Cheeswrights

 

MONEY LAUNDERING

 

Proceeds of Crime Act 2002; Terrorism Act 2000; Money Laundering Regulations 2003

Guidance for Notaries

These notes are a concise guide to the provisions of the Proceeds of Crime Act 2002 (POCA), the Money Laundering Regulations 2003 and the Terrorism Act 2000 as they affect notaries in England and Wales; they will be revised from time to time. The purpose of the notes is to assist notaries and their employees in understanding their duties under this important legislation. In the course of these notes reference will be made to specific guidance issued by other professional or industry bodies where these are considered relevant to particular issues arising in notarial practice. In view of the fact that many notaries also practise as solicitors, guidance issued from time to time by the Law Society of England and Wales is of particular relevance and it is contemplated that a solicitor - notary when carrying out legal work which has no special notarial aspect would do so as a solicitor and in accordance with guidelines applicable to that profession.

 

A RISK-BASED APPROACH

Throughout this guidance emphasis will be placed on the benefits of a risk-based approach to money laundering and terrorism issues. A practice that takes a risk-based approach manages its affairs with regard to the risks of the practice being used for money laundering or terrorist financing and monitors the effectiveness of the controls it has put in place to manage these risks.

A risk-based approach takes a number of discrete steps in assessing the most cost effective and proportionate way to manage and mitigate the money laundering and terrorist financing risks faced by the practice. These steps are to identify the money laundering and terrorist financing risks that are relevant to the practice; assess the risks presented by the practice's particular clients, specialisms and location; design and implement controls to manage and mitigate these assessed risks; monitor and improve the effective operation of these controls and to record appropriately what has been done and why.

How a risk-based approach is implemented will also depend on a practice's size and structure. Different considerations will apply to a sole practitioner in a rural practice than to a multi-partner firm with an inner-city location. A risk-based approach starts with the identification and assessment of the risk that has to be managed. A practice should assess its risks in the context of how it might most likely be involved in money laundering or terrorist financing. Once a practice has identified and assessed the risks it faces in respect of money laundering or terrorist financing, it must ensure that procedures to manage and mitigate these risks are designed and implemented

 

Section 1 (Introduction)

  • (i) Background

    Part 7 of the Proceeds of Crime Act 2002, consolidated, updated and reformed the criminal law in the United Kingdom with regard to money laundering. Other parts of the Act created the Assets Recovery Agency (ARA), consolidated existing laws on the confiscation of assets derived from criminal conduct, and introduced new powers to recover criminal assets through civil proceedings. Part III of the Terrorism Act 2000 creates a number of offences in relation to terrorism and the funding of terrorism. The Money Laundering Regulations 2003 require notaries to introduce systems and training to prevent money laundering and, except in the case of sole practitioners, designate a "Nominated Officer" to whom suspicious transactions must be reported.

    The legislation is designed to prevent the proceeds of unlawful activities being legitimised by being applied to carry out apparently legitimate transactions. It takes a very wide definition of criminal conduct, including all conduct which constitutes an offence in any part of the United Kingdom, not just specific offences such as drug trafficking, terrorism and fraud. The definition also includes conduct which occurs overseas which would constitute an offence in the UK and thus includes tax evasion and the evasion of tax in jurisdictions outside the UK. In relation to certain categories of offences occurring overseas, the position has been altered by section 102 of the Serious Organised Crime and Police Act 2005 which provides a new defence to the money laundering offences under POCA. The defence applies where a person knows or believes on reasonable grounds that the acts which produced the proceeds took place in a particular country overseas and the acts were lawful in that country. In accordance with the Proceeds of Crime Act 2002 (Money Laundering: Exceptions to Overseas Conduct Defence) Order 2006 (SI 2006/1070), the defence applies only if the act generating the proceeds would not be punishable in the United Kingdom by a maximum sentence of more than 12 months' imprisonment. The Order sets out a few exceptions to this rule.

    There are also requirements for certain businesses and professions falling within the scope of the 'regulated sector' to report suspected money laundering to the authorities. It is important to note that the test of whether or not a transaction should be reported is an objective one - that is to say it depends not on whether the notary actually knows or suspects that money laundering is involved, but whether he had reasonable grounds for such knowledge or suspicion. There is not a de minimis limit associated with these provisions, and it is not relevant when the criminal conduct took place. Routine transactions may fall into this wide pool of business and may easily form part of a money laundering scheme.

    (ii) Circumstances in which a notary may be at risk of being used for money laundering

    There are three acknowledged phases to money laundering:

  • Placement - this occurs when cash generated from crime is initially placed in the financial system. As many crimes generate cash, this is the point at which the proceeds of crime are most apparent and at risk of detection. As banks and financial institutions have developed anti-money laundering procedures, criminals have to look for other ways of placing cash within the financial system. Entities which commonly deal with client money, such as law practices, have increasingly become at risk of being targeted to deal with cash. Practices should decide whether to operate a policy which limits the amount of cash they will accept (except for good reason), and explain that to clients. This policy should apply even where cash is tendered in payment of fees and disbursements. However, the placement stage may not always involve cash - it will depend on the nature of the predicate offence.

  • Layering - after the proceeds of crime have been placed into the financial system, layering occurs when the money passes through a series of complex transactions in order to obscure the origin. These transactions often involve different entities, such as companies and trusts and can take place in multiple jurisdictions. Notary practices are at risk of being targeted to assist in money laundering at this stage, although detection can be more difficult.

  • Integration - The criminal wishes to be able to use his funds without fear of detection and thus needs to integrate them into the financial system to give them the appearance of legitimacy. Once the origin of the funds has been obscured, the funds can reappear as legitimate funds or assets. At this stage the criminals will invest funds in legitimate businesses or other forms of investment. Legal professionals will often be used in this process, for example through buying a property, setting up a trust or acquiring a company.. This is not an exhaustive list.

