Partner Article

Money Laundering - 15 December 2007 Reminder

With Watson Burton LLP Law Firm

15 December 2007 sees the Money Laundering Regulations 2007 come into force, to repeal and replace the current Money Laundering Regulations 2003. Whilst there are many parallels between the two Regulations, there are also several differences of which “Relevant Persons” (as defined in Regulation 3, encompassing financial institutions and the legal profession amongst others) will need to be mindful. This article only provides a very brief overview on three areas of the 2007 Regulations. For further details the HM Treasury website is recommended.

Client Due Diligence

When entering into a business relationship, Relevant Persons should identify their clients and understand the purpose and nature of the intended relationship. This should help detect any abnormalities that may suggest money laundering. The 2007 Regulations require due diligence on a risk sensitive basis, so that:

• ‘simplified due diligence’ is required where there is a low risk of money laundering. For example:
  • company searches and evidence of listing should suffice as identification for those listed on a recognised stock exchange; or
  • evidence that the client is regulated by the FSA
• ‘enhanced due diligence’ for those with a high-risk status, for example remote transactions where the client is not physically present to be identified. Additional documents, dependant upon the circumstances, should be requested
• “beneficial owners” should also be identified, to prevent launders from hiding behind any client entