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Session 4Anti-money laundering and counter-terrorist financing
Parfitt Cresswell 2
Contents
Part 1: What are money laundering and terrorist financing?
Part 2: Recognising money laundering and terrorist financing
Part 3: The law
Part 4: Our policy and procedures—general
Part 5: Our policy and procedures—reporting suspicions
Part 6: Our policy and procedures—client due diligence
Summary and questions
Parfitt Cresswell 3
What are money laundering and terrorist financing?
Part 1
Parfitt Cresswell 4
What are money laundering and terrorist financing?
What?
Money laundering: proceeds of crime and their origin/ownership changed to make proceeds appear legitimate
Terrorist financing: providing/collecting funds from legitimate or illegitimate sources for terrorist acts
How?1.Placement2.Layering3. Integration
Parfitt Cresswell 5
Why are they important to me?
• criminal penalties
• substantial fines
• SRA disciplinary action
• damage to reputation
Parfitt Cresswell 6
Recognising money laundering and terrorist financing
Part 3
Parfitt Cresswell 7
Recognising money laundering and terrorist financing
• Remain alert to warning signs
• Make reasonable enquiries
Parfitt Cresswell 8
Money laundering or terrorist financing signs
The people involved
•unexplained long geographical distances between the buyer's current address and their new property
•the client is located a long distance from our office (this is particularly relevant for new clients)
•the client seems unusually disinterested in their purchase—look for other warning signs that suggest they are not the real purchaser
•the client does not usually engage in property transactions of this scale—consider why they are undertaking this transaction and how they are funding it
•the client's credit history is shorter than you would expect for their age—indicating that they may be using a fake identity
•there is a last minute change of representative on the other side
•the property has been registered to an owner for a significant period of time and the person claiming to be the owner does not appear to be old enough to have held the land for that period
•the other conveyancer involved in the transaction has an email address from a large-scale web based provider, eg Gmail, Yahoo Mail or Hotmail
Parfitt Cresswell 9
Money laundering or terrorist financing signs (cont)
In terms of the instructions, some warning flags include:
• cases or instructions that change unexpectedly or for no logical reason, especially where:o the client has deposited funds with us, or o the source of funds changes at the last moment
• instructions outside our usual range of expertise. In other words, why is the client using us?• retainers involving high-risk jurisdictions (for example Iran, Uzbekistan, Turkmenistan,
Pakistan, Sao Tome and Northern Cyprus)• transactions with no apparent logical, economic or legal purpose• loss-making transactions where the loss is avoidable• complex or unusually large transactions
• there are plans for a sub-sale or back-to-back transactions
• a transfer of title to land is requested with respect to only some of the seller's holdings and the properties are not grouped together
• the seller or developer has provided incentives, allowances or discounts (eg cash back or payment of legal fees)—consider whether this information has been properly disclosed to the lender
• there has been a recent transfer of land where no money has changed hands or the price was significantly less than the full market value
Parfitt Cresswell 10
Money laundering or terrorist financing signs (cont)
In terms of the money, be wary of:
• being asked to return funds or send funds to a third party• 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• large amounts of cash being used• large payment on account of fees with instructions terminated shortly after and the client
requesting the funds are returned• movement of funds between accounts, institutions or jurisdictions without reason
• income stated on the application that seems particularly high given the client's age
• payment of the deposit direct to the seller
• deposit not paid by the purchaser but by a third party
• funds left over from sale proceeds (or the sale proceeds themselves) to be paid to a third party and not the seller
• 100% mortgage
• you are asked to enter a price on the title that is greater than you know was paid for the property
Parfitt Cresswell 11
Signs—private client
• Foreign/high-risk jurisdictions
• Deceased accused or convicted of criminal offence
• Unusual structures
• Unusual funds for charities
• Improper transactions
Parfitt Cresswell 12
Signs—property
• Nominee companies or multiple ownership
• Sudden or unexplained ownership changes
• Mortgage fraud
• Third party or private funding
• Direct payments
• Unusual sale price
Parfitt Cresswell 13
Signs—litigation
• Easy settlements (sham litigation?)
