Chapter 5 Legal Services

5.4 The Application of Regulations

• Money Laundering and Terrorist Financing (Amendments) Regulations 2026

• Apply to ‘relevant’ persons in the course of businesses carried out in UK

• Includes independent legal professionals, company service providers, tax advisers and insolvency practitioners

• Some activities are outside the scope of regulation - e.g litigation

• Where activities do fall outside the scope of regulation, they do still come under Proceeds of Crime Act 2002 (Chapter 6)

• Beneficial owners, officers or managers of the firm, and sole practitioners must apply to the SRA for approval to act in this position under the Regulations Approval

• Approval will automatically be given unless the applicant has been convicted of a relevant offence

• Acting without approval is a criminal offence

5.5 Risk Assessment

• Firm must create a firm-wide risk assessment

• SRA may ask to see this, and can take enforcement action against a firm where this is incomplete or inadequate

• Must ensure these areas are addressed: Conveyancing, Trust or Company services and the misuse and exploitation of client accounts

• Firm must keep up-to-date written record of all steps it has taken in terms of risk assessment

5.6 Policies, Controls and Procedures

• Firm must establish and maintain written anti-money laundering policies

• These controls must be proportionate to the size and activities of the firm

5.7 Internal Controls

Necessary Roles

• A firm must appoint a ‘Nominated Officer’ (Money Laundering Reporting Officer or MLRO) to

  • receive any reports from within the firm of suspicious activities

  • liaise with National Crime Agency (NCA)

• A firm must also appoint a Money Laundering Compliance Officer (MLCO) who will

  • act as the firms main point of contact with the SRA

• Both roles can be completed by the same person

Other Controls

• Screening of employees

• Independent audit function

5.8 Client Due Diligence

CUSTOMER DUE DILLIGENCE

• Firms carrying out relevant business must obtain identity verification for each of their clients (‘Customer Due Diligence’)

• When this becomes necessary to get IDV as soon as possible after first contact:

  • Establishing a new business relationship

  • Carrying out an occasional transfer that is partially carried out by electronic means and exceeding £1,000

  • Carrying out an occasional transfer that is €15,000 (£10,000) or more

  • Suspicion of money laundering/terrorist financing

  • Doubts regarding adequacy of information supplied about clients identity

• Where IDV can be done during establishment of a business relationship:

  • Little risk of money laundering or terrorist financing

  • Necessary to not interrupt normal conduct of business

  • IDV is done as soon as practicable after contact has been established

• If the solicitor still cannot complete client due diligence in time, they cannot:

  • carry out a transaction through a bank account

  • establish a business relationship or carry out a transaction not through a bank account

  • AND if they have begun a business relationship, they must terminate this and consider making a disclosure to NCA

STANDARD DUE DILIGENCE

• Will apply to most clients

• Solicitor is obliged to verify the identity of the client on the basis of ‘documents or information obtained from a reliable, independent source’

  • —> e.g a passports or driving licenses

• Preferably original copies, but can be a copy if this can be justified

• IDV for a company requires them to verify their existence as a company

• Identity of beneficial owners of company may also be necessary if simplified due diligence does not apply (not necessary if company is listed on a regulated market) :

  • Directors,

  • Shareholders (more than 25% of shares or voting rights)

  • Individuals who controls body corporate

  • If owned by a parent company, rather than individuals beneficial owners of the PC must be identified

• Identity of beneficial owners may also be necessary for a trust:

  • Settlor

  • Trustees

  • Beneficiaries

SIMPLIFIED DUE DILIGENCE

• Permitted where an individual risk assessment reveals a low risk of money laundering or terrorist financing

• Factors to consider:

  • Is the company on a regulated market?

  • Client is established and does business

ENHANCED DUE DILIGENCE

• Something about the transaction creates a high risk of money laundering or terrorist financing

  • Client or their counter-part is in a high risk third country

  • Client has provided a false or stolen identification document

  • Client is a politically exposed person (PEP) or family member, or known close associate of a PEP

  • Transaction is complex or unusually large, or unusual pattern of transactions or the transaction has no apparent economic or legal purpose

• For enhanced DD, solicitor must examine background and purpose of the transaction and apply for further IDV

• Also continuing monitoring of business relationship with the client

5.9 Training

• Firms must provide training to their employees about money laundering

• Where no training is given, this may provide the employee with a defence to some offences relating to money laundering/terrorist financing

5.10 Record Keeping

• Records are copies of the documents and info solicitors obtain to satisfy due diligence requirements

• Records must be kept for at least 5 years from when the business relationship ends or the transaction ends

5.11 Economic Crime

• Another offence is that of a firm failing to prevent tax evasion offences

• Strict liability offence - no knowledge or intention is required

• Defence — Firm had in place reasonable prevention procedures or show that it was reasonable to not have these procedures in place

• Penalty for this crime is unlimited fines or confiscation of assets

• Firm wide risk assessment is necessary

5.12 UK Financial Sanctions Regime

• Extensive restrictions are placed upon people dealing with clients who are on the ‘sanctions list’

• This is a list of people who have received sanctions by the UK, EU or United Nations

• Requirement to inform Office of Financial Sanctions Implementation if it is known, or reasonably suspected that a person is on the sanctions list

• Discussing a person’s sanctioned status does not amount to a tipping off offence

• Firms can face liability for fines even if they have no knowledge or reasonable suspicion regarding a transaction