We are required to undertake a number of checks so that we know our clients. This is part of Due Diligence.
We are required to undertake identification and verification checks, anti-money laundering checks, compliance checks and risk assessments. We are required to undertake these checks before you attend your first appointment and we are required to undertake on-going checks and ask you questions throughout your matter.
We are required to identify and verify the identity of our clients, including any beneficial ownership for the purposes of UK Anti-Money Laundering Regulations (AML) and Counter-terrorist Financing (CTF). We will request information and documentation from you in order to meet our obligations under AML. This is part of our Customer Due Diligence (CDD).
Why I am been asked to provide all this information and documentation?
AML legislation and legal regulations require Law Firms to carry AML checks on clients. This is to make it more difficult for criminals and terrorists to make and keep money from their criminal activities, including the proceeds of corruption. Necessary enquiries can be seen by clients as suggesting a lack of trust, but this is not the case. We are required to show evidence in our files that the necessary steps have been followed.
Why is Anti-money Laundering and Counter-terrorist Financing important to Alexander Christian?
Lawyers facilitate significant transactions and have obligations under the AML/CTF regulations to spot and report money laundering and terrorist financing. Failure to care out these obligations can lead to criminal penalties, fines and damage to the reputation of the firm. Lawyers are regarded as Gatekeepers in prevention of crime.
What is Money Laundering?
Money laundering is the process of turning illicit funds gained through criminal activity into 'clean/legitimate' funds that can be used with no risk of that money being tracked back to criminal activity.
The purpose of the Client Due Diligence (CDD) is to confirm your identity as a client and so we can perform our Know Your Client (KYC) checks. We use a Identity and Anti-Money Laundering Compliance Service which is easy and quick for clients to use from their smartphone. Bio metric tests take only a few minutes to undertake.
Once you have become a client of Alexander Christian Solicitors, we will undertake periodic reviews to ensure we have covered all matters required to comply with AML. As the AML change, we may need to add retrospective checks to our existing clients. These checks are not a one time event, but something that needs to be regularly updated as new risks, economic stability and information present themselves.
Ongoing monitoring is an essential part of the CDD process. It must be carried out on all matters, regardless of individual risk rating, in order for the CDD to detect unusual/ suspicious transactions. We will need to review transactions (including source of funds) to ensure that the transactions are consistent with our knowledge of the client, their business and risk profile. We will need to be alert to changing client risk profile, economic conditions with regard to the client and more generally and anything that gives rise to suspicion. CDD documentation and information will need to be kept up to date.
Please note we do not accept cash payments in excess of the initial fixed fee into the client account.
How does money get Laundered?
Money laundering involves three stages:
Typical signs of money laundering and terrorist financing are:
Please note we are unable to provide services to you until you have satisfactorily completed our client identification, verification procedures and AML requests. We may have to ask you additional questions.
What happens is we are not able to conclude the CDD ?
The general rule is that we will not establish a business relationship with the client or we will terminate an existing business relationship. We not carry out the transaction for the client. We will not accept funds or transfer funds to a client or third party. We will also have to consider making a Suspicious Activity Report (SAR) to the National Crime Agency (NCA).
Knowing your client is the process of verifying the identity of a client by using identification documents - passport, photographic id, birth certificate, photographic driving licence, photographic government id and proof address - bank statements, utility bills, government body letter to you less than 3 months old. These are necessary checks to ensure that we are dealing with legitimate clients who are who they say they are. These checks aid AML compliance.
These checks include a credit reference check.
PEPs stands for Politically Exposed Person. This generally is a person who holds a public position, function, job or someone closely associated with PEP (say a husband, wife, child, other relative, business partner or similar). Sanctions Checks are special searches that identify certain individuals who are prohibited from certain certain activities. Again this is important in AML compliance and risk based customer on boarding.
EDD stands for Enhanced Due Diligence. EDD checks are designed to deal with high risk and/or high net worth clients and large and/or suspicious transactions. These type of clients pose a greater risk to the legal sector - which is heavily regulated and monitored. EDD lowers the chances of money laundering and terrorist financing.
We must take adequate measures to check Sources of Funds (SOF) and Sources of Wealth (SOW), as part of our Enhanced Due Diligence (EDD) when applied to Politically Exposed Persons (PEPs)
We are required to undertake ongoing monitoring of any business relationship.