• Direct payments between parties
• Third party funding
Parfitt Cresswell 14
Signs—company commercial
• Foreign jurisdictions
• Unusual requests to use our client account
Parfitt Cresswell 15
Enquiries you should make
• Financing
• Benefit
• Proceeds
• People
• Scale
Parfitt Cresswell 16
The law
Part 3
Parfitt Cresswell 17
Money laundering offences
Parfitt Cresswell 18
Money laundering offences (cont)
Parfitt Cresswell 19
Principal offences under POCA 2002
Parfitt Cresswell 20
Concealing (s 327)
• conceal
• disguise
• convert
• transfer, or
• remove from the UK
Parfitt Cresswell 21
Arrangement (s 328)
• Enter into or become concerned in
• An arrangement that you know or suspect facilitates
• Acquisition, retention, use or control of criminal property
• By or on behalf of another
Parfitt Cresswell 22
Acquisition (s 329)
• Acquire
• Use, or
• Have possession of criminal property
Parfitt Cresswell 23
Penalties
Failure to comply:
• maximum penalty of 14 years’ imprisonment
• fine, or
• both
Defence:
•submit SAR to the nominated officer
Parfitt Cresswell 24
Failure to disclose
• Making a SAR to the nominated officer can be a defence
• Failure to disclose can result in:
o five years’ imprisonment
o a fine, or
o both
Parfitt Cresswell 25
Knowledge and suspicion
POCA 2002 defines:
•knowledge: actual knowledge
•suspicion: a possibility which is more than fanciful
Parfitt Cresswell 26
Tipping-off and prejudicing an investigation
disclose that you have made a SAR
disclose that an investigation is being contemplated or carried out
interfere with documents
discuss concerns with nominated officer
warn our clients of our duties under the AML/CTF regime
make normal enquiries about out clients’ instructions
Parfitt Cresswell 27
Terrorist financing offences
• Terrorism Act 2000 (TA 2000)
• Terrorist financing is:o provision and collection of fundso from legitimate or illegitimate sourceso with intention or in the knowledgeo that they should be used in order to carry out any
act of terrorismo whether or not those funds are in fact used for that
purpose
Parfitt Cresswell 28
Terrorist financing offences (cont)
• Fundraising• Use or possession• Arrangements• Money laundering• Failure to disclose• Tipping-off
Parfitt Cresswell 29
Money Laundering Regulations 2007
• Administrative requirements
• Failure to comply:o two years’ imprisonmento fineo both
• Systems and controls
Parfitt Cresswell 30
Our policy and procedures—general
Part 4
Parfitt Cresswell 31
Our policy and procedures—general
Who? All relevant staff
When?
• induction • every year• substantial change in the law or our policy and
procedure
Parfitt Cresswell 32
Policy compliance
Failuretocomply
• criminal record• 14 years’ imprisonment for
committing a principal money laundering/terrorist financing offence
• disciplinary action including dismissal
Monitoring compliance
• file audits• review of records maintained by the
nominated officer• staff reports or feedback• routine policy monitoring exercises
Parfitt Cresswell 33
Our policy and procedures—reporting suspicions
Part 5
Parfitt Cresswell 34
Reporting suspicions
When? ALWAYS!
How? Complete SAR form
Unsure? • DO NOT complete the SAR form • discuss concerns with nominated
officer
Parfitt Cresswell 35
What happens after SAR?
Parfitt Cresswell 36
What happens after SAR? (cont)
transfer funds
take an irrevocable step in the matter
tell the client a SAR has been made
Parfitt Cresswell 37
Our policies and procedures—client due diligence
Part 6
Parfitt Cresswell 38
Client due diligence (CDD)
• Identifying and verifying identity
• Beneficial ownership
• Purpose and intended nature of the business relationship
• Ongoing monitoring
Parfitt Cresswell 39
CDD (continued)
What?• Simplified due diligence (SDD)• Enhanced due diligence (EDD)• Regular due diligence (RDD)
When?
• Before establishing client business relationship• Before carrying out one-off transaction for client• Inadequate CDD carried out on an existing client• Client’s identifying details have changed• Client has not been in regular contact with us • Suspicion of money laundering or terrorist financing
activities
How?• Assess the risk • Complete the process in Compliance Manager
Parfitt Cresswell 40
CDD (continued)
SDD• little chance of money laundering or terrorist
financing• reduced CDD exercise
EDD
• greater perceived risk of money laundering or terrorist financing
• additional steps to understand ownership and control
• must conduct EDD on:o individual clients not met face-to-faceo politically exposed persons (PEPs)o other high risk clients
RDD • SDD and EDD do not apply
Parfitt Cresswell 41
CDD Summary
Client Due Diligence (CDD)
CDD is identifying and verifying the identity of the client(s) and/or the beneficial owner AND obtaining details of the intended nature of the business relationship AND conducting ongoing
monitoring of the business relationship. These notes should be read in conjunction with the firm's Money Laundering Manual and the LS Practice Note on Anti Money Laundering.
