceeds of crime and their true origin and ownership are changed so that the proceeds appear legitimate. Terrorist financing is providing or collecting funds, from legitimate or illegitimate sources, to be used to carry out an act of terrorism.

Why is anti-money laundering and counter-terrorist financing important to Worthingtons Transport ?

Lawyers facilitate significant transactions and are gatekeepers to the legal system. The anti-money laundering (AML) and counter-terrorist financing (CTF) regime is designed to prevent our services being used by criminals. You have obligations under the AML/CTF regime to spot and report money laundering and terrorist financing. Failure to meet these obligations can lead to criminal penalties, substantial fines, disciplinary action by the SRA and untold damage to your own and Worthingtons Transport’s reputation.

 

 

How does money get laundered?

Typically money laundering involves three stages:

 

Placement:

The process of placing criminal property into the financial system. This might be done by breaking up large sums of cash into smaller amounts or by using a series of financial instruments (such as cheques or money orders) which are deposited at different locations.

Layering:

The process of moving money that has been placed in the financial system in order to obscure its criminal origin. This is usually achieved through multiple complex transactions often involving complicated offshore company structures and trusts.

Integration:

Once the origin of the money is disguised it ultimately must reappear in the financial system as legitimate funds. This process involves investing the money in legitimate businesses and other investments such as property purchases, or setting up trusts.

We are most likely to become involved in the layering stage but potentially could be involved in any stage.

How do I know if my matter involves money laundering or terrorist financing?

You do not have to behave like a police officer but you do have to remain alert to the warning signs of money laundering and terrorist financing and make the sort of enquiries that a reasonable person (with the same qualifications, knowledge and experience as you) would make.

 

 

 

Typical signs of money laundering and terrorist financing are:    

• obstructive or secretive clients

• instructions outside our usual range of expertise, i.e. why is the client using us?

• clients based a long way from us with no apparent reason for using us

• cases or instructions that change unexpectedly or for no logical reason, especially where:

• the client has deposited funds with us

• the source of funds changes at the last moment

• you are asked to return funds or send funds to a third party

• loss-making transactions where the loss is avoidable

• complex or unusually large transactions

• transactions with no apparent logical, economic or legal purpose

• large amounts of cash being used

• money transfers where there is a variation between the account holder and signatory

• payments to or from third parties where there is no logical connection to the client

• movement of funds between accounts, institutions or jurisdictions without reason

• retainers involving high risk jurisdictions (e.g. Iran, Uzbekistan, Turkmenistan, Pakistan, Sao Tome and Northern Cyprus)

• large payment on account of fees with instructions terminated shortly after and the client requesting the funds are returned

In litigation work:

• disputes that settle too easily (consider whether the matter involves sham litigation)

• direct payments between the parties

• a third party is providing funding without logical reason

 

 

In private client work:

• estate assets have been earned or are located in foreign jurisdictions

• the deceased was or their business interests were based in a high risk jurisdiction

• the deceased was accused or convicted of a criminal offence or evaded tax

• trusts with unusual structures

• trusts based in high risk jurisdictions, especially those with strict bank secrecy laws

• charities for whom you receive funds in unusual circumstances which may include receiving a large amount of cash

• a donor has completed an improper financial transaction

In company and commercial work:

• company formations in foreign jurisdictions for no apparent reason

• unusual requests to use our client account

In property work:

• properties owned by nominee companies or multiple owners

• sudden or unexplained changes in ownership

• signs of mortgage fraud

• a third party is providing funding without logical reason

• large payments from private funding where the amount does not fit with your knowledge of the client's financial resources

• direct payments between buyer and seller

• an unusual sale price

 

Criminals are always developing new techniques so this list can never be exhaustive.

The sort of enquiries you should be making are:

• How is the deal being financed: where is the money coming from?

• How does the client expect to benefit from the deal?

• Where are the proceeds of the deal going to? If not to the client, why not?

• Who are the people behind any company?

• Who are the parties involved?

• Does the size of the transaction match your knowledge of the client's finances and typical transaction size?

Money Laundering Offences

The Proceeds of Crime Act 2002 (POCA 2002) establishes a number of money laundering offences:

• the principal offences

• failure to disclose offences, and

• the offences of tipping-off and prejudicing an investigation

Each offence is explained below. All money laundering offences relate to criminal property, which is property that constitutes or represents a person's benefit:

• in whole or in part

• from criminal conduct

• whether directly or indirectly

This definition covers the proceeds of all crimes. There is no minimum limit on what is considered to be criminal property.

 

Criminal conduct is all conduct that constitutes an offence in any part of the UK or overseas.

The rincipal Offences

You will commit a principal money laundering offence if you:

• conceal, disguise, convert, transfer or remove criminal property from the UK (s 327)

• enter into or become concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property for or on behalf of another (s 328), or

• acquire, use or have possession of criminal property (s 329)

Concealing (s327)

 

You will commit an offence if you:

• conceal

• disguise

• convert

• transfer, or

• remove from the UK

This includes concealing or disguising its:

• nature

• source

• location

• disposition

• movement, or

• ownership

You must know or suspect that the criminal property represents a benefit from criminal conduct.

Arrangements (s328)

 

You will commit an offence if you enter into or become concerned in:

• an arrangement which you know or suspect facilitates (by whatever means)

• the acquisition, retention, use or control of criminal property

• by or on behalf of another

Arrangement is not defined in POCA 2002 and s328 catches a wide range of involvement in money laundering offences. It can easily catch you when you are conducting transactional work for laundering clients.

 

Section 328 will not catch legal professionals conducting genuine litigation or carrying out the terms of a court order. However, any property will remain criminal after litigation has concluded and any resulting court order implemented so you may decide to advise the client to seek advice in relation to the property.