Important note:
Although the above describes the usual money laundering phases, note that the definition of money laundering offences in the Proceeds of Crime Act 2002 is much wider and extends to the passive "possession" of criminal property and arrangements which facilitate the acquisition, retention use or control of criminal property by or on behalf of another person.

 

Notaries are potentially at risk of carrying out money laundering on behalf of clients in many common areas of work. Great care therefore needs to be taken when accepting and following instructions, particularly when these cover both the receipt and disbursement of client monies. Notaries should always be conscious of the real benefits to money launderers of having funds passed through a notary's client bank account on the way to the next level. Particular care should be paid to any last minute change of instructions, unusual or unnecessary arrangements or the use of third party names in connection with normal commercial arrangements. More generally, the addition to a document of a notary's signature and seal (even if he is only witnessing a signature) may lend an appearance of legitimacy to a fraudulent transaction.

Section 2 (The Proceeds of Crime Act 2002)

The Act established three sets of money laundering offences:-

  • the 'Principal' offences

    - s.327: Concealing etc.

    - s.328: Arrangements

    - s.329: Acquisition, use and possession

    A notary who knows or suspects or has "reasonable grounds" for suspecting that a person has committed any of these offences must make a disclosure as soon as is practicable to the Serious Organised Crime Agency (SOCA). Where disclosure is made before a transaction likely to give rise to a money laundering offence has taken place, the transaction must not proceed until SOCA has given its consent.

  • 'failure to disclose' offences

    - s.330: Failure to disclose: regulated sector

    - s.331: Failure to disclose: nominated officers in the regulated sector

    - s.332: Failure to disclose: other nominated officers

  • 'Tipping off' offences

    - s.333: Tipping off

    - s.342: Offences of prejudicing an investigation

Being familiar with terms of these sections is important. A person guilty of one of the 'principal' offences is liable to a maximum prison sentence of 14 years and/or a fine, while the other offences carry a penalty of up to 5 years imprisonment and/or a fine.

For further information on this important legislation, please refer to Section 5 of these guidance notes and Part 7 of the Act itself (attached as Schedule 2).

Section 3 (Terrorism Act 2000 as amended by the Anti-terrorism, Crime and Security Act 2001)

The offences created by Part III of this Act (relevant sections of which are reproduced in Schedule 3 together with the Terrorism Act 2000 (Business in the Regulated Sector and Supervisory Authorities) Order 2003) include:

- fund-raising (section 15)

- use and possession of money or other property for the purposes of terrorism (section 16)

- funding arrangements (section 17)

- laundering of terrorist property (section 18)

A notary who knows or suspects or has "reasonable grounds" for suspecting that a person has committed any of these offences must make a disclosure as soon as is practicable. The disclosure procedure is the same as that applying under the Proceeds of Crime Act 2002 (see section 5 below).

Section 4 (The Money Laundering Regulations 2003)

The Money Laundering Regulations 2003 ("the Regulations"), which, for the most part came into force on 1 March 2004, apply to a number of aspects of a notary's work, in particular financial and real property transactions and the provision of services in relation to the formation, operation or management of companies and trusts. Individual notaries or firms of notaries may also undertake other activities covered by the Regulations, for example investment business. The Regulations (attached as Schedule 1 to these notes) therefore bring the majority of notaries for the first time within the Regulated Sector; this has a number of important consequences for notaries, not only under the Regulations themselves, but also for the purposes of the Proceeds of Crime Act 2002.

Services of the nature mentioned above are "Relevant Business" for the purposes of the Regulations. It is important to note that the Regulations extend only to "Relevant Business" and many aspects of a notary's practice (such as the taking of affidavits and declarations, protests, translating, certifying the execution of documents and authentication work in general) will not be affected; accordingly, the Regulations do not apply to work undertaken by the notary as an independent certifying officer where he has no substantive role in the underlying transaction. However, in respect of Relevant Business notaries will be subject not only to the Practice Rules and other rules made from time to time by the Faculty Office, but also the obligations imposed by the Regulations.

The Regulations require notaries to introduce systems and training to prevent money laundering. These include:

(i) Identification Procedures (Regulation 4)

Proper notarial practice already requires notaries to verify the identity of parties to instruments which they authenticate; as a minimum, this involves inspection of the original passport or other official identity document of each signatory to the instrument. Identifying your client is now even more important in terms of the Regulations.

In respect of the majority of transactions falling within the category of Relevant Business the Regulations require a notary, as soon as is reasonably practical after contact is first made and, in any event, before any substantive work is undertaken, to obtain satisfactory evidence of the identity of the prospective client and, where that client acts or appears to act for another person, take steps to establish the identity of that other person.

The identification requirements under the Regulations apply in the following circumstances:

- to "one-off" transactions which involve the payment by or to or on behalf of the client of an amount of €15,000 (currently approximately £9,000) or more, and to any transactions which appear to be linked with others where the aggregate of the amounts involved is in excess of € 15,000;

- if you suspect that your client is engaged in money laundering or terrorist funding, or that a transaction is being carried out on behalf of someone else who is engaged in money laundering or terrorist funding;

- in every case where the practice forms or resolves to form a business relationship.

The terms "relevant financial business", "business relationship" and "one-off transaction" are defined in the Regulations (r.2 (1)).

Identification has a number of aspects, for example, name, date of birth, place of birth, address, occupation, appearance and so on. For the purposes of the Regulations "satisfactory evidence of identity" is evidence which is reasonably capable of establishing (and does in fact establish to the notary's satisfaction) that the client is the person he claims to be. Practices have to decide what pieces of information to verify although as a minimum this should include the full name of the client and EITHER his date and place of birth OR his current address.

