Stone Rowe Brewer LLP
Solicitors
Anti-Money Laundering and
Counter-Terrorist Financing
Policy and Guidance
(Incorporating our Mortgage Fraud Policy)
December 20101
Contents
1The purpose of this policy
2Sources of advice
2.1Internal
2.2External
3The legislation
3.1Introduction
3.2Philip Green, Solicitor
3.3Making a disclosure report, the consent defence and tipping off
3.4The Money Laundering Regulations 2007 ("the Regulations")
3.4.1Introduction to the Regulations
3.4.2Main requirements and approaches
4 Why is this policy necessary?
5Staff obligations
5.1Partners
5.2Money Laundering Reporting Officer
5.3 Staff
6Customer due diligence (CDD)
6.1Departments covered
6.2Authority levels
6.3Timing of verification
6.4Identification and verification
6.5Beneficial ownership
6.5.1Introduction
6.5.2Identifying a beneficial owner
6.5.3Verifying the beneficial owner’s identity
6.5.4Fee Earners’ responsibility in relation to beneficial owners
6.6Reliance and outsourcing
6.6.1Reliance
6.6.2Outsourcing
6.6.3Electronic verification
6.6.4Clients abroad
6.7Business relationships
6.8Existing clients
6.9Ongoing monitoring
7 Degrees of risk
7.1Introduction
7.2Lower and standard risk levels
7.3Simplified due diligence
7.4Higher risk levels
7.4.1Where clients are not physically present for identification purposes
7.4.2Clients abroad
7.4.3Politically Exposed Persons (PEPs)
7.4.4Other higher risk situations
7.4.5Alert situations
8 Cash policies
8.1Receipt and payment of money
8.2Banking
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9 Our CDD procedures and documentation
9.1Introduction
9.2At the beginning of the case
9.2.1In all cases
9.2.2In Simplified due diligence cases
9.2.3In lower and standard risk cases
9.2.4In higher risk cases
9.2.5With existing clients
9.3During the case
9.4At the end of the case
9.5CDD files and record keeping
9.6Monitoring and risk review
9.7Training
Appendices
A. The Proceeds of Crime Act (2002) and the Terrorism Act (2000)
B. Internal Money Laundering Report Form
C. Beneficial Owners
i)Extracts from Money Laundering Regulations 2007
ii)The Law Society’s Practice Note: Chapter 4 Annex A – Examples of Beneficial Ownership for a Trust
D…Guidance on How to Use the Electronic Verification System
E. Firm Wide and Case Area Risk Assessment
F. Money Laundering “ALERTS”
G. Precedent Customer Due Diligence Forms
i)Client Due Diligence Risk Assessment Form
ii)Verification Form
iii)Beneficial Ownership Form
December 20101
Stone Rowe Brewer LLP Solicitors
Anti-Money Laundering and Counter-Terrorist Financing Policy and
Guidance
1.The purpose of this policy
This policy is intended to:
Give guidance on legislation governing money laundering and terrorist financing.
Supplement training given to staff.
Impress on staff the importance of complying with the policy and legislation.
Explain the operation of the firm’s procedures for managing the risk that its services may be used for money laundering or terrorist financing.
Inform staff of the firm’s processes for monitoring compliance and reviewing the firms anti-money laundering and counterterrorist financing policy.
Explain what training will be given on an ongoing basis as required.
Explain what sources of advice are available internally and externally.
Demonstrate to the Law Society, our “supervising body” that we have developed and implemented our anti-money laundering and counterterrorist financing policy.
References to money laundering include terrorist financing. The policy also includes other aspects of fraud including identity fraud and mortgage fraud. The previous separate policy relating to this area has been absorbed within this policy.
In relation to mortgage fraud, this goes hand in hand with money laundering because if you suspect a fraud on a mortgagee and you nonetheless proceed with the transaction, you will have committed a money laundering offence as well as potentially being implicated in the fraud itself. You must be alert to warning signs of mortgage fraud (see Appendix F) as well as signs of money laundering generally.