 

For example:

• in matrimonial proceedings between husband A (a criminal) and wife B

• the court orders the transfer of the matrimonial home from A to B

• the matrimonial home represents the proceeds of A's crime

You will not commit the arrangement offence by affecting the transfer under the court order. However, the matrimonial home remains criminal property in B's hands. If B later instructs you to transfer the property, you will commit the arrangement offence if you do not first disclose your knowledge about the property and receive appropriate consent from the National Crime Agency to transfer it. Entering into an arrangement means becoming party to it. Being concerned in an arrangement has a wider scope, e.g. taking steps to put an arrangement in place. Preparatory or intermediate steps which do not in themselves involve the acquisition, retention, use or control of property will not constitute the making of an arrangement.

Acquisition (s329)

 

You will commit an offence if you:

• acquire

• use, or

• have possession of

 

Possession means having physical custody of the criminal property. The principal money laundering offences carry a maximum penalty of 14 years' imprisonment, a fine or both. You will have a defence to a principal money laundering offence if you submit a Suspicious Activity Report (SAR) to James Worthington.

Failure to report

Making an SAR to the Nominated Officer can be a defence to a principal money laundering offence.

 

Failing to make a SAR to the Nominated Officer where you know or suspect money laundering is an offence in itself which is punishable by up to five years' imprisonment, a fine or both.

 

See further Reporting suspicions below.

Tipping-off and prejudicing an investigation

You will commit the tipping-off offence if you disclose to the person to whom the disclosure relates that you, or anyone else:

 

• has made a SAR to the Nominated Officer (or NCA)

• of information which came to you in the course of business, and

• that disclosure is likely to prejudice any investigation that might be conducted following the SAR

You will commit the prejudicing an investigation offence if you disclose that an investigation is being contemplated or carried out and that disclosure is likely to prejudice that investigation. Further, you will commit an offence if you know or suspect that an investigation is being or is about to be conducted and you interfere with documents which are relevant to the investigation. Tipping-off can only be committed after a SAR (including an internal SAR to James Worthington) has been made. You will not commit tipping-off by discussing your concerns with or submitting a SAR to James Worthington.

 

All these offences are punishable by up to five years' imprisonment, a fine or both. The existence of these offences does not prevent you from making normal enquiries about your clients' instructions. You are able to make enquiries in order to:

• obtain further information to help you decide whether you have a suspicion, and/or

• remove any concerns that you have

Your enquiries will only constitute an offence if you disclose that a SAR has been made or an investigation is being carried out or contemplated. It is also not tipping-off to warn your clients of your duties under the AML/CTF regime by providing them with our terms of business/our standard client care letter.

Terrorist Financing Offences

Terrorists need funds to plan and carry out attacks. The Terrorism Act 2000 (TA 2000) criminalises both participation in terrorist activities and terrorist financing.

 

In general terms, terrorist financing is:

• the provision or collection of funds

• from legitimate or illegitimate sources

• with the intention or in the knowledge

• that they should be used in order to carry out any act of terrorism

• whether or not those funds are in fact used for that purpose

The TA 2000 establishes a similar pattern of offences to those contained in POCA 2002, i.e:

• principal terrorism offences of:

  • fundraising

  • use or possession

  • arrangements

  • money laundering

• failure to disclose offences

• tipping-off offences

All offences carry heavy criminal penalties. While the terrorist financing and money laundering regimes are different, they share similar aims and structures and run together in UK legislation. Many of the provisions of POCA 2002 and TA 2000 mirror one another and the definitions are deliberately matched.

 

Both POCA 2002 and TA 2000 run parallel to the Money Laundering Regulations 2007 (Amended 2012), which are explained below.

The Money Laundering Regulations 2007 (Amended 2012)

The Money Laundering Regulations 2007 (Amended 2012) set administrative requirements which require us to have systems and controls to forestall money laundering and terrorist financing. Failure to comply with these requirements carries a maximum penalty of two years' imprisonment, a fine or both.

Reporting Suspicions

You have a strict duty to keep the affairs of our clients confidential. The circumstances in which you can disclose information about our clients are very limited. However, POCA 2002 and TA 2000 impose obligations to report knowledge or suspicion of money laundering or terrorist financing by way of a Suspicious Activity Report (SAR). These obligations can override your duty of confidentiality.

 

Our internal SAR form can be found at Appendix 6.1. Any member of staff can submit a SAR form to the Nominated Officer.

What are knowledge and suspicion?

 

Knowledge under POCA 2002 means actual knowledge which can include wilfully shutting one's eyes to the truth.

 

Suspicion is a possibility which is more than fanciful. A vague feeling of unease will not suffice.

 

There is no requirement for the suspicion to be clear or firmly grounded on specific facts, but there must be a belief which is beyond mere speculation. The test for whether you hold a suspicion is generally subjective. However, there is an objective element to the test i.e. would the reasonable solicitor, with the same knowledge, experience and information, have formed a suspicion. The suspicion held must be that another person is engaged in money laundering and not simply that there is something 'fishy' about the client or the transaction.

When should I report suspicions?

 

Always and as soon as reasonably practicable.

 

If you have formed knowledge or suspicion that another person is engaged in money laundering or terrorist financing you must complete the SAR form at Appendix 6.1 and send it to the Nominated Officer.

What should I do if I am unsure why I am suspicious?

If you are suspicious but are not sure why, for instance there is something that just does not feel right about the client or the matter, you must discuss your concerns with James Worthington, who may instruct you to complete the SAR form if they are satisfied that there are reasonable grounds to suspect money laundering or terrorist financing. You should keep a note of that discussion.

How do I make a report?

If you know or suspect that your matter involves money laundering or terrorist financing you must complete the SAR form, which can be found at Appendix 6.1.

 

The person nominated to receive internal SAR forms is James Worthington or, in his absence, Steven Leighton.

 

If you require consent to continue with the matter then you must indicate this by using the relevant box on the SAR form. You will only receive consent to the extent that you ask for it so remember to include every step that you will need to take to complete the matter on the SAR form. You must make your report as soon as reasonably practicable. You will be required to explain any delays to the James Worthington.