The key thing we are looking to establish the original SOF being used and not the availability of funds in a bank account.
We are legally required to ensure that any funds received from a client are from credible sources.
If you are receiving funds from a Third Party, we will have to conduct checks on them.
Establishing the SOF is different from SOW.
The LSAG Guidance states:
Source of Funds refers to the funds that are being used to fund the specific transaction in hand - i.e., the origin of the funds used for transactions or activities that occur within the business relationship of occasional transaction. The question you are seeking to answer should not simply be, "where did the money for the transaction come from, " but also "how and from where did the client get the money for this transaction or business relationship. It is not enough to know the money came from a UK bank account."
"The types of data and documents that are required for verification of Source of Funds will vary depending on the circumstances and information that the client provides."
"The SOF pertains directly to the funds that are being used to fund the specific transaction in hand i.e. the origin of funds used for the transactions or activities that occur within the client's business relationship...Checking this means ascertaining where those funds came from, how they have been accumulated by the client and ensuring a risk-based approach that they are not the proceeds of crime."
"The information obtained should be substantive and establish the provenance or reason for having been acquired e.g. salary, gift, etc."
"The type of documents that might be requested are:"
We may require you to verify documents from the Source.
Depending on the circumstances of your transaction, we may ask for one or more of the below:
We may require you to verify documents from the Source.
The LSAG Guidance states:
"The Source of Funds refers to the origin of a client's entire body of wealth (i.e. total assets)."
"SOW describes the economic business and/or commercial activities that generated, or significantly contributed to the client's overall net worth/entire body of wealth. This should recognise that composition of wealth generating activities may change over time, as new activities are identified, and additional wealth accumulated."
The LSS Guidance states:
"As inherent risk increases, so does the need to ensure that the funds in use in a matter are not derived from criminal activities, including the proceeds of corruption. Understanding how the funds for use in a matter (SOF) and the clients funds more generally (SOW) can help in this exercise. In higher risk situations, it is important to evidence SOF and SOW, in order to ensure the SOF evidence collated to fund one transaction is not used again to fund another."
The LSAG Guidance states:
"The Regulations specify that we must take measures to examine the background and purpose of the transaction and to increase the monitoring of the business relationship where enhanced due diligence (EDD) is required."
"EDD may include (while not restricted to):"
Adverse media and social media checks is searching for information relevant to a clients AML risk profile. It can reveal a number of things that suggest an elevated risk of money laundering, including the following:
Under AML Regulations law firms are required to verify businesses which natural clients own or control. We are required to verify the identity of the individuals that control them on a risk sensitive basic. We will need to verify the business and to obtain evidence that the business exists at the given location. Businesses can be a Sole Trader to a Large Corporation.
Beneficial Owners are individuals who own more than 25% of the shares or voting rights in a Company/ or over 25% of the share capital in a Partnership. It is the Beneficial Owners and/or Controlling Directors/ Partners that would be the subject of final individual AML checks.
What happens is we are not able to conclude the CDD Exercise for Companies and Beneficial Owners?
The general rule is that we will not establish a business relationship with the client or we will terminate an existing business relationship. We not carry out the transaction for the client. We will not accept funds or transfer funds to a client or third party. We will also have to consider making a SAR.
This is a very rare
The Proceeds of Crime Act (POCA) imposes strong compliance obligations on most businesses to ensure due diligence regarding money laundering and terrorist financing. POCA makes it an offence to deal in any way with property where the individual knows, believes or suspects that it represents the proceeds of criminal activity.
POCA requires regulated businesses to disclose the existence of suspicious transactions to the National Crime Agency (NCA). These disclosures are known as a Suspicious Activity Reports (SARs). When a SARs report is made, a transaction may be delayed whilst the matter is investigated by the NCA. We are not permitted to inform you if a SARs is made, as notifying an individual or corporation is an offence. In most cases the NCA investigation will be cleared.
Information that a SAR has been made should never be placed in a client file.
The POCA establishes a number of Money Laundering offences:
The principal offence carries a maximum sentence of 14 years imprisonment, a fine or both. The only defence is that you have made a SAR.
We may require you to verify documents from their Source.
We are not required to notify you of the outcome of the checks, as this might be prohibited by the law.
An administrative fee plus vat can be changed to undertake the checks.