There are three levels of CDD - Simplified Due Diligence, Enhanced Due Diligence and Regular Due Diligence
Simplified Due Diligence
SDD applies where there is very little chance of Money Laundering or Terrorist Financing (for example when acting for Public Listed Companies, Large Charities or Public Authorities who are not registered in a high risk
jurisdiction)
Enhanced Due Diligence
EDD applies where there is a greater risk of ML or TF OR you have not met the client OR where the client is a Politically Exposed Person (PEP) OR where the client, beneficial owner, or assets are located in a higher risk
jurisdictionRegular Due
DiligenceRDD applies wherever SDD or EDD does not apply
Parfitt Cresswell 42
CDD - Client Relationship
Have we acted for the client before in the last 3 years?
NoConduct CDD
Yes
Is the ID documentation still 'in date'?No
Conduct CDD
Yes
Has the client moved address in the last 3 years?
Yes Check identity documents and obtain fresh Verification data
No
Does the proposed instruction fit with our understanding of the client's
circumstances and financial status?
NoConduct CDD
Yes
Is there anything else concerning the client or the transaction which suggests that we should make further enquiries?
Yes
Conduct CDD
No
You may rely upon the firm's previous Identification and Verification data and
retain a copy on the new file
Parfitt Cresswell 43
CDD - Individuals
Have you met the client ?No
You must conduct Enhanced Due Diligence
Yes
Is the client a Politically Exposed Person?
Yes Refer to the firm's MLO for further guidance
NoIs the client or are any assets
based in a higher risk jurisdiction?
Yes Refer to the firm's MLO for further guidance
NoIs there anything else
concerning the client or the transaction which suggests that
we should make further enquiries?
Yes
Enhanced Due Diligence Applies
No
Regular Due Diligence Applies
Parfitt Cresswell 44
CDD – Beneficial Ownership
Is the client an agent or representative of an individual
YesYou must establish and undertake
CDD on both the agent and the beneficial owner(s)
No
Is there any other reason to suggest that the client is under the
influence or control of a third party?
Yes You must establish and undertake CDD on both the client and the
beneficial owner(s)
No
There is no requirement to undertake CDD on the beneficial
owners
Parfitt Cresswell 45
CDD – Partnerships, LLPs & Companies
Is the client a UK partnership?
YesObtain one document from List A
and one document from List B for at least two partners
No
Is the client an unlisted private limited company or an LLP
registered in the UK or EEA?
Yes Identify and verify the existence of the company via Companies House
and undertake CDD on at least 2 directors / members and
shareholders owning more than 25% or designated members for LLPs
No
Is the client an unlisted private limited company or an LLP
registered outside the UK or EEA?
Identify and verify the existence of the company and undertake CDD on the ultimate beneficial owners and
require certification of all documents provided by a lawyer / accountant
whose identity can be established by reference to a professional directory
Yes
NoDoes the Partnership, LLP or
Company fall outside the above categories?
Yes Refer to the firm's ML Manual and the MLO for further instructions
Parfitt Cresswell 46
CDD – Trusts, Charities & Other Bodies
Is the client an estate, trust or foundation with all trustees & assets
based in the UK or EEA?
YesUndertake CDD on the executor(s), administrator(s) or trustees & any
other beneficial owners
NoIs the client a trust with one or more trustees or assets located in a high
risk jurisdiction?
Yes Refer to the firm's MLO for further guidance
No
Is the client a small or medium sized Charity, Church or Educational
Establishment?
Yes Identify and verify the existence of the Charity via Charity Commissioners and undertake CDD on at least 2
directors / trustees and review annual return & governing documents
No
Is the client a club, association or other organistation located in the UK
or EAA
Yes Undertake CDD on officers with controlling interests, review governing
documents, accounts and any registration or association listings
No
Does the Trust, Charity or other body fall outside the above categories?
Yes Refer to the firm's ML Manual and the MLO for further instructions
Parfitt Cresswell 47
Verifying ID Documents
By completing this form you are confirming that: (1) You understand the implications and obligations of Client Identification and Verification as set out in the firm's manuals; and (b) You have received adequate training on CDD in the last 12 months. If you are uncertain about this
you should ask another member of staff to complete the ID and Verification process
REMEMBER THAT ALTHOUGH YOU ARE NOT REQUIRED TO LOOK FOR EVIDENCE OF FRAUD OR DECEPTION YOU ARE REQUIRED TO INSPECT ANY DOCUMENTS
PRESENTED TO YOU WITH CARE AND DILIGENCE
If you have any concerns or uncertainties about the validity or accuracy of the documents presented you should note your concerns below and refer the matter to the fee earner
responsible for the client matter
Ensure that the documents presented are acceptable and that they fall within the lists A,B,C of valid documents as contained in the firm's manuals
Parfitt Cresswell 48
Regular Due Diligence - Documentation
List A (Identification)
Obtain one document from List A AND one document from List B
List B (Verification)
Valid PassportCurrent Photo-card Driving
License
Valid Photo-card Driving License
Current Council Tax or Utility Bill
Birth CertificateCurrent Bank or Building
Society Statement
Valid Firearms Certificate or Shotgun License
Current Document from HMRC
Valid EEA member state identity card
Valid Residence Permit issued by the Home Office
Parfitt Cresswell 49
CDD (continued)
Where you are satisfied that the client has a genuine reason for being unable to supply any of the above you may substitute any TWO of the following
List C
Benefits Book or original notification from the DWP confirming the right to benefits
Letter from Care Home Owner / Manager
Confirmation from the Electoral Register
A letter from a Solicitor, Bank or Accountant
Local council or Housing Association Rent Card or Tenancy Agreement
House Insurance or Mortgage Certificate
Statement from a member of the firm or other person in the regulated sector who has known the
client for 3 years
Parfitt Cresswell 50
Photographic ID Document
The document is of a type included in List A
The photograph is a good likeness of the CDD subject
The document is not out of date
The document looks and feels like an authentic document
I have calculated the age of the person and confirm that this is in keeping with their appearance
The documents was not issued in a High Risk Jurisdiction
The person was not born in a High Risk Jurisdiction
I am satisfied that the gender of the person accords with the document
There is nothing else about the document that gives me any cause for concern
Any other comments or observations
Parfitt Cresswell 51
Verification of Address
The document is of a type included in List B
It has been issued within the last 3 months
It is an original document and not a copy and not printed off the internet
The name on the document is the same as the name on the photographic ID document
The address is the address to which all correspondence in connection with this client is to be sent
Any other comments or observations
Parfitt Cresswell 52
Certification
I can confirm that I have inspected the documents presented to me and that in my opinion they are adequate to confirm the identity and verification of the client from whom we have received instructions and that there is nothing to suggest that this
person should be subjected to Enhanced Due Diligence
I have taken and filed paper and electronic copies of the documents referred to above
I have concerns about the documents presented to me and I have referred the matter to ………………………………………………………………
Parfitt Cresswell 53
Enhanced Due Diligence - Documentation
Where you are required to undertake enhanced due diligence you must:
Obtain one document from List A
AND
Obtain two documents from List B or List C
AND
Undertake additional electronic verification wherever possible
OR
Obtain additional verification from a professional advisor based in the regulated
sector
Parfitt Cresswell 54
Simplified Due Diligence - Documentation
You may undertake Simplified Due Diligence as set out below on the following clients:
Public Listed Companies Obtain confirmation of the company's listing
National Registered CharitiesObtain confirmation of the Charity's registered status from the Charity Commission website
Credit or financial institutions in the UK or EEA
Obtain evidence that the client is regulated for AML
Public Authority based in the UK or EEA
Obtain evidence of the existence of the Authority from an official government website
Parfitt Cresswell 55
Electronic Verification
Electronic verification may only be used as corroborative evidence and is not of itself evidence of a person's identity
When using electronic verification you do not need to obtain the consent of the client but you must advise the client that this check will take place
Electronic verification may not be suitable for fraud prevention purposes. However you should always use EV if you intend to place
reliance upon third parties.
Parfitt Cresswell 56
Reliance on Third Parties
There may be circumstances when we have to rely upon appropriate third parties when undertaking CDD. Note that you and the firm will remain liable for any failure in the client being appropriately identified.
When seeking to place reliance upon a third party you must obtain their consent AND obtain their agreement to provide you with the CDD material AND obtain the identity of the MLO or equivalent AND
obtain details of the enquiries made and documents inspected
Reliance in the UK or EEA
An auditor, insolvency practitioner, external accountant, tax advisor or independent legal professional who is
subject to mandatory professional registration recognised by law and supervised by a supervisory authority
Reliance in Other Non High Risk Jurisdictions
An auditor, insolvency practitioner, external accountant, tax advisor or independent legal professional who is
subject to mandatory professional registration recognised by law and subject to requirements equivalent to those in
the third directive and supervised for compliance with money laundering obligations to a standard equivalent to
the third directive
Parfitt Cresswell 57
Timing of CDD
The basic requirement is that we must verify any client and beneficial owner's identity BEFORE establishing a business relationship or carrying out an
occasional transaction
Limited Exceptions
Verification may be completed during the establishment of a business relationship where
it is necessary not to interrupt the normal conduct of business AND there is little risk of
money laundering or terrorist financing occurring
OR
You are in the course of ascertaining the client's legal position or performing your task of defending or representing our client in connection with legal
proceedings including advice on instituting or avoiding proceedings
Parfitt Cresswell 58
High Risk Jurisdictions
For further current information on these please see:
www.fatf-gafi.org/topics/high-riskandnon-cooperativejurisdictions/
At the present
time these include
Afghanistan DPR Korea Lao PDR Sudan
Albania Ecuador Myanmar Syria
Algeria Ethiopia Namibia Tajikistan
Angola Indonesia Nicaragua Turkey
Argentina Iran Pakistan Uganda
Cambodia Iraq Panama Yemen
Cuba KuwaitPapua New
GuineaZimbabwe
Parfitt Cresswell 59
Beneficial ownership
CDD on beneficial owners is in addition
to CDD on clients
You must:
•identify any beneficial owners
•validate their identity on a risk sensitive basis
Parfitt Cresswell 60
Beneficial ownership
Body corporate (LLP)
Any individual who:•owns/controls more than 25% of the shares or voting rights of the body•otherwise exercise control over management of the body
Partnership (not LLP)
Any individual who:•is entitled to/controls more than a 25% share of the capital or profits of or more than 25% of the voting rights in the partnership•otherwise exercise control over the management of the body
TrustAny individual entitled to specified interest in at least 25% of capital of the trust property
Parfitt Cresswell 61
Beneficial ownership
Parfitt Cresswell 62
Nature of the business relationship
Parfitt Cresswell 63
Ongoing monitoring
• Scrutinise transactions
• Stay alert
• Keep documents etc up to date
Parfitt Cresswell 64
What if I cannot conclude CDD exercise?
The general rule:
• do not carry out transaction for the client
• do not establish business relationship with a client
• do not accept funds from/transfer funds to a client or third party
• terminate existing business relationship
• consider whether SAR is required
Parfitt Cresswell 65
Source of funds
• Any warning signs of corruption?
• Any evidence that government/state funds being misused?
• Third party funding?
Parfitt Cresswell 66
Receiving funds
Funds from client?
Must not accept funds from/transfer funds to a client until the CDD process is complete
Funds from third party?
• Beware of third party payments from unverified source• Consider:o any obvious warning signso knowledge about client, third party and their
relationshipo why the third party gives client moneyo proportion of the third party fundingo how third party obtained the funds
Accept cash?Beware of large amounts of cash. Follow the Cash policy on accepting cash
Parfitt Cresswell 67
Summary
Parfitt Cresswell 68
Summary
• Money laundering: proceeds of crime and their origin/ownership changed to make proceeds appear legitimate
• Terrorist financing: providing/collecting funds from legitimate or illegitimate sources for terrorist acts
• Remain alert to the warning signs of money laundering and terrorist financing
• Our AML and CTF policy contains our systems and controls to forestall money laundering and terrorist financing—it applies to all staff
• Always report suspicion
• Understand your client
Parfitt Cresswell 69
Final comments
• Any questions?
• Email to [email protected]
• Update your training records in Compliance Manager