In cases where a client acts or appears to act for another person (natural or legal), the Regulations require the notary to take reasonable measures to establish the identity of that other person.

Examples of satisfactory evidence of identity are given in paragraph 5.8 of these guidance notes. For more detailed information about types of evidence that customers might use to prove they are who they say they are, reference may be had to Part I, Chapter 5 of the JMLSG Guidance for the UK Financial Sector www.jmlsg.org.uk published by the Joint Money Laundering Steering Group (JMLSG) in January 2006.

However, depending upon the notary's assessment of the money laundering risk inherent in a particular transaction or activity, he may need to make broader enquiries of his client and his affairs than merely establishing his identity - additional information collected in respect of a client is referred to as "know your customer" or "KYC" information and is an essential tool in managing the money laundering risk. However, the nature of notarial work is such that the notary will often have less opportunity to obtain this information than other legal professionals: notaries need to be aware that this factor increases the risk that they may unwittingly become involved in money laundering activity.

The Guidance for the UK Financial Sector referred to above identifies two broad reasons why practices need to "know their customers"(para. 5.1.3)

  • to help the practice, at the time due diligence is carried out, to be reasonably certain that customers are who they say they are, to know whether they are acting on behalf of another and that there is no legal barrier… to providing them with the product or service requested;

  • to enable the practice to assist law enforcement, by providing available information on customers or activities being investigated.

(ii) Record Keeping Procedures (Regulation 6)

The Notaries Practice Rules 2001 already require notaries to keep records sufficient to identify "the person or persons … intervening in a notarial act and the method of identification of the party or parties so intervening". The Regulations go further by requiring that copies of the evidence of identity produced be retained by the notary, a practice which many notaries already in fact follow. They also require the notary to maintain a record containing details of all transactions carried out in the course of Relevant Business.

Records of identity must be kept for at least five years:

- where a business relationship has been formed, from the date on which the relationship ends. (See paragraph (i) above for the definition of "business relationship");

- In the case of a one-off transaction (or a series of such transactions), from the date of completion of all activities taking place in the course of that transaction (or, as the case may be, the last of the transactions). (See paragraph (i) above on one-off and linked transactions.)

Details of each transaction must be kept for at least 5 years commencing with the date on which all activities taking place in the course of the transaction were completed. In most cases, keeping a copy of the client file and the accounting records for this period should satisfy this requirement. This is of course without prejudice to the notary's obligations under the Notaries Practice Rules and any other statutory or regulatory requirements relating to the keeping of records.

(iii) Internal Reporting Procedures (Regulation 7)

Practices must designate a Nominated Officer to whom anyone in the practice handling relevant business who knows or suspects, or has reasonable grounds to know or suspect, that a transaction involves money laundering must report. Failure to report in such circumstances is a criminal offence for the purposes of the Proceeds of Crime Act 2002, s.330.

The function of the Nominated Officer should be fulfilled by a partner in the practice or a senior employee with sufficient authority, responsibility and experience to obtain all relevant information. It then will be the responsibility of the Nominated Officer to consider that report and if appropriate make a formal report to the Serious Organised Crime Agency (SOCA). A Nominated Officer will commit an offence if, as a result of a disclosure received by him under section 330, he knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering and fails to report as soon as practicable to SOCA.

A sole practitioner, who does not employ or act in association with anyone else, does not have to maintain internal reporting procedures under Regulation 7, nor appoint a Nominated Officer. However, other parts of the Regulations and the money laundering criminal law still apply and the sole practitioner must report to SOCA if he or she knows or suspects money laundering, or has reasonable grounds for suspicion.

(iv) Training (Regulation 3)

Appropriate employees, in particular any who conduct Relevant Business on behalf of the practice, must be made aware of the provisions of the Regulations, Part 7 of the Proceeds of Crime Act 2002 (attached as Schedule 2 together with the Proceeds of Crime Act 2002 (Business in the Regulated Sector and Supervisory Authorities) Order 2003 and the Procceds of Crime Act 2002 (Money Laundering: Exceptions to Overseas Conduct Defence) Order 2006) and sections 18 and 21A of the Terrorism Act 2000 (attached as Schedule 3 together with the Terrorism Act 2000 (Business in the Regulated Sector of Supervisory Authorities) Order 2003. Furthermore, such employees must be given training in how to recognise and deal with transactions which may be related to money laundering. It is the responsibility of individual practices to determine how and to whom that training is to be given, and how often it is to be repeated, for example by requiring staff to attend seminars or undertake self-teach courses, or a combination of both. Practices will also need to decide the level of training appropriate to different categories of staff.

Section 5 (Answers to common questions)

General

5.1 Can you give any help regarding the categories of work where the Money Laundering Regulations will apply?

The Regulations apply to "Relevant Business" as defined in Regulation 2(2). This definition includes:

(l) the provision by way of business of legal services by a body corporate or unincorporate or, in the case of a sole practitioner, by an individual and which involves participation in a financial or real property transaction (whether by assisting in the planning or execution of any such transaction or otherwise by acting for, or on behalf of, a client in any such transaction);

(m) the provision by way of business of services in relation to the formation, operation or management of a company or a trust;

5.2 Are there any particular circumstances in which a Notary might be at risk of being used for money laundering or terrorist funding?

See section 1 paragraph (ii). Additionally, the following general comments may be helpful although the examples given do not purport to be exhaustive:

a. Sale and purchase of real estate, ships and other major assets.