 

DO NOT KEEP A COPY OF THE SAR FORM ON THE CLIENT FILE.

Privilege

Privilege may be a defence to the failure to report an offence. It is a hugely complex area of law.

 

You should make a SAR to James Worthington even where you believe privilege may apply. It is for the Nominated Officer to decide whether privilege applies and to what extent it affects our reporting obligations under POCA 2002 and TA 2000.

What happens after I make a SAR?

On receiving your SAR form, the Nominated Officer will consider the reasons for suspicion reported to them. They may ask you for more information. The Nominated Officer will then decide whether an external SAR to NCA is required. This decision rests only with the Nominated Officer, or their deputy in their absence.

 

You have discharged your reporting obligations under POCA 2002 and TA 2000 by making the internal SAR.

 

If you need consent to continue acting for the client where to do so will involve your committing a principal offence you must indicate this on the SAR form. The Nominated Officer will either give or refuse consent or refer to NCA for their consent.

 

NCA has seven working days following receipt of a SAR to decide whether or not to give consent. If within this period, NCA gives consent, or does not refuse consent, then you will have a defence to a principal money laundering or terrorist financing offence. This means that you can continue to act and take steps which would otherwise constitute an offence within the confines of the consent requested. If NCA refuses consent within this period then they have a further 31 days to take action. If we hear nothing within this period from NCA we will be deemed to have their consent which means that we can continue to act.

 

You must follow instructions from James Worthington during this period. You may work on the matter in the meantime but must not:

 

• transfer funds, or

• take an irrevocable step in the matter (e.g. sign contracts or complete a deal)

You can take steps which do not amount to committing a principal offence such as writing letters or conducting searches.

 

If in doubt, seek guidance from James Worthington.

What can I tell my client?

You must not tell the client that you have submitted a SAR. If you do you will be committing the offence of tipping-off and could be exposed to a criminal record and up to five years' imprisonment.

 

There is very little, if anything, that you can tell the client after you have submitted a SAR.

 

Always speak with James Worthington if you are in any doubt.

Client Due Diligence (CDD)

Client Due Diligence is:

 

• identifying and verifying the client's identity

• identifying the beneficial owner where this is not the client

• obtaining details of the purpose and intended nature of the business relationship, and

• conducting ongoing monitoring of the business relationship

What is CDD?

There are three levels of client due diligence:

 

• Simplified Due Diligence (SDD)

• Enhanced Due Diligence (EDD)

• Regular Due Diligence (RDD)

All levels of CDD require you to identify and verify your client but each level has different identification and verification requirements. These are set out in the Risk Assessment below. CDD also requires us to identify and validate the identity of beneficial owners of a client.

When do I have to conduct CDD?

 

You must carry out the CDD exercise:

 

• before you establish a business relationship with a client

• before you carry out a one-off transaction for a client

• where there is reason to believe that CDD carried out on an existing client is inadequate

• where the client's identifying details (e.g. name and address) have changed

• where the client has not been in regular contact with us for three years or more

• where you suspect money laundering or terrorist financing

In some cases, it may not be possible to complete the CDD exercise in the above timescale. Please see below “What happens if I cannot conclude the CDD exercise” for guidance on how to act.

How do I conduct CDD on my client?

You must start with assessing the risk of money laundering or terrorist financing posed by the client and complete the CDD Risk Assessment Form (Appendix 6.4). Once this is complete you must decide what level of CDD is necessary. This will then inform your next steps.

Risk assessment

[Enter firm name] has risk assessed various types of client – see the CDD Risk Table (Appendix 6.3). This will help you to complete your CDD Risk Assessment Form (Appendix 6.4). Once you have completed your risk assessment, you will be able to decide what level of CDD to apply, i.e. enhanced, simplified or regular. The specific CDD measures that you must then apply and the documents that you must obtain in each case are set out in “Identify and verify – what information or documents do I need to obtain from my client?” below.

 

It is your responsibility to check the accuracy and adequacy of the documents provided.  If you are in any doubt please contact James Worthington.

Simplified Due Diligence (SDD)

Simplified Due Diligence applies where there is little chance of money laundering or terrorist financing. This means that we can carry out a reduced Client Due Diligence exercise, which simply involves obtaining evidence of why SDD applies. For example, where SDD applies to a company listed on the London Stock Exchange you will need to obtain evidence of the company's listed status only, i.e. a printout of the listing from the LSE's website or a copy of the relevant page of the Financial Times.

Enhanced Due Diligence (EDD)

We are required to carry out Enhanced Due Diligence where there is a greater perceived risk of money laundering or terrorist financing. This requires us to take additional steps to understand the ownership and control of the client and, in some cases, the source of funds involved in the matter. There is also greater focus on ongoing monitoring.

 

You must conduct EDD on:

 

• individual clients who you do not meet face-to-face

• Politically Exposed Persons (PEPs): these are persons entrusted, in the last year, with one of the following positions in a country outside the UK: heads of state, heads of government, ministers or deputy or assistant ministers

  • MPs

  • judiciary whose decisions are not generally subject to further appeal

  • members of courts of auditors or the boards of central banks

  • Ambassadors

  • high-ranking officers in the armed forces

  • members of administrative, management or supervisory bodies of state-owned enterprises

  • family members or close associates of the above

• It does not include middle-ranking or more junior individuals in these categories

• We also apply EDD to UK PEPs on a risk sensitive basis. If you receive instructions from a UK PEP please discuss the Client Due Diligence requirements with the Nominated Officer

• Other high risk clients: these are not defined and there are no prescribed measures that we are required to take. We have identified certain client types as high risk (see the Client Due Diligence Risk Tables (Appendix 6.3) and have set out the measures to be taken for each client type at “Identify and verify – what information or documents do I need to obtain from my client?” below)

Regular Due Diligence (RDD)

 

Regular due diligence applies where Simplified and Enhanced Due Diligence do not.

 

 

Identify and verify - what information or documents do I need to obtain from my client?

You must obtain the following documents/information:

 

• Individuals

 

Client type

Requirement

Actions

UK individual

Regular due diligence applies unless you have identified circumstances in your CDD risk assessment form that mean enhanced due diligence applies

Obtain one document from list A and one document from list B

 

A

• current signed passport

• current photo-card driving license

• birth certificate

B

• current photo-card driving license

• council tax or utility bill

• bank, building society, mortgage or HMRC tax statement

• house or motor insurance certificate

• record of home visit

Overseas individual

Regular due diligence applies unless you have identified circumstances in your risk assessment that mean enhanced due diligence applies

If documents are in a foreign language you must be satisfied that the documents in fact provide evidence of the individual's identity. If in doubt, ask for them to be translated

Obtain one document from list A and one document from list B

 

A

• current signed passport

• current national identity card

• birth certificate

B

• council tax or utility bill

• bank, building society, mortgage or HMRC tax statement

• house or motor insurance certificate

• official, reputable overseas directory

• confirmation of address from a regulated person in the relevant jurisdiction

Agent or representative of an individual

Regular due diligence applies unless you have identified circumstances in your risk assessment that mean enhanced due diligence applies

Obtain:

 

• appropriate documents for the agent, and

• appropriate documentary evidence of the underlying individual

Professional

Simplified due diligence applies unless you have identified circumstances in your risk assessment that mean regular or enhanced due diligence applies or there is suspicion of money laundering or terrorist financing

 

Obtain only evidence from their regulator's directory that they are registered e.g., printout from the Law Society's online register of solicitors

Politically Exposed

Person

You must apply enhanced due diligence

Obtain:

• the required documents as for individual above (whether in the UK or overseas)

• the approval of the [Nominated Officer / Senior Partner/ Head of Department] to accept the instructions

 

Take steps to establish the source of funds. Consider whether there are signs of corruption or evidence that government or state funds are being used inappropriately, and

Conduct enhanced ongoing monitoring--keep a closer eye on the matter

Individual who you do not meet face-to-face

You must apply enhanced due diligence

Obtain the required documents as for individual above (whether in the UK or overseas), and either

• require that the documents provided are certified by a lawyer, bank manager, accountant or GP whose identity we can check by reference to a professional directory, or

• electronically verify the client's identity
   

Ensure that the first payment in a retainer is from an account in the client's name

 

 

• Partnerships, LLPs and companies

 

Client type

Requirement

Actions

UK credit or financial institution

Simplified Due Diligence applies unless there is suspicion of money

laundering or terrorist

financing

Obtain evidence that the client is regulated for the purpose of anti-money laundering, e.g. through a printout of their entry in the FCA Register

There is no need to obtain information on beneficial owners

Credit or financial institution in the EEA

Simplified Due Diligence applies unless there is suspicion of money laundering or terrorist financing

Obtain evidence that the client is regulated for the purpose of anti-money laundering, e.g. through a regulator's directory

There is no need to obtain information on beneficial owners

Credit or financial institution outside the EEA where equivalent AML provisions apply

Simplified Due Diligence applies unless there is suspicion of money

laundering or terrorist

financing

Treat as credit or financial institution in the EEA

Credit or financial institution outside the EEA where there are no equivalent AML provisions

Regular Due Diligence applies unless you have identified circumstances in your risk assessment which mean that EDD applies

Treat as private unlisted company outside the EEA as below

UK partnership

Regular Due Diligence applies unless you have identified circumstances in your risk assessment which mean that EDD applies

For smaller partnerships, treat the partners as individuals and obtain the required documentation for each (see above)

 

Treat larger partnerships as private unlisted companies (see below)

UK partnership made up of regulated individuals (e.g. solicitors, accountants, etc)

Simplified Due Diligence applies unless there is suspicion of money laundering or terrorist financing

Confirm the firm's existence and trading address from a reputable professional directory or with the relevant professional body (e.g. obtain a printout from the Law Society's online directory of firms for a solicitor partnership)

 

If this is not possible, obtain evidence of the identity of the partner instructing you

And

one other partner

And

evidence of the firm's trading address

UK private unlisted company, often denoted by 'Ltd'

Regular Due Diligence applies unless you have identified circumstances in your risk assessment which mean that EDD applies

Identify and verify the existence of the company including its name, business address, registration number and the names of at least two directors through the certificate of incorporation and/or details from Companies House

 

Consider the identity of beneficial owners

Well-known 'household name' company or partnership (i.e. the entity is well-known, reputable, has a long history in its industry and there is substantial public information about them)

Simplified Due Diligence applies unless there is suspicion of money laundering or terrorist financing

Obtain and record the following information:

 

• Name

• Registered address, if any

• Trading address and

• Nature of the business

Subsidiary of existing private unlisted company for whom CDD has been conducted

Simplified Due Diligence applies where the CDD conducted on the existing client is adequate unless there is suspicion of money laundering or terrorist financing

 

Otherwise RDD applies as for private unlisted company above

Obtain evidence of the subsidiary relationship to the existing, client usually through the annual return or audited accounts

UK company listed on a regulated market, often denoted by 'PLC'

Simplified Due Diligence applies unless there is suspicion of money

laundering or terrorist

financing

Obtain confirmation of the company's listing, e.g.

 

• A copy of the dated page of the website of the relevant stock exchange or

• A photocopy of the listing in a reputable daily newspaper

Subsidiary of a UK listed company

Simplified Due Diligence applies unless there is suspicion of money

laundering or terrorist

financing

In addition to the above, obtain evidence of the subsidiary relationship through the annual return or audited accounts

Private unlisted company in the EEA

Regular Due Diligence applies unless you have identified circumstances in your risk assessment which mean that EDD applies

Obtain documentation as for UK private unlisted company above

Private unlisted company outside the UK or EEA

You must apply Enhanced Due Diligence

Obtain documentation as for UK private unlisted company above and

Require that the documents provided are certified by a lawyer, bank manager, accountant or GP whose identity we can check by reference to a professional directory

Overseas company listed on a regulated market

Simplified Due Diligence applies unless there is suspicion of money laundering or terrorist financing

Record steps taken to establish the status of the listing market

 

Obtain evidence of the listing as for UK listed companies above

Companies with capital in the form of bearer shares

You must apply Enhanced Due Diligence

Obtain documentation as for UK private unlisted company above

And

Establish the identities of the holders and material beneficial owners of the shares

And

Obtain an assurance that you will be notified whenever there is a change of holder and/or beneficial owner

 

 

• Other arrangements and bodies

 

Client type

Requirement

Actions and/or documents

Standard risk trust

Regular due diligence applies unless you have identified circumstances in your risk assessment that mean enhanced due diligence applies

• consider whether the client is the trustee, settlor or beneficiary

• obtain documentation as for relevant client     category for the client

• if you are acting for more than one trustee, obtain relevant documentation for at least two trustees

• consider beneficial ownership if you are acting for trustees

High risk trust

You must apply enhanced due diligence

As above

 

and

• conduct CDD on all the trustees or the settlor,

• make a record of the purpose of the trust and the source of the funds used to create it
   

and

• obtain a copy of the trust deed

Foundation

Regular due diligence applies unless you have identified circumstances in your risk assessment that mean enhanced due diligence applies

Obtain documentation as for standard risk trust above

 

If the foundation is a charitable institution obtain documentation as for charities below

Registered charity

Simplified due diligence applies unless you have identified circumstances in your risk assessment that mean regular or enhanced due diligence applies or there is suspicion of money laundering or terrorist financing

Obtain a printout from the Charity Commission's website evidencing the client's registered status

Small, unknown or obscure or unregistered charity

Regular due diligence applies unless you have identified circumstances in your risk assessment that mean enhanced due diligence applies (e.g. there are financial restrictions placed on the charity)

Consider the business structure and conduct appropriate CDD as set out for companies, etc above

Church or place of

 worship

Simplified due diligence applies unless you have identified circumstances in your risk assessment that mean regular or

enhanced due diligence applies or there is suspicion of money laundering or terrorist financing

If a registered charity obtain documentation as for registered charity above

 

If not a registered charity obtain and record confirmation from the General Register Office (GRO)

School or college

Simplified due diligence applies unless you have identified circumstances in your risk assessment that mean regular or enhanced due diligence applies or there is suspicion of money laundering or terrorist financing

Obtain printout of relevant entry on the Department of Education and Skills' list of approved educational facilities

 

Or

 

if registered as a charity obtain documentation as for registered charity above

Club or association

Regular due diligence applies unless you have identified circumstances in your risk assessment that mean enhanced due diligence applies

Obtain and record:

• full name

• legal status

• purpose

• registered address

• names of all office holders
   

and obtain:

• articles of association

• recent audited accounts

• listing in a telephone directory

Employee pension fund

Simplified due diligence applies unless you have identified circumstances in your risk assessment that mean regular or enhanced due diligence applies or there is suspicion of money laundering or terrorist financing

Obtain evidence that the fund is an employee

Pension fund, e.g.

• a copy of the page showing the name of the scheme from the most recent deed, or

• a consolidating deed for the scheme

Other pension fund

Regular due diligence applies unless you have identified circumstances in your risk assessment that mean enhanced due diligence applies

Obtain CDD as appropriate to the business structure

UK public authority

Simplified due diligence applies unless you have identified circumstances in your risk assessment that mean regular or enhanced due diligence applies or there is suspicion of money laundering or terrorist financing

Obtain evidence of the existence of the authority from an official government website

Overseas public authority which:

- has publicly available, transparent and certain identity

- has transparent activities and accounting practices, and

- is accountable to a community institution, the authorities of an EEA state or is otherwise subject to appropriate check and balance procedures

Simplified due diligence applies unless you have identified circumstances in your risk assessment that mean regular or enhanced due diligence applies or there is suspicion of money laundering or terrorist financing

Obtain evidence of the existence of the authority from an official government website

 

Simplified due diligence applies unless you have identified circumstances in your risk assessment that mean regular or enhanced due diligence applies or there is suspicion of money laundering or terrorist financing

Obtain evidence as for UK public authority above

Other overseas public authority in non-high risk jurisdiction

Regular due diligence applies unless you have identified circumstances in your risk assessment that mean enhanced due diligence applies

Obtain evidence as for UK public authority above

and obtain and record

• full name of the entity

• its nature and status

• address

• name of the home state authority

• name of the directors or equivalent

Other overseas public authority in high risk jurisdiction

You must apply enhanced due diligence

• obtain documents as for other overseas public authority in non-high risk jurisdiction

• consider whether there is a heightened risk of corruption or misappropriation of government monies in your matter, and

• conduct a greater level of ongoing monitoring

 

 

Clients who cannot provide the standard documents

 

Where there is good reason, based on your knowledge of the client's circumstances, for not meeting the standard documentary requirements, you can accept a letter from an appropriate person who knows the client and can verify their identity, e.g. from a care home manager for an elderly client.

Source of funds

Understanding your client's source of funds is an important step in the CDD process.

When am I required to look into the source of funds in a transaction?

 

You are not required to interrogate all clients about their entire financial history but you are required to take additional steps to ensure that the transaction is consistent with your knowledge of the client. This is part of the ongoing monitoring exercise which you must conduct on all matters; see further Ongoing monitoring below.

 

You are required to establish the source of funds and source of wealth in every matter where you are acting for a Politically Exposed Person (PEP); see Enhanced due diligence above.

 

 

What steps should I take?

Scrutinising the source of funds is more than asking for the money to come from a bank account in the clients' name. Your focus should be on understanding how the client can legitimately fund the transaction.

 

For transactions involving PEPs you should consider whether there:

• are any warning signs of corruption, or

• is any evidence that government or state funds are being used inappropriately

Where a third party is providing funding to your client you may need to establish the source of funds. See “When can I accept funds from a third party?” below. You must document your investigations into the source of funds, including any questions asked, responses received and supporting evidence provided.

 

If you have any concerns about the source of funds you must consider whether you need to submit a SAR to the Nominated Officer.

CDD on beneficial owners

CDD on beneficial owners is different from CDD on clients. You must:

• identify any beneficial owners, and then

• validate their identity on a risk sensitive basis

What is a beneficial owner?

Where you are instructed by an agent or representative of an individual, the beneficial owner is the underlying individual on whose behalf the agent or representative is instructing you. Where you are instructed by a company, partnership or other body, the beneficial owner is as follows:

 

Body corporate (including LLP)

Any individual who:

• (for non-listed bodies) ultimately owns or controls more than 25% of the shares or voting rights of the body, or

• otherwise exercises control over the management of the body

Partnership (not LLP)

Any individual who:

• ultimately is entitled to or controls more than a 25% share of the capital or profits of or more than 25% of the voting rights in the partnership, or

• otherwise exercises control over the management of the partnership

Trust

• any individual who is entitled to a specified interest in at least 25% of the capital of the trust property

• the class of persons in whose main interest the trust is set up or operates (the class itself and not every member of the class), or

• any individual who has control over the trust

Other legal entity or arrangement

• any individual who benefits from at least 25% of the property of the entity or arrangement

• the class of persons in whose main interest the entity or arrangement is set up or operates (the class itself and not every member of the class), or

• any individual who exercises control over at least 25% of the property of the entity or arrangement

Estate of a deceased person in the course of administration

The executor or administrator

Any other case

The individual who ultimately owns or controls the client or on whose behalf a transaction is being conducted

 

 

If the beneficial owner of a client is a company you will need to establish the human being at the top of the corporate tree.

 

 

How do I conduct CDD on beneficial owners?

You must first identify the beneficial owners. You can do this through a reliable public source (e.g. Companies House) or by asking the client. Unless there is any reason to doubt the information given you can rely on the client's word. You must then consider the client's risk profile, the structure of the business and the nature of the transaction. This will help you to decide what steps you need to take to verify the beneficial owner's identity. In assessing the risk, you should consider:

• why your client is acting on behalf of someone else

• how well you know your client

• the type of business structure and its location

• the nature and risk profile of the matter

 

The key is to understand the ownership and control of the client.

 

The level of verification required will depend on your assessment of your client's risk profile. When verifying the beneficial owner you can:

• look at organisation charts from the website, annual reports or the client

• review the trust deed or partnership agreement

• discuss beneficial ownership with the client and record the results of your discussion

Can I rely on a third party to conduct CDD?

Where a third party has already conducted CDD on the client (or beneficial owner) you may be able to rely on this but the circumstances in which you can do so are restricted, as are the types on of third parties that you can rely on. Since we remain liable if the third party's CDD materials are inadequate or incomplete, reliance will rarely be an attractive option.

 

You must not unilaterally decide to rely on CDD conducted by a third party. You must contact the Nominated Officer who will decide whether we can rely on the third party and, if so, will provide guidance on the procedure to be followed.

What happens with existing or returning clients?

You must apply CDD measures at appropriate times to all existing clients on a risk-sensitive basis, e.g.:

• where there has been a gap in retainers of three years or more

• the client's details have changed

• the client's risk profile has changed

• you are instructed on a high risk matter

For how long must we keep CDD records?

We are required to maintain our CDD records for at least five years after the business relationship ends or the one-off transaction completes. Our standard filing and destruction procedures comply with this requirement. The duty to keep records does not just relate to clients; it extends to any beneficial owner on whom we conduct due diligence.

What happens if I cannot conclude the CDD exercise?

Where we are unable to apply CDD measures, the general rule is that we must:

• not carry out a transaction for the client

• not establish a business relationship with a client

• not accept funds from or transfer funds to a client or third party (see below: Receiving funds)

• terminate any existing business relationship with the client

• consider whether a SAR is required.

There are very limited circumstances in which this may not apply, e.g. we may be able to verify the client's identity during the establishment of a business relationship if this is necessary to avoid interrupting the normal course of business and there is little risk of money laundering--this is on condition that the verification is completed as soon as practicable after contact is first established.

 

You must never unilaterally decide that it is acceptable to delay completion of CDD. If you are unable to apply or complete CDD on any matter, you should immediately seek advice from the Nominated Officer.

 

Purpose and intended nature of the business relationship

 

You must understand the purpose and intended nature of the business relationship. This is a key part of the CDD process. It will enable you to perform your risk assessment of the client and retainer and help you to determine appropriate CDD measures; see our CDD risk assessment form (Appendix 6.4) You will usually do this at or around your first meeting with your client.

 

Knowing more about the client and their normal activities will help you to spot something unusual.

A transaction which appears to serve no purpose could be a money laundering or terrorist financing warning flag.

Ongoing monitoring

What is ongoing monitoring?

Ongoing monitoring is an intrinsic part of the CDD process. It must be performed on all matters, regardless of their individual risk rating, in order to detect unusual or suspicious transactions.

How do I conduct ongoing monitoring?

You should:

• scrutinise transactions undertaken (including, where necessary, the source of funds) to ensure that the transactions are consistent with your knowledge of the client, their business and risk profile

• stay alert to changes in the client's risk profile and anything that gives rise to suspicion, and

• keep documents, data and information used for CDD purposes up to date

Receiving funds

We do not provide banking facilities through our client account. Payments into, transfers to or withdrawals from our account must be in respect of instructions relating to a transaction or other service. We will not accept funds in any other circumstance from any source whatsoever.

 

 

When can I accept funds from my client?

You must not accept funds from or transfer funds to a client until the CDD process is complete.

When can I accept funds from a third party?

Payments from third parties where you cannot verify the source of the funds or where there does not appear to be a legitimate reason may be a warning sign of money laundering or terrorist financing.

 

You should satisfy yourself that the third party funds are coming from a legitimate source for legitimate reasons. As a first step you should consider:

• are there any obvious warning signs?

• what do you know about the client, the third party and their relationship?

• why is the third-party giving money to the client?

• what is the proportion of funding being provided by the third party?

• how did the third party obtain the funds?

• Whether it is appropriate to conduct CDD on the third party and/or ask for evidence to support any explanations provided by the client

Supporting evidence might include:

• bank statements

• filed business accounts

• information confirming the sale of a house or shares

• confirmation of inheritance or judicial award.

Where this is provided, you should check that the evidence is consistent with the client's explanation. Where there is any inconsistency you must consider whether you need to submit a SAR to the Nominated Officer.

 

If you are in any doubt please contact the Nominated Officer.

When can I accept cash?

Large amounts of cash can be a warning sign of money laundering or terrorist financing. You can accept cash only in accordance with our cash policy.

 

 

Training

The Money Laundering (Amendment) Regulations 2012 require us to provide training on money laundering and terrorist financing.

 

Who will receive training?

 

All relevant staff will receive training.

 

What does the training involve?

 

Training is provided through seminars and online updates.

 

It covers:

• the law relating to money laundering and terrorist financing

• our policy and procedures

• guidance on detecting money laundering and terrorist financing

Is completion of training compulsory?

Completion of training is compulsory.

How often will training be provided?

All new joiners will receive training as part of the induction process. Further training will be provided at least every two years or whenever there is a substantial change in the law or our policy and procedure.

 

The Nominated Officer will continually monitor training needs but if you feel that you need further training on any aspect of the relevant law or our AML/CTF policy and procedures, please contact James Worthington.

Policy compliance and review

How will compliance with this policy be monitored?

Compliance will be continually monitored through any or all of the following methods:

• file audits

• review of records maintained by the Nominated Officer

• reports or feedback from staff

• any other method

What are the consequences for failing to comply?

Failure to comply puts both you and the firm at risk. You may commit a criminal offence if you fail to comply with this policy. The AML and CTF regimes carry heavy criminal penalties ranging from two years' imprisonment for failing to apply appropriate CDD measures to 14 years' imprisonment for committing a principal money laundering or terrorist financing offence. We take compliance with this policy very seriously. Because of the importance of this policy, failure to comply with any requirement may lead to disciplinary action under our procedures, which may result in dismissal.

When will this policy be reviewed?

We will review this policy at least annually as part of our overall risk management process. We will also review this policy if:

• there are any major changes in the law or practice

• we identify or are alerted to a weakness in the policy

• there are changes in the nature of our business, our clients or other changes which impact on this policy

Where can I get further advice on AML/CTF matters?

You can get further advice and guidance from the Nominated Officer, James Worthington, or, in his absence the deputy, Steven Leighton.

 

 

The Sanctions Regime

Understanding the sanctions regime – it applies to all law firms

What are sanctions and who imposes them?

Sanctions are international measures aimed at:

•  encouraging a change in the behaviour of a particular country or regime

•  applying pressure on particular countries or regimes to comply with certain objectives

•  preventing and suppressing terrorist financing

They are also used as a last-resort enforcement tool when international peace and security has been threatened.

A designated person, entity or regime subject to sanctions that are effective in the UK is known as a target.

There are various different types of sanctions. They can range from comprehensive economic and trade sanctions to more targeted measures such as arms embargoes, travel bans, or financial or diplomatic restrictions. Financial sanctions can include the prohibition of funds transfers to certain countries, individuals or entities.

Sanctions may be imposed by the UN Security Council through UN Security Council Resolutions. These are implemented in the EU through common positions and regulations.

As well as implementing UN sanctions, the EU applies sanctions pursuant to the objectives of the Common Foreign and Security Policy.

Finally, HM Treasury may designate domestic (UK resident) individuals or entities as targets. This is usually under counter-terrorist financing legislation – Terrorist Asset-Freezing etc. Act 2010 (TAFA 2010).

The sanctions regime v the anti-money laundering regime

AML requirements are familiar ground for most law firms but they are not the only requirements you need to consider when you are transferring or accepting funds. The sanctions regime is described in more detail below.

The two regimes are not the same but both regimes carry heavy criminal penalties.

 

Sanctions regime

AML regime

Prevents the use of all financial resources by or for the benefit of a designated person, entity or regime (the target). It is irrelevant that the funds and purpose of the transaction are legal

Aimed at disrupting the flow of criminal property, i.e. property that constitutes or represents a person's benefit from criminal conduct

Requires a licence from the Financial Sanctions Team to deal with a transaction involving a target. Consent from NCA is not sufficient (and may not be required if there is no criminal property involved)

Requires consent from NCA

No tipping-off offences relating to sanctions compliance--the lists of designated persons, entities and regimes are public documents

Offence of tipping-off

Note: if you know or suspect the funds represent criminal property or you know or suspect the matter involves terrorist financing and a target you will need both a licence from the Financial Sanctions Team and consent from NCA.

 

AML systems are not enough to ensure compliance with the sanctions regime.

Do not confuse PEPs under the AML regime with targets under the sanctions regime: PEPs are not necessarily subject to financial sanctions.

There is no distinction in the sanctions regime between regulated and non-regulated sectors or activities. If you are instructed by a target to conduct litigation, you will need a licence from the Financial Sanctions Team.

How is the sanctions regime implemented in the UK?

The international sanctions regime is implemented in the UK through the TAFA 2010 and various statutory instruments and EU regulations.

In most cases, a statutory instrument is effected in the UK to introduce the measures ahead of the EU adopting a regulation introducing the measures into EU law. If UN-imposed measures are given effect by an EU regulation, a statutory instrument would still be required to introduce any penalties resulting from a breach of the regulation.

 

 

Sanctions offences

Essentially, you must not:

• deal with funds or economic resources owned, held or controlled by a designated person (target) (or where you know or have reasonable grounds to suspect that a target is dealing with those funds or economic resources) (TAFA 2010, s 11)

• make funds, financial services or economic resources available, directly or indirectly, to targets (TAFA 2010, ss 12, 14)

• make funds, financial services or economic resources available, directly or indirectly, for the benefit of targets (TAFA 2010, ss 13 15)

• knowingly and intentionally participate in activities that would directly or indirectly circumvent the financial restrictions or enable or facilitate the commission of any of the above offences (TAFA 2010, s 18)

You must inform HM Treasury as soon as practicable if you know, or have reasonable cause to suspect, that a person who is or has been a client or a person with whom you have had dealings in the course of your business:

• is a target (a person, entity or regime subject to sanctions that are effective in the UK)

• is a person acting for or on behalf of a target, or

• has committed an offence under TAFA 2010

(TAFA 2010, s 19)

TAFA 2010 carries heavy criminal penalties--up to seven years' imprisonment, a fine or both. (TAFA 2010, s 32)

HM Treasury definitions

Funds, financial assets and benefits of every kind including, but not limited to:  

• cash

• cheques

• claims on money

• drafts

• money orders and other payment instruments

• deposits with financial institutions or other entities

• balances on accounts

• debts and debt obligations

• publicly and privately traded securities and debt instruments

• credit, right of set-off, guarantees, performance bonds or other financial commitments

• letters of credit, bills of lading, bills of sale

• documents evidencing an interest in funds or financial resources

• any other instrument of export-financing

Economic resources, assets of every kind, whether tangible or intangible, movable or immovable, which are not funds but can be used to obtain funds, goods or services.

Financial benefit, includes the discharge of a financial obligation for which the target is wholly or partly responsible. (TAFA 2010, ss 13(2)(b), 15(2)(b)) deal with, in relation to funds:

• use, alter, move, allow access to or transfer

• deal with the funds in any other way that would result in any change in volume, amount, location, ownership, possession, character or destination, or

• make any other change that would enable use

In relation to economic resources, exchange or use in exchange for funds, goods or services. (TAFA 2010, s 11(2))

Make available, funds/economic resources are made available for the benefit of a target only if they thereby obtain, or are able to obtain, a significant financial benefit. (TAFA 2010, ss 13(2)(a), 15(2)(a))

Licenses

HM Treasury may grant a licence giving authority to do acts that would otherwise constitute an offence under TAFA 2010, ss 11-15.

A licence must specify the acts authorised by it and may be:

• general, or granted to a category of persons or to a particular person

• subject to conditions

• of indefinite duration or subject to an expiry date

Note that HM Treasury may vary or revoke a licence at any time. (TAFA 2010, s 17)

Responsibility

A number of UK bodies have responsibilities under the sanctions regime:

 

 

Sanctions lists

HM Treasury maintains a consolidated list of targets that are subject to financial sanctions that are effective in the UK. This includes all persons and entities designated as targets by the UN, EU and UK.

There are currently over 7,000 targets on the list, including British citizens and foreign nationals.

There are also a number of regimes to which financial sanctions have been applied (eg Al Qa'ida and the Taliban). HM Treasury publishes regime-specific consolidated lists and notices on its website.

The consolidated list is updated on the same day as a sanction is added, deleted or amended.

At present you need to check the consolidated list of financial targets and the country/regime-specific lists. The Treasury does not have a web-based consolidated list search engine so firms must search the lists manually. A number of software solutions search against sanctions lists and flag possible targets.

The list below details UK Embargoed Regimes (August 2015):

 

Armenia

Azerbaijan

Burma

China

Côte d’Ivoire (Ivory Coast)

Democratic Republic of the Congo

Eritrea

Iran

Iraq

Lebanon

Liberia

Libya

Sierra Leone

Somalia

South Sudan

Sudan

Syria

Zimbabwe

 

Consequences of getting it wrong

The consequences of breaching the sanctions regime are specified in each relevant piece of legislation but generally:

• it is a criminal offence to deal with funds or make funds, economic resources or services available directly or indirectly for, or for the benefit of, a target

• any person is liable on conviction of an offence under the sanctions regime to a maximum of seven years' imprisonment (or two years' imprisonment under an EU regulation) and/or a fine

• where the offence is committed by a body corporate with the consent or connivance of any director etc., then that person as well as the body corporate is guilty of the offence and is liable to be proceeded against and punished

• it is also a criminal offence knowingly and intentionally to participate in activities that would directly or indirectly circumvent a prohibition in a sanction or enable or facilitate the commission of an offence under the sanctions regime--the maximum penalty is two years' imprisonment and/or a fine

You may also be subject to disciplinary action by the Solicitors Regulation Authority.

The sanctions regime - what does it mean for law firms?

Your systems

You should:

• assess your likely exposure to targets, i.e. conduct a firm-wide risk assessment

• based on the outcome of your risk assessment, implement a system for checking the sanctions lists to ensure you are not conducting matters for or on behalf of targets

Although HM Treasury's guidance appears to focus only on measures in relation to clients, it may also be sensible to seek to ascertain whether the intended recipient of funds from a transaction you are undertaking is subject to sanctions and take the steps outlined below if the intended recipient is a target.

The Law Society appears to endorse this view. (Law Society: Sanctions: have you checked the list? 14 April 2009)

What to do if your client (or someone associated with your client or the intended recipient of funds) is on the lists

If you suspect your client (or someone associated with your client or the intended recipient of funds) is on the sanctions lists you should:

• properly investigate whether your client is in fact on the lists and, if they are

• stop all services that you may already be providing

• inform HM Treasury, and either:

  • obtain a licence from HM Treasury (and stop all services in the meantime), or

  • decline to provide services or carry out transactions for the client

Tipping off

There are no tipping-off provisions in the sanctions legislation and the lists of targets maintained by HM Treasury are public documents.

You do not, therefore, commit an offence if you tell your client that you:

• are applying for a licence, or

• will not continue acting for them because they are on the lists