Stringent Terrorist Funding and Anti-Money Laundering Procedures Come Into Force
Businesses wanting to buy, sell or enter into legal transactions could face problems and delays after 15th December 2007 when the new Money Laundering Regulations 2007 come into effect. More seriously, some individuals can face up to two years in prison if they break the new laws.
The new law is responding to the cost of serious organised crime in this country, currently running at £20 billion per annum and the funding of terrorist activities.
Even in this tranquil part of the world, the South West has seen arrests for immigration crime, Class A drug trafficking and serious sex offences, all are linked to serious organised criminals.
The Regulations will impact on us all. Any organisations, including law firms, that act as gatekeepers against money laundering and the proceeds of criminal activity are particularly affected. Lawyers are seen as targets for criminal activity and so the Solicitors Regulation Authority will make spot checks on law firms.
We are all familiar with the request from banks and building societies to produce identity when new accounts are opened. Now, solicitors not only need to obtain evidence of identity but they must also carry out a “know your client” exercise.
How does this affect a business? Solicitors must fully understand who are behind partnerships, companies and trusts, in effect, who the beneficial owners are.
The new "know your client" exercise for corporate organisations will be carried out on a risk sensitive basis.
New corporate clients will be scrutinised quite closely, to include investigation of directors, shareholders, memorandum and articles of association. Electronic verification processes will indicate whether business individuals are on UK Treasury Sanction Lists, whether they are politically exposed or whether there may be issues of insolvency relating to them.
If the directors of a company are well known to a firm, the procedures will probably be more relaxed but any time there is a change in the corporate structure new due diligence will need to be carried out. The obligation of ongoing monitoring means that a one-off "know your client" exercise will not suffice, so the solicitor gatekeepers are required to be alert at all times.
This process helps solicitors understand who is involved in a transaction, why the transaction is taking place and the source of funds. Solicitors may also want to understand whether an individual can afford to enter into a purchase and who any third party funders are. The Regulations prohibit solicitors from entering into a business relationship (i.e. progressing a file) with any client without first carrying out the basic checks.
Clients should not be offended by these probing questions from solicitors, as they are all part of their increased legal obligations. In fact solicitors who fail to make these checks run the risk of imprisonment.
The recent HM Revenue and Customs identity fiasco shows how easily identity details can be lost, and potentially used for criminal purposes. As our society changes following recent threats, we all need to make changes to our lives to become more vigilant.
Published 11/12/2007. The author of this article is Alastair Hargreaves