In both purchase and sale transactions, proper identification must be undertaken of clients and enquiry made as to the source of incoming funds; that source may need to be investigated, particularly if the funds are received otherwise than from the identified client's own bank account or a recognized financial institution. Any changes to a funding arrangement, particularly when carried out without reasonable explanation and close to the settlement date require to be considered, particularly if funds are being introduced from a third party.

Purchasing an asset in a nominee name for the benefit of an undisclosed principal also requires to be considered carefully to ensure you have properly identified the ultimate beneficial owner and satisfied yourself that the source of funds is legitimate. Note that the 3rd EU Money Laundering Directive will introduce a requirement to take adequate measures to verify the identify of the beneficial owner.

Ownership of real estate is a very desirable target for money launderers. Setting up a number of unnecessary steps in creating final ownership or holding the title in a corporate vehicle is a popular device employed by criminals and professional money launderers.

The simple step of providing funds as a deposit for a substantial conveyancing transaction or on account of fees and disbursements for future work, then cancelling the project and seeking recovery of the funds to the originator or a third party's nominated account is another popular device to use legal professionals to achieve the money launderer's ends.

b. Trusts and Offshore Investment vehicles; unusual business structures.

The creation of specialist trusts or other corporate structures sometimes in an offshore jurisdiction, in such a way as to obscure the true beneficial ownership of funds or assets is also a popular target for money launderers. However, industry norms must be taken into account: for example, in the shipping industry complex corporate structures (often involving offshore companies) are widespread and - although care should be taken to identify the vessel managers or ultimate owners - their use in this context may not by itself be a reason for undue suspicion.

Particular care should be taken in dealing with monies which are being placed offshore as part of a tax planning regime. Tax avoidance is legitimate but tax evasion constitutes a criminal offence and would amount to money laundering for the purposes of the Proceeds of Crime Act 2002.

 

Note: Tax avoidance is the legal utilisation of the tax regime to one's own advantage, in order to reduce the amount of tax that is payable by means that are within the law. Examples of tax avoidance involve using tax deductions or changing one's tax status through incorporation; depending on the legal regime applicable to the tax payer, it might even extend to establishing an offshore company, trust or foundation in a tax haven. By contrast tax evasion is the general term for efforts by individuals, firms, trusts and other entities to evade the payment of taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability, and includes, in particular, dishonest tax reporting (such as under declaring income, profits or gains; or overstating deductions).

 

Generally, the notary should be wary of business structures which appear abnormal, unduly complicated or are outside his professional experience; in the latter case he should decline to act.

c. Probate.

Although this is much less likely to be an area of concern, money laundering issues may arise. Unusual instructions from beneficiaries or legatees regarding the payment of funds to their order should be reviewed, particularly if the sums are in any way substantial. There may also be tax issues, for example where the deceased under-declared his income during his lifetime. Also, it may become apparent during the winding-up of an estate that certain assets represent the proceeds of acquisitive crimes committed by the deceased. As was mentioned in paragraph 1(i) for the purposes of the anti-money laundering regime it is irrelevant how long ago the criminal conduct took place.

d. Investment Business.

This activity, although unlikely to have any relevance to ordinary notarial practice, is specifically defined as a regulated activity by the Money Laundering Regulations and must always be handled with particular care.

5.3 What checks should be made on client funding?

Where you are substantively involved in the planning or execution of a transaction, it is recommended that you take appropriate steps to check the source of funds.

5.4 How do I go about checking the source of a client's funds?

There is a simple flowchart attached to these notes under sections 7 and 8. Use them to help your checking system. Extra enquiries are needed if the funds are provided in cash, bank drafts or third party cheques. Be alert to last minute changes to the source of funds - this is a common ploy used by money launderers.

5.5 Is it ever safe to accept cash?

Yes - if you are told at the start about cash being used by the client and you have made reasonable enquiries about the reasons why the client is using cash and its source. However, you may wish to establish a policy limiting the amount which you will accept. Record the explanations and your reasons for being satisfied in the particular circumstances.

5.6 How can I minimise the risk of assisting in the carrying out of a transaction involving money-laundering?

Knowing your customer, understanding and complying with the requirements of the Proceeds of Crime Act 2002 and the Regulations is the surest recipe for minimizing the risk. Additionally, you should make a full note of your enquiries and answers in connection with client identification and (where relevant) source of funds and of course keep copies of relevant documents. Ask all the relevant questions at the earliest stage of any transaction. If you are instructed by an existing client after some years without contact, recheck the whole position. If you receive regular instructions from the same client, consider whether there is any pattern to these instructions which might give rise to suspicion, particularly if you are not sure of the underlying background. Be sure to enquire as to the client's general financial background, and specifically check the intended source of funds to be produced later in the transaction. Emphasise the fact that changes late in the day may affect your ability to proceed with the matter. Include a reference to this in your Terms of Business letter.

You should also make a note of any concerns which you may have raised at the time and fully record the client's response. This record is important to you and may in fact become very significant at a much later date in circumstances where criminal investigations are being carried out or you have to satisfy a court that you acted reasonably in not making a disclosure. Your notes should state any reasons why no disclosure was made.

Verifying identity

5.7 Do I have to identify clients?

Yes. Refer to paragraph 4(i) above. Quite apart from your obligations under the Practice Rules, if, when carrying out Relevant Business as defined by Regulation 2 (2), satisfactory evidence of the identity of new clients in compliance with the Regulations is not obtained you must not proceed with the transaction, activity or business relationship. Note, however, the transitional provisions in the Regulations (r. 30) which mean that you do not have to identify clients with whom you formed a business relationship prior to 1 March 2004

5.8 When is evidence of identity satisfactory?

When it is reasonably capable of establishing that the client is the person he claims to be; and when the person who obtains the evidence is satisfied, in accordance with the procedures maintained under the Regulations, that the evidence does establish that the client is the person he claims to be.

