Anti-money laundering could be any law, regulation or procedure designed to respond to the threat of money laundering. However, it can be hard to decipher the precise rules which you need to be aware of. This is because the AML policies and procedures which apply to your organisation will depend on a number of factors, such as the jurisdiction in which you are based, the customers you work with, and the products and services you offer. In this blog, we will focus on the AML rules which apply to the UK’s financial service firms and introduce the guidance produced specifically for this sector. 

The Proceeds of Crime Act 2002

The offences in the UK’s Proceeds of Crime Act 2002 (POCA) fit into two categories. First, are the ‘core’ offences that apply to everyone, and aren’t specific to the financial sector. These include:

• Concealing or disguising criminal property
• Removing criminal property from the jurisdiction
• Acquiring, using or possessing criminal property
• Entering into – or becoming concerned in – financial arrangements which you know or suspect involve criminal property

An arrangement concealing or transferring terrorist property could also be an offence under POCA. But this is explicitly prohibited under the Terrorism Act 2000. 

This is the sixth blog in series to help law firms grapple with the latest Legal Sector Affinity Group (LSAG) guidance on the Money Laundering Regulations.

In this series, we looked at some key points from the LSAG Guidance on the Money Laundering Regulations 2017. This included the different types of risk assessment which firms should undertake, as well as the general importance of the risk-based approach. We also discussed the need to undertake CDD on clients, and the various levels which can be applied in different situations (standard, simplified or enhanced).

In this, the last in our six-part series, we will address some of these points from a more practical perspective, and look at how technology can both save you time and help you remain compliant. We will also set out some of the potential problems posed by the use of technology, and explain how these can be averted. 

When can I undertake simplified CDD (SDD)?

This is the fifth blog in a series to help law firms grapple with the latest Legal Sector Affinity Group (LSAG) guidance on the Money Laundering Regulations.

In the previous LSAG blog, we looked at the situations which require enhanced due diligence (EDD). These are occasions where, due to a client’s risk profile, you must undertake more extensive checks than when applying standard CDD. 

In this blog, we will look at the situations in which the Regulations say you may consider applying simplified due diligence (SDD). The LSAG Guidance explains that, as SDD is,“the lowest permissible form of due diligence… [it] must only be used where you have determined that the client presents a low risk of money laundering or terrorist financing.”

When determining whether the client poses a low-risk of money laundering or terrorist financing, the Regulations state that you must consider the results of the risk assessment undertaken. Specifically, you must take into account:

This is the fourth blog in a series to help law firms grapple with the latest Legal Sector Affinity Group (LSAG) guidance on the Money Laundering Regulations. 

When do I need to undertake EDD? 

In the previous blog in this series, we introduced and defined client due diligence (CDD). We explained how CDD differs, depending on the type of client entity, focusing on the requirements for individuals and companies. We also mentioned that there are three different levels of CDD that can be applied when identifying your clients: standard due diligence, simplified due diligence (SDD), and enhanced due diligence (EDD).

In this, the fourth in our LSAG blog series, we will be looking more closely at EDD, and the situations which require you to examine a client’s background more thoroughly than the standard CDD process allows.

This is the third blog in a series to help law firms grapple with the latest Legal Sector Affinity Group (LSAG) guidance on the Money Laundering Regulations. 

What is CDD?

Client due diligence, or CDD, is the process of identifying your clients and checking that they are who they say they are. In practice, this is often viewed as a tick-box process, with CDD simply consisting of taking photocopies of passports and utility bills when new clients are onboarded. However, whilst that is often an element of what is required, CDD is far broader than that, with the exact information to be gathered (as well as the timing of when CDD should be revisited) depending on the circumstances. 

The LSAG Guidance explains: 

CDD is the collective term for the checks you must do on your clients, which may differ depending on the circumstances. It is holistic in nature and is wider than simply undertaking identification and verification of clients.

Some examples of what CDD processes can include are: 

• Identifying clients (and beneficial owners) and verifying their identities
• Assessing clients’ source of wealth
• When acting for an entity (rather than an individual) making sure you understand the client’s ownership and control structure

This blog is the second in a series of blogs set out to help firms grapple with the latest Legal Sector Affinity Group (LSAG) guidance.

A major part of a firm’s AML process is undertaking risk assessments. There are three levels at which a firm should assess the potential risk of exposure to money laundering and terrorist financing. As mentioned in our previous LSAG blog, these are practice-wide risks, client-related risks, and matter-level risks. The LSAG Guidance says that one should consider five “risk factors [which] should be addressed at any level of your practice’s risk assessments”. These are: 

1. Client risk factors
2. Geographic risks 
3. Product or service risks 
4. Delivery channel risks 
5. Transaction risks

What is the LSAG Guidance? 

In our last AML blog, we provided an overview of the main UK money laundering offences. We also addressed some of the obligations imposed on individuals and organisations governed by The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (the ‘Regulations’), as amended.

As mentioned in our previous blog, the Regulations apply to certain individuals and organisations, known as ‘relevant persons’. Law firms can be categorised as relevant persons if they are: 

• ‘Independent legal professionals’: this is anyone, ‘who by way of business provides legal or notarial services to other persons, when participating in [certain] financial or real property transactions’. A full list of those transactions is set out in the Regulations, and includes buying and selling property and managing client money. 
• ‘Tax advisers’ 
• ‘Trust or company service providers’ 

What does the term anti-money laundering mean?

‘Anti-Money Laundering’ or ‘AML’ could refer to any law, regulation or procedure designed to respond to the threat of money laundering. 

A typical money laundering scheme involves placing ‘dirty’ money into the financial system (placement), moving it around the system to hide its source (layering), and returning the ‘cleaned’ money to the criminal’s pockets (integration).  

Criminals launder money in order to mask the proceeds of crime, so that they appear to have originated from a legitimate source.

The AML laws and processes which are relevant to you will depend on the jurisdiction in which you are based, the organisation you work for, and the industries in which you or your clients operate.

Understanding the new anti-money laundering regulations

The Sixth Money Laundering Directive was required to be implemented into national law across the EU by 3 December 2020. In some countries, such as Germany who implemented the Sixth Directive last month, this required a paradigm shift in how money laundering offences are prosecuted in Germany. The German law abandoned the concept of a catalogue of predicate offenses in favour of an ability to capture profits derived from any criminal activity.