We have compiled answers to some of the most frequently asked AML queries to support the legal profession in complying with the regulations.
Remember, there is HM Treasury approved Guidance for the Legal Sector which you should familiarise yourself with if you have any queries on AML, along with lots of information across our own AML webpages, including a handy AML Toolkit.
We intend to update these pages periodically and as necessary with common questions from members.
Source of Funds (SoF) relates directly to the literal origin of funds to be used in a transaction.
That is likely to be a bank account. Generally, this would be evidenced by bank statements or similar. When recording the Source of Funds you should record the:
Amount and currency,
The remitting account details (bank, account number, sort code, name on account) as well as the transfer type (BACS, CHAPS, etc).
In circumstances where a client declares that they have been given funds for a transaction from a third party (e.g mum and dad financing a house purchase deposit) you may wish to record information relating to that original transaction too.
Where you have undertaken your client/matter risk assessment and you have deemed the client/transaction to be of higher inherent risk, you should complete Enhanced Due Diligence (EDD). As part of your EDD process, you should request historic bank statements to evidence incoming payments to the remitting account to establish the transaction value in order to be comfortable about where the monies originally came from.
As above, where monies have been received from a third party (e.g. mum and dad financing a house purchase deposit) you should verify this again by requesting bank statements and other relevant documentation relating to this transfer into your client account.
Source of Wealth (SoW) is the origin of the accrued body of wealth of an individual.
Understanding SoW is about taking reasonable steps to satisfy yourself that the funds to be used in a transaction are not the proceeds of crime.
In a low/medium risk transaction, you may be comfortable only identifying the SoW - asking and recording how the client has obtained the funds for a transaction.
Where you have undertaken your client/matter risk assessment and you have deemed the client/transaction to be of higher inherent risk, you should be completing Enhanced Due Diligence (EDD). As part of your EDD process you should verify the SoW with evidence obtained from the client or independent sources until you are comfortable you understand and can evidence where the client's wealth has been derived from and (to the best of your knowledge) is legitimate.
You should also document your rationale in a file note.
This table gives a few examples of ways you might consider evidencing Source of Wealth.
When addressing SoW, consider -
- Whether you are comfortable that the funds are not the proceeds of crime
- Whether the SoW is commensurate to your client in general i.e. does it make sense that the client in front of you obtained their wealth in the way that they have advised you?
Remember, you should document your decision-making processes and your reasons, along with any evidence you obtain for Source of Funds and SoW.
There are certain jurisdictions around the world which have been deemed as presenting various risks in terms of the funds you may receive from them (for example increased risks of money laundering, corruption, bribery, tax evasion etc).
There is no single global arbirtator on this. For example, the US State Department's Money Laundering Assessment is seperate from Transparency International's Corruption Index.
We have some useful links in our Jurisdictions and Sanctions section found on our Additional Support page.
In light of the information in these resources, should you deem the client or transaction to be of higher risk, based on jurisdictional risk and/or other factors, Enhanced Due Diligence should be applied. This would include verification of the source of wealth involved in the transaction, as per the previous FAQ.
Remember, certain jurisdictions, entities and individuals are sanctioned. This is different from the client/transaction or jurisdiction simply being of higher risk and it may preclude you from acting without applying for a licence to do so from the Office of Financial Sanctions Implementation (OFSI).
You should consult the UK government website for further information before progressing any such business. You may also wish to speak to our Professional Practice helpdesk.
A method for screening clients for Sanctions, Politically Exposed Persons (PEPs) and adverse media should be part of your usual procedures. You should implement a procedure relative to the size and nature of your business i.e. you may wish to carry out manual public sources checks or you may wish to employ a third party electronic platform to carry out these searches for you. See our later FAQ on electronic providers.
You will find helpful information in the Financial Sanctions Guidance provided by The Office of Financial Sanctions Implementation (OFSI), (which is part of HM Treasury) and the UK Sanctions List on the UK Government website.
If your client cannot attend your office at any point in the transaction, you may first wish to consider why. A client who avoids much interaction with you may be a red flag, especially if that client is local to you. You should also consider any compounding risk factors.
There will, of course, be times where a client legitimately cannot attend. In this instance you should obtain a copy of their ID which should be certified by an appropriate person. The UK Government website lists these persons. You should be satisfied that the person certifying the document genuinely holds the position they claim to.
Alternatively, you may wish to use R.39 "Reliance" to obtain relevant Customer Due Diligence (CDD) information (including ID and verification) on your client from another regulated professional. This is different to simply obtaining an appropriate certified document. For further information on using this regulation please see the Legal Sector AML Guidance. Please note that at all times the relying firm will remain responsible for the adequacy of the due diligence you obtain under the terms of R.39.
If your client is not attending and someone else claims to be acting on behalf of this person, this is a separate issue and you must (under Regulation 28.10) verify that that person acts on behalf of your client as well as verifying the representative's identity.
There may be legitimate requests to send payments to a third party (e.g. pay Registers of Scotland or similar providers necessary to the smooth running of the underlying transaction) and therefore there is no Accounts Rule permitting or disallowing this, however, you should keep in mind that there are risks associated with undertaking this, especially if the request is unusual or there appears to be no normal business rationale for doing so. This may represent a risk as these payments can circumvent all the good CDD work you have carried out on the parties in a transaction. We therefore do not recommend paying money to a third party, other than in the normal course of business.
Generally, we recommend paying funds back to the client, who can transfer it on from there.
There are various commercial providers of electronic identification/verification (including Sanctions, PEPs, Adverse Media Checkers, Company Registry Information Providers, and verification of Identification Providers), which collate information from sources such as electoral rolls and other governmental records, credit agencies etc.
These may be acceptable as part of Identification and verification however the onus is on you to take appropriate steps to understand how the tool works, where it derives its data from, how it searches and be satisfied as to the validity and reliability of the information the tool is reporting. Further, you should consider the GDPR/Data Protection implications for incorporating one of these systems into your procedures.
Please note, we do not endorse any particular provider of these services, nor can we make any statement regarding the quality of the underlying data they use or how they collect/use/store this, or your client's data.
Your AML policy statement is the organisation-level document which sets out your approach to AML within your business. You can find an outline policy here, which outlines all necessary sections. Please tailor this to the individual circumstances of your business.
Where you conduct any business on an ongoing basis or which has a recurring element, you must conduct ongoing monitoring. This allows you to ensure you remain compliant. The Money Laundering Regulations stipulate that ongoing monitoring must include;
- Scrutiny of transactions to ensure that the transactions are consistent with your knowledge of your customers business and risk profile
- Undertaking reviews of existing records and keeping the documents or information obtained for the purpose of applying customer due diligence measures up to date.
For long-term business/clients, you should have a clear policy and procedures around how often, and in what way, your AML checks are to be refreshed. At a minimum you should assess the service provision, any changes in ownership and Identification and verification documents for anything which may represent a material change to the risk profile or the validity of your records. These refreshes should be recorded by your business.
If a transaction/matter is undertaken over a more significant timeframe (where significant factors may change such as those involved in the transaction, the amounts involved or even the underlying assets) it may be necessary to undertake interim risk assessments to ensure the risk profile of the transaction has not changed. These interim assessments should also be recorded.