For individual clients it is suggested that, for the purposes of the Regulations, that you obtain evidence showing: -

- physical appearance (i.e. photographic evidence)

- the true name and/or names used

- EITHER the date and place of birth

OR current permanent address, including postcode

Documents appropriate to evidence physical appearance, full names and date of birth might include the following:

- a document from an official source which has a photograph of the applicant, e.g. a current valid full passport or national identity card or new style driver's licence.

The following are examples of documentary evidence of address:

- confirmation from an electoral register search that a person of that name lives at that address;

- a credit reference agency search;

- an original recent electricity, gas, telephone, council tax bill or bank statement.

 

Note: documents differ in their integrity, reliability and independence - for example greater reliance may be placed on a document issued by a government department (such as a passport or driver's licence) than by a private organization such as a utility provider. For detailed advice on this point, consult section 5.3 of the Guidance for the UK Financial Sector published in January 2006 by the Joint Money Laundering Steering Group.

 

For corporate clients

No specific steps are needed if clients are:-

- a listed company or a subsidiary of a listed company although the notary will need to be satisfied that the individual appearing does in fact represent that company;

- a private company or partnership one or more of whose directors/partners have already been identified in accordance with the Regulations.

Steps are needed if clients are:-

- an unquoted company or a partnership and none of the directors/partners has already been identified, in which case the identity of one or more of the controlling directors/partners and/or shareholders (generally those holding 25% or more of the issued capital) as applicable should be verified as if they were individual clients (see above).

You should also verify the existence of a company by obtaining copies of:-

- certificate of incorporation/certificate of trade/goodstanding certificate or equivalent;

- and perhaps for companies their latest report and accounts (audited where applicable).

Where appropriate, the above information may be obtained by an on-line search of the relevant companies' registry. Note, however, in the case of companies incorporated in England and Wales, that Companies House rarely checks the information supplied to it; accordingly the filed records of directors, shareholders etc. must be treated with caution.

The Regulations require the retention of copies of documents which you obtain to identify your client or information as to where a copy of that evidence can be obtained(or where neither of these options are reasonably practicable, information enabling the evidence of identity to be re-obtained); this goes somewhat beyond the record-keeping provisions of the Notaries Practice Rules 2001 which require the notary to maintain records "sufficient to identify…the method of identification of the party or parties intervening in the notarial act …", but fall short of requiring retention of copies of the identification documents. For more detailed information on documents appropriate for identifying clients reference may be had to sections 5.3 and 5.4. of Part I of the JMLSG Guidance for the UK Financial Sector referred to above. However, notaries should always bear in mind that the key to effective compliance with the legislation is risk assessment and risk management. Accordingly, subject to compliance with the Practice Rules, a common sense risk-based approach should be applied to determining the extent of identification requirements in particular cases.

5.9 How do I go about deciding if I need to comply and also in identifying new clients - particularly when all I am doing is authenticating a power of attorney or other document?

Where your role is limited to the authentication of documents (including certifying their execution) which form part of a transaction in whose execution or planning you are not otherwise involved the Regulations do not apply; however, this does not affect your obligations as a notary to identify your client in accordance with proper notarial practice. Where the Regulations do apply, the notary's obligation is to satisfy himself as to the identity of the client and, if the client acts in a representative capacity, take reasonable steps to establish the existence of the person or entity whom the client represents. For this purpose, the principal's existence might be established by, for example, production of a notarized power of attorney or other written authority, a search of the relevant companies register, a letter of introduction or written assurance from a law practice or other regulated body, or by the notary contacting the principal. If in doubt there is a Verification of Identity Flowchart and an Evidence of Identity Form at sections 6 and 7.

Most notarial business is by its nature conducted on a face-to-face basis. In cases where a client is not physically present, additional considerations apply. The JMLSG Guidance for the UK Financial Sector (Part I, paras. 5.4.26 et seq.) referred to in Section 4 above is a useful reference for managing the risks inherent in such circumstances.

The record-keeping requirements under the Regulations must of course be complied with.

Record Keeping

5.10 What records do I have to keep and for how long?

See section 4(ii) above. Remember that different periods apply under the Accounts etc and Practice Rules.

5.11 Does the Proceeds of Crime Act 2002 affect the records I need to keep?

Yes. The Act creates specific powers to allow an investigation of your client accounts, files and records. It is important to keep detailed records including notes of meetings and telephone calls. An examination of these records will expect to find explanations or evidence which demonstrates your reasonable enquiries made of the client at the appropriate time.

For further advice on this, see paragraph 5.6 above.

Grounds for suspicion

5.12 What should I be looking out for as suspicious circumstances?

Financial position, other business interests, property ownership are all important, i.e. more than just the specific business being brought to you. Local knowledge is important - the client may already have a dubious reputation.

WARNING SIGNS -

- An address c/o a third party

- Delays in providing ID documents

- Mobile phone line as only contact

- No contact address

- No clear business purpose for the activity proposed

- Unlikely proposal from the individual in front of you

- Evasive answers or a failure to answer your questions.

- Delays in producing funds and/orv

- Switching the source of funds e.g. producing a bank draft instead of a personal cheque

- Unusual destination of funds or destination different from that expected

- Destination of funds is a country classified by FATF as a Non-Cooperative Country or Territory (see Section 9 below)

- Being asked to hold substantial funds without a clear purpose

- Being asked to issue the client funds for a different purpose than that originally sought- such as buying expensive cars, boats or other luxury items which do not need a notary to be involved in the normal course of business.