This policy endeavours to strike a balance between dealing with some quite complex provisions, allowing flexibility when it is appropriate but also adopting a system which is manageable and as easy to apply as possible. It is not possible, nor appropriate to legislate for every situation that may arise. It is anticipated that the standard approach within this policy will cover 95% of situations.
Queries are anticipated and indeed expected. If in doubt, please ask.
2.Sources of advice
2.1Internal
The firm's current money laundering reporting officer (MLRO) isnoted in the Office Manual. Any suspicious activity must be reported to the current MLRO, who will also be available to discuss any concerns or queries.
It may also be appropriate to discuss concerns or raise queries with your Head of Department in order to clarify issues relating to that particular area of work or in the event that the MLRO is not available.
In the absence of either the above please refer any queries to any other partner.
2.2External
In addition to this guidance, there are some useful sources of information which includes:
December 20101
The Law Society's Practice Note: To be found on the Law Society's website.
The Money Laundering Regulations 2007: To be found on The Law Society’s Anti Money Laundering page.
The Law Society’s Practice Advice Service: To help navigate the new practice note and respond to general queries. Their telephone number is 0870 606 2522 and their email address .
Professional Ethics at the Solicitors Regulation Authority: They can assist with conduct issues relating to money laundering. Their telephone number is 0870 606 2577.
Gatekeeper: The Law Society's monthly update e-newsletter on anti money laundering developments in the UK and around the world. You can subscribe to the e-mail via the Law Society's website.
Anti-money laundering directory: A Law Society directory of specialist solicitors willing to be contacted by other solicitors seeking legal advice. The first 30 minutes is a free service.
The above are useful sources of information. However, should any members of staff have any queries about money laundering or any concerns as to whether they might have to make a disclosure to the authorities about a suspicious activity, then they are required to discuss the matter internally.
3The legislation
3.1Introduction
Money laundering legislation primarily consists of:
The Terrorism Act (2000) (Part III) (as amended) (TACT)
The Proceeds of Crime Act 2002 (Part 7) (as amended) (POCA)
The Money Laundering Regulations 2007. (The Regulations)
The objective of the legislation is to prevent criminals from being able to launder money or use money or other property for terrorist purposes. TACT and POCA contain principal offences (for example the "arrangement" offence) and further offences (failure to disclose and tipping off offences).
Any of us may become inadvertently involved in money laundering and if so, we may be committing a criminal offence punishable by, in some cases, a maximum of 14 years imprisonment.
POCA and TACT contain defences and set out statutory procedures for reporting suspicious transactions and obtaining consent to proceed.
More information on what money laundering is and the offences within POCA and TACT can be found at Appendix A.
3.2Philip Green, Solicitor
Philip Green was found guilty in 2006 of a POCA offence. He explained that he had not realised that a Conveyancing transaction involved the proceeds of crime, having relied on an explanation given by a trusted estate agent that he was helping friends who were having difficulty paying the mortgage. The estate agent was buying the property, worth £150,000 for just £43,000, the amount of the outstanding mortgage.
It transpired that sellers were convicted drug traffickers and the Asset Recovery Agency had launched proceedings to trace and confiscate the proceeds of crime.
December 20101
The drug traffickers and the estate agent were convicted of the offence committed when a person "enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by on behalf of another person" (S328 POCS). Mr Green was charged but not convicted of this principal offence. Instead he was convicted of the further offence of failing to disclose a suspicious transaction.
The failure to disclose offence is committed if one knows, suspects or “has reasonable grounds for knowing or suspecting” money laundering. In other words, we will commit this offence if we ought to have known. In sentencing Mr Green to 15 months imprisonment, the judge said that he had "clearly closed his eyes to the obvious". His sentence was later reduced to six months, but he was struck off the roll of solicitors.
