Anti-Money Laundering Update – October 2022
The focus on firms and whether they are complying with their anti-money laundering obligations continues, with a further firm having recently been fined £2,000 for multiple breaches, including it telling the Solicitors Regulation Authority (SRA) it had a compliant firm wide risk assessment (FWRA) in place when it didn’t; it also didn’t have in place compliant AML policies, controls and procedures.
The property sector remains a high risk area of work and according to the latest Financial Action Task Force (FATF) report there is “a poor level of understanding” of AML risks and how to mitigate them.
SRA thematic reviews
An SRA thematic review looking at client and matter risk assessments will take place in 2023; the SRA has some real concerns in these areas, so firms need to review the following:
- The risk level allocated to each matter – if the firm’s FWRA shows property work as ‘high’ risk, why do matter risk assessments show ‘low’?
- Firms may want to consider updating their matter risk assessments showing (i) a firm level risk assessment (‘high’), and (ii) a matter level risk assessment (‘low, medium or high’)
- Enhanced due diligence (EDD) – are full and detailed notes made of any enhanced due diligence carried out noted on each file?
Suspicious Activity Reporting
The National Crime Agency’s new Suspicious Activity Report (SAR) portal will be available by the end of 2022; the NCA has taken on board what firms have said during development and have included a facility allowing firms to save draft reports and return to them later. It has been suggested that a £1,000 de minimis figure will be applied to reports, so anything under this would not need to be reported; this needs to be confirmed by the NCA.
Relying on others for client due diligence
Although the Money Laundering Regulations allows ‘Reliance’, it should used carefully and with agreement. We posed a question to the panel at the Law Society’s recent AML Conference about whether firms should rely on client due diligence (CDD) carried out by estate agents, and the NCA representative said firms should “rely on themselves” to be safe; it was said that estate agents may not completed the CDD properly, or may not do CDD to a level required by law firms.
Register of Overseas Entities
The Companies House register came into effect from the 1st August 2022, and will contain details of UK properties owned by overseas entities. A registration fee of £100 will be payable to Companies House.
An overseas entity that wishes to acquire UK property must provide details to Companies House of its beneficial owners or the managing officers who control it. Overseas entities that have owned UK property since January 1999, must also register the same details by the 31st January 2023.
The requirement to register applies to all freehold estates and leaseholds granted for a term of more than 7 years.
Failure to comply could lead to financial penalties of up to £2,500 per day or imprisonment of up to 5 years.
Once the registration process has been completed the entity will be issued with an overseas entity ID and without this no dispositions will be entertained by HM Land Registry; Companies House will not issue an overseas entity ID unless the information provided is verified in a statement completed by a “relevant person”, which includes independent legal advisers.
A “relevant person” must be approved by Companies House and once approved the “relevant person” will be issued with an assurance code. Solicitors should be very cautious about providing a verification service and should only do so if they have a full understanding of what is required and the risks involved.
ID verification is valid for 3 months from the date on which the relevant person verifies the information.
Each overseas entity will be required to update its ownership entry details at Companies House on an annual basis.
A person who without reasonable excuse makes a false, misleading or deceptive statement commits a crime under Section 32 of the above act and may be liable to a fine or imprisonment of up to 12 months.
Law Society Guidance is available for solicitors concerning verification; firms getting involved in this area should update their FWRA accordingly.