- Being asked to participate in creating tax planning structures where tax evasion may be a factor.

N.B. The above list is not exhaustive.

5.13 Any other advice about what constitutes suspicious activity which should be reported to the Nominated Officer?

Know your clients and always take time to look at the big picture. You need to do more than tick boxes. In taking on new work or a new client it is best practice to get adequate information concerning income streams - employment, businesses or investment vehicles. Sudden affluence on the part of an existing client may warrant enquiry. Carrying out these checks will help to understand your clients' needs and type of legal/financial services which are likely to be required - this makes good business sense as well as minimizing the money laundering risk. If the client is an established businessman or woman, be sure to check as to other legal professionals who are also retained by them. All these enquiries are meant to help you to understand your client and their legal needs. It will allow you to advise them properly. It may also help with any concerns leading to suspicions which may arise during the transactions. Detailed enquiries made at the early stages may provide the answers to concerns or suspicions of money laundering which develop at a later stage. If you have any cause for concern, review the file and report to the Nominated Officer (or directly to SOCA if you are a sole practitioner).

Information about foreign jurisdictions with high risk assessments as identified by the Financial Action Tax Force can be found on the following web-site: http://www.oecd.org/FATF/ . Further information on FATF is given in section 9 below.

5.14 What should I do if I receive funds from a suspicious source where I might be deemed to "know" that the money belongs to a third party other than my client?

This raises the prospect of a constructive trust being created. This is a complex area of civil law, and creates a risk of your becoming in breach of trust by handling the funds in a manner which is detrimental to the rights of the original owner. A suspicion about funds arising from a fraud or other criminal activity will result in having to consider the question of whether to continue with the arrangement. If you find yourself in such circumstances or in any case where you are unsure of your position under the Proceeds of Crime Act, take advice from a suitably experienced solicitor, particularly on the need to obtain appropriate consent from SOCA (see para. 5.19) below.

Disclosures

5.15 Do I have to have a Nominated Officer?

Yes, unless you are doing no Relevant Business or are a sole practitioner who does not employ or act in association with another person.

5.16 What do I have to tell the Nominated Officer?

As explained above, the Proceeds of Crime Act 2002 introduced a range of offences, including that of failure to disclose knowledge or suspicion of money laundering. Any information or other matter which comes to your attention in the course of handling Relevant Business, as a result of which you know or suspect or have reasonable grounds for suspecting that a person is engaged in money laundering should be reported to your Nominated Officer.

"Reasonable grounds" are a matter only a court can determine, but it seems clear that the following circumstances will not give rise to a defence to a charge of failure to disclose:-

  • Turning a blind eye to the obvious
  • Recklessly failing to make enquiries
  • Negligently failing to assess the facts.

 

Note - The assessment is made by reference to the information available at the time, the individual's experience and awareness, actions and inquiries, training given and comparison to a peer group, "the reasonably competent notary". It is therefore important to take all reasonable steps to know your client's business circumstances and understand the underlying reasons for the transactions. In this connection, it may be helpful to refer to guidance issued by other legal professional bodies, and in particular you are referred to paragraphs 6.35 - 6.48 of the pilot money laundering guidance issued to solicitors by the Law Society of England and Wales.

 

If you disclose your suspicions to your Nominated Officer and record the fact that is your responsibility concluded. The Nominated Officer has to consider the whole position and disclose the position or not to SOCA, according to the situation. You must not proceed with the transaction without the consent of the Nominated Officer.

If you are a sole practitioner you must report directly to SOCA.

 

DO NOT TELL ANYONE OTHER THAN THE NOMINATED OFFICER THAT YOU HAVE MADE A REPORT OR DISCUSS MAKING A REPORT WITH YOUR CLIENT. Tipping off is an offence under the Proceeds of Crime Act 2002, section 333. Refer to paragraph 5.22 below. Note that there are exception under POCA ss. 333 and 342 to the tipping off offences which apply to "professional legal advisers". These exceptions are covered in detail in the pilot money laundering guidance issued by the Law Society of England Wales www.lawsociety.org.uk (see paras. 4.59 et seq.), but notaries should be wary of relying on these exceptions since their role will often be that of independent certifying officers rather than of legal advisers.

 

5.17 What does the Nominated Officer have to do?

Consider all such reports and any other relevant information and decide if this gives rise to a knowledge or suspicion of money laundering or reasonable grounds for such knowledge or suspicion. If so pass that information to SOCA. Keep a record of what he/she decides to do and why. Copies of reports submitted and notes of any contacts with SOCA should of course be kept; as recommended above (see paragraph 5.6), these should be stored separately from the client's file.

5.18 How should a disclosure to SOCA be made?

Although no reporting format is currently prescribed, SOCA's preferred method is for reporters to submit their suspicions on the SOCA Suspicious Activity Report (SAR) Format. The form can be downloaded from the SOCA website www.soca.gov.uk where advice on its completion will be found. SOCA prefers reports (including consent requests) to be submitted electronically via the internet-based SAR reporting mechanism "SAR Online" which has been established on the SOCA web-site.

SAR Online was constructed in consultation with SARs reporters and aims to provide a range of benefits to the reporting sectors, including:

  • Effective and secure web-based electronic reporting
  • On-line user groups to facilitate information-sharing
  • Ability to save work in progress for up to 28 days
  • Capacity to store copies of reports submitted locally
  • Speedy acknowledgment of submissions.

Alternatively, reports may be submitted by fax or post, but neither of these methods is encouraged.

In urgent consent cases, telephone or fax the SOCA duty officer, but note that SOCA is unable to give legal advice.

Telephone Number: 020 7238 8282

Fax Number: 020 7238 8286

5.19 When should the disclosure be made?

Disclosure should be made as soon as practicable after the information on which your knowledge or suspicion that another person is engaged in money laundering comes to you. When disclosure is made before a "prohibited act" takes place, this forms a request for consent to do a prohibited act. Consent is covered in more detail in paragraph 5.20 below. A prohibited act is involvement in one of the following money laundering offences established by POCA: concealing etc. (s.327), entering into an arrangement (s.328) or acquisition, use etc of criminal property (s.329). If the prohibited act is done before disclosure is made, the question of obtaining consent does not arise, but if disclosure is not made as soon as is practicable, you may commit an offence of failure to disclose (POCA ss. 330,331 and 332).

SOCA Consent

5.20 How is SOCA consent obtained to proceed with a suspicious transaction?

Once a pre-transaction disclosure has been made, the transaction must not be proceeded with unless appropriate consent is obtained from SOCA. A period of up to seven working days may be needed to obtain consent. If you hear nothing from SOCA for seven working days starting the day after the disclosure is made, consent may be presumed and you may proceed with the transaction. If consent is refused within that seven day period, you cannot proceed for a further 31 calendar days starting on the day of refusal unless consent is given prior to the expiration of that period. These procedures are set out in greater detail in chapter 7 of the Law Society of England and Wales pilot Guidance on Money Laundering. This can be accessed at www.lawsociety.org.uk/professional/conduct/guideonline. Reference may also usefully be made to the JMLSG Guidance to the UK Financial Sector already mentioned.

Tipping-off

5.21 Most of my work involves attesting documents for clients on a "while they wait" basis. If I am suspicious, how do I tell the client that I am unable to deal with the matter without "tipping him off"?

On admission, a notary swears that he will not perform a notarial act in cases where he knows there is violence or fraud, and this duty is paramount. If a client brings in a document which the notary suspects is being made for a fraudulent purpose and it is impractical for the notary to retain possession of the document without alerting the client of his suspicions, he should simply inform the client that he is unable to act, return the document to him unattested and report the matter to the Nominated Officer for him to consider making a report to SOCA based on such information as is available. However, in circumstances where the client is not expecting the immediate return of the document (e.g. the notary is arranging legalisation), the Nominated Officer should submit a report to the SOCA Consent desk prior to taking any action with regard to the document.

Consent Desk Officer -

Telephone No: 020 7238 8282

Fax No: 020 7238 8286

Client confidentiality/privilege

5.22 What about my duty of confidentiality to the client? Does legal professional privilege apply?

As a notary, you are obliged to keep the affairs of your client confidential. In the case of solicitors, the client's right to confidentiality is protected by the doctrine of legal professional privilege; under section 330(6) of the Proceeds of Crime Act 2002, the failure by a "professional legal adviser" to make a disclosure is not an offence if the information or other matter giving rise to his suspicion came to him in privileged circumstances. The extent to which legal professional privilege attaches to a notary's records has not been the subject of a legal decision in England and Wales, and in view of the notary's role as a public certifying officer his position is not necessarily analogous to that of other lawyers. Privilege is a difficult and evolving area of the law and one where, pending clarification of the status of notarial records, the notary may need to seek specific advice in particular circumstances. However, some assistance may be found in Chapter 4 of the pilot money laundering guidance issued by the Law Society of England and Wales.

Section 6 VERIFICATION OF IDENTITY FLOWCHART

Section 7 Verification of Client Identity Checklist

 

Note: Subject to compliance with the Notaries Practice Rules, the question of whether or not an ID document (or a combination of documents) is satisfactory evidence of the client's identity for the purposes of the Regulations depends upon the risks inherent in the transaction concerned. See the note to paragraph 5.8 above on the relative robustness of different categories of documents.
A RISK BASED approach is key to successful compliance

 

1. Evidence not obtained - reasons:-

Client previously identified in: - Month ……………Year………….

Client identified personally by - Name_________________________________________

Position_______________________________________

Other - state reason fully

___________________________________________________________________________________________________________

A. Evidence obtained to verify identity (see para. 5.8. above)

Valid national Passport

Valid photocard national driving licence (full or provisional)

Valid (old style) full UK driving licence

Armed forces ID Card

National Identity Card (non-UK nationals)

Firearms certificate or shotgun licence

Identity card issued by the Electoral Office for Northern Ireland

Instrument of court appointment (e.g. appointment as liquidator or grant of probate)

Recent evidence of entitlement to state or local authority-funded benefit, tax credit, pension, educational or other grant*

Building Society passbook*

Credit Reference agency search*

Utility bills* (not ones printed off the internet)

Mortgage statement*

Council tax demand*

Bank/Building Society/credit card statement* (but not ones printed off the internet)

Home visit to applicant's address*

Check of voters roll*

*Suitable for proof of address only.

B. Evidence obtained for unquoted company or partnership

Certificate of Incorporation or equivalent

Certificate of Trade or equivalent

Company search

Latest report and audited accounts

Principal shareholder/partner

Principal director

I confirm that:-

a) I have seen the originals of the documents indicated above and have retained copies (if copies not retained, state why and give full particulars of documents inspected on separate sheet), or
b) In accordance with the Regulations, evidence is not required for the reasons stated.

Signed _________________________________

Date _____________

Section 8 MONEY LAUNDERING CHECK LIST

Source and destination of Funds

If you have properly identified the new client, this flow chart should be used to ensure that the appropriate level of checking is applied to the funds.

Question

Have you received funds from the client?

Question 2 Have you received non cash payment?

Section 9 FINANCIAL ACTION TASK FORCE (FATF) BLACKLIST

As at 1 December 2006 there were no countries or territories listed as NCCTs (non-cooperative countries and territories) by the FATF.

Updates of this FATF list can be obtained at www.oecd.org/FATF/ and refer to the Joint Money Laundering Steering Group website www.jmlsg.org. uk for information on country risk generally.

 

NOTE: The FATF is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing. Since its creation the FATF has spearheaded the effort to adopt and implement measures designed to counter the use of the financial system by criminals. The principal objective of the NCCT initiative is to reduce the vulnerability of the financial system to money laundering by ensuring that all financial centres adopt and implement measures for the prevention, detection and punishment of money laundering according to internationally recognised standards.

 

Section 10

Specific Guidance to Nominated Officers

Now that you've accepted the responsibilities for implementing your practice's anti-money laundering policies do you have an adequate set of procedures to meet the requirements of the anti-money laundering legislation and your policy objectives?

1. Training and management issues.

  • What type of training do you have in place?

  • Which of your partners and employees have been trained?

  • Do you know how sound their grasp of the task is?

  • Do you train new employees?

  • What about refresher/update courses?

  • Do you share the answers to these questions with the partnership?

  • Have you got clear lines for reporting and following up?

  • Do you have the right support and resources to cover this challenge?

  • Do you have the influence within the partnership to change procedures once you have identified a problem within the practice?

  • When setting up a new branch or creating a new department have you considered the risk of money laundering in this area and given training?

  • If you have overseas connections and clients, do they feature in FATF lists of Non-Co-operative Countries and Territories?

2. Monitoring performance.

  • Do you understand under what circumstances consent is required?

  • Do you have a list of suspicious transaction reports?

  • If you have no reports, is this a worry? (see training).

3. Reporting.

  • Do you have access to all the relevant information held by your business to enable you to make an informed decision about disclosing "suspicious activity" to SOCA?

  • Do you have access to the SOCA forms - see Schedule 4 of these notes?

  • Do you summarise your position and report to the partnership annually?

  • Do you know how to reach a safe decision on a suspicious transaction report?

  • Do you follow up for appropriate consent in all urgent cases?

4. Risk

  • Have you assessed your practice's risk of exposure to money laundering?

  • Have you developed and implemented a risk assessment policy for your practice?

If you are not comfortable with any of these questions and your response to them, please address them now. The benefits of conducting a thorough review and update of your policies and systems cannot be emphasised enough.

Take action now!

Schedule 1

Money Laundering Regulations 2003

Schedule 2

Proceeds of Crime Act 2002, Part 7 and related legislation

Schedule 3

Terrorism Act 2000, Part III and related legislation

TERRORISM ACT 2000 CHAPTER 11 PART III TERRORIST PROPERTY OFFENCES

s 18 Money laundering.

(1) A person commits an offence if he enters into or becomes concerned in an arrangement which facilitates the retention or control by or on behalf of another person of terrorist property-

(a) by concealment,

(b) by removal from the jurisdiction,

(c) by transfer to nominees, or

(d) in any other way.

(2) It is a defence for a person charged with an offence under subsection (1) to prove that he did not know and had no reasonable cause to suspect that the arrangement related to terrorist property.

s 21A Failure to disclose: regulated sector

21A Failure to disclose: regulated sector

(1) A person commits an offence if each of the following three conditions is satisfied.

(2) The first condition is that he--

(a) knows or suspects, or

(b) has reasonable grounds for knowing or suspecting,that another person has committed an offence under any of sections 15 to18.

(3) The second condition is that the information or other matter--

(a) on which his knowledge or suspicion is based, or

(b) which gives reasonable grounds for such knowledge or suspicion, came to him in the course of a business in the regulated sector.

(4) The third condition is that he does not disclose the information or other matter to a constable or a nominated officer as soon as is practicable after it comes to him.

(5) But a person does not commit an offence under this section if--

(a) he has a reasonable excuse for not disclosing the information or other matter;

(b) he is a professional legal adviser and the information or other matter came to him in privileged circumstances.

(6) In deciding whether a person committed an offence under this section the court must consider whether he followed any relevant guidance which was at the time concerned--

(a) issued by a supervisory authority or any other appropriate body,

(b) approved by the Treasury, and

(c) published in a manner it approved as appropriate in its opinion to bring the guidance to the attention of persons likely to be affected by it.

(7) A disclosure to a nominated officer is a disclosure which--

(a) is made to a person nominated by the alleged offender's employer to receive disclosures under this section, and

(b) is made in the course of the alleged offender's employment and in accordance with the procedure established by the employer for the purpose.

(8) Information or other matter comes to a professional legal adviser in privileged circumstances if it is communicated or given to him--

(a) by (or by a representative of) a client of his in connection with the giving by the adviser of legal advice to the client,

(b) by (or by a representative of) a person seeking legal advice from the adviser, or

(c) by a person in connection with legal proceedings or contemplated legal proceedings.

(9) But subsection (8) does not apply to information or other matter which is communicated or given with a view to furthering a criminal purpose.

(10) Schedule 3A has effect for the purpose of determining what is--

(a) a business in the regulated sector;

(b) a supervisory authority.

(11) For the purposes of subsection (2) a person is to be taken to have committed an offence there mentioned if--

(a) he has taken an action or been in possession of a thing and

(b) he would have committed the offence if he had been in the United Kingdom at the time when he took the action or was in possession of the thing.

(12) A person guilty of an offence under this section is liable--

(a) on conviction on indictment, to imprisonment for a term not exceeding five years or to a fine or to both;

(b) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum or to both.

(13) An appropriate body is any body which regulates or is representative of any trade, profession, business or employment carried on by the alleged offender.

(14) The reference to a constable includes a reference to a person authorised for the purposes of this section by the Director General of the National Criminal Intelligence Service.