3.3Making a disclosure report, the consent defence and tipping off
Both POCA and TACT contain a procedure for disclosing suspicious transactions and seeking consent to proceed. Following these procedures avails you and us of a defence to a principal offence. We will also not be committing a “failure to report offence”.
As employees, you must report any suspicious transactions, immediately, to your MLRO who will decide whether a suspicious activity report is required. This decision is not for you to make. In the event that you wish to discuss whether circumstances are suspicious you may approach your Head of Department initially.
Decisions on whether to make disclosure reports to the Serious Organised Crime Agency (SOCA) can be difficult, not least because we have to consider whether legal professional privilege applies. On no account must employees make a decision without involving the MLRO.
The firm's Internal Money Laundering Reporting Form is set out in Appendix B. This is for use by Fee Earners needing to make a report internally to the MLRO. This form is highly confidential and must not be kept on the client’s file.
The Serious Organised Crime Agency has a range of preferred forms (for use only by the MLRO) to make reports, which can be found at: NEED TO FIND CORRECT LINK
In addition, because of the risk of “tipping off” employees must not discuss with their client or any third party that a report has been made and/or that an investigation is or might be taking place without the express consent of the MLRO who will first decide whether one of the very limited “permitted disclosure” situations arises.
3.4The Money Laundering Regulations 2007 ("the Regulations") 3.4.1Introduction to the Regulations
The Regulations came into force from 15 December 2007. Their objective is to ensure that the regulated sector, which includes legal practitioners involved in transactional work, put in place satisfactory procedures to identify, protect against and deal with money laundering and terrorist financing.
Failure to comply with the Regulations is punishable by a maximum of two years imprisonment, whether or not money laundering is identified or a POCA or TACT offence is committed.
The 2007 Regulations introduce new, detailed and more demanding requirements than the 2003 Money Laundering Regulations. They require a "risk based" approach towards transactions and clients. Whilst in the case of high risk situations and high risk clients more
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intensive enquiries might be required than previously, the Regulations permit a more relaxed approach in situations where the risk of money laundering is low.
The firm has decided that as far as possible a standardised approach covering all our areas of business is preferable in terms of consistency and to minimise error.
3.4.2Main requirements and approaches
The requirements include:
Taking customer due diligence (CDD) measures, before acting, to:-
Identify and verify the identity of individual clients.
Identify, and if necessary on a risk sensitive basis, verify beneficial owners of entities instructing us. Broadly speaking a beneficial owner is anyone who has a 25% interest or more in the entity or who otherwise exercises control over it.
Obtain information on the purpose and intended nature of any business relationship.
Monitoring those clients with whom we have an ongoing business relationship, (including existing clients), to ensure that transactions are consistent with our knowledge of the customer, his business and risk profile.
Taking additional measures in higher risk situations.
Taking "Simplified Due Diligence" measures for some types of client.
The ability in certain circumstances to “Rely" on third parties to complete CDD for us and to outsource CDD measures, for instance by using our chosen electronic verification provider.
Ensuring that we have systems to report suspicious transactions.
Ensuring that we maintain adequate records, monitor compliance, review our policy in the light of changing risks and provide training to employees from time to time on money laundering issues.
4.Why is this policy necessary?
Firstly, the firm is committed to countering money-laundering activity wherever possible. This policy is designed to enable us to identify and deal with this activity should it arise and to assist legitimate investigative activity by enforcement agencies.
Secondly, it is necessary to ensure that we comply with relevant legislation and that the partners, the MLRO and employees are protected from potential criminal liability. An additional benefit of publicising that we take this area seriously is that there is less likelihood that our firm will be used for criminal purposes.
Finally, by exercising appropriate judgement when making disclosures to the authorities, we are protected against breach of confidentiality and breach of contract claims.
5.Staff obligations
5.1Principals
The Principals are responsible for:
Establishing, maintaining and resourcing appropriate anti-money laundering policies, procedures and supporting forms and documentation.
Dealing with enquiries from Fee Earners about money laundering,
Ensuring compliance by relevant staff and for reviewing the policy and amending it as necessary.
Ensuring that all relevant staff receive initial and subsequent training as required, on the policy and the risks associated with money laundering and terrorism.
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Appointing a Money Laundering Reporting Officer.
5.2 Money Laundering Reporting Officer
The Money Laundering Reporting Officer is responsible for:
Compliance with the Regulations and this policy
Dealing with enquiries from Fee Earners about money laundering,
Receiving notifications of suspicious transactions from staff,
Liaising with the Serious Organised Crime Agency (SOCA).
The firm’s policy is for the Partners to take the role of MLRO in rotation on an annual basis. The firm's current money laundering reporting officer (MLRO) is noted in the Office Manual.
5.3Staff Relevant staff are:
All Fee Earners as they are responsible for compliance on a case level.
Accounts staff responsible for checks and balances relating, for example, to the receipt of money and of the opening of the cases.
Anyone else to whom anti-money laundering functions may be delegated, for instance, secretarial and support staff assisting Fee Earners.
Relevant staff (depending on their role) are required to:
Undertake the training provided from time to time by the partners.
To undertake the required CDD measures.
Complete the necessary supporting forms and documentation and ensure that records are kept up to date.
Ensure that client instructions are not carried out and no transaction takes place through our bank accounts until CDD measures are complete.
Not receive cash funds, nor receive money from, nor pay money to unconnected third parties other than as permitted by this policy.
Perform ongoing monitoring of transactions and business relationships.
Be alert to and report suspicious transactions.
Not tip off the client or any third party if a report has been made or if you otherwise become aware of a money laundering investigation.
If exceptions are permitted under this policy, to seek the necessary approval.
Because of the importance of this area, a breach of the firm’s procedures may be dealt with under the firm's disciplinary procedures.
6.Customer due diligence (CDD)
The following sections explain the requirements within the Regulations, how the firm intends to comply, its approach to verification, and about the firm’s chosen electronic verification provider. Section 9 explains what forms must be completed to support our processes.
6.1Departments covered
Under the Regulations, CDD measures must be undertaken whenever we engage in regulated business with a client. Broadly, this includes all transactional work. As well as Conveyancing, this will include, for instance, company share movements, probate administrations and wills cases if substantive tax planning is involved.
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There are some areas not covered under the Regulations. However, the policy of this firm is that, for the sake of a simplistic approach CDD measures must be taken in all areas of law save for Personal Injury and Clinical Negligence in which the firm is involved, including litigation and wills.
6.2Authority levels
Authority for deciding the appropriate level of CDD measures required lies with the Fee Earner in charge of the case except where that Fee Earner is a trainee, in which case the authority lies with the person supervising the Fee Earner’s work who must countersign any required forms.
Obtaining evidence to verify a client’s identity can be delegated by the responsible Fee Earner to support staff. However, the responsibility remains with the Fee Earner.
6.3Timing of verification
The Regulations require CDD measures to be undertaken before the establishment of a business relationship or the carrying out of an occasional transaction. It is this firm's policy that you must apply CDD measures before acting on clients instructions. You may, therefore open the file and you can receive money on account of costs or expenses. You cannot do any work for the client or receive any funds for the purpose of the transaction itself (for instance deposit money).
It is possible to delay undertaking CDD measures, but only if, during the course of establishing a business relationship, it is necessary not to interrupt the normal conduct of business and there is little risk of money laundering, provided that the measures are undertaken as soon as practicable after contact is first established.
The need for us to apply CDD measures without delay must be balanced against our requirement to be properly remunerated for the work that we do. It is recognised that Fee Earners might not be able to gauge any risk of money laundering until the first interview has taken place. Also in some situations clients may forget to bring in verification documentation or they may be too upset, for instance probate clients.
Fee Earners should explain at that first interview that although they can take instructions (and receive money on account) they will not be able to act on those instructions until the verification process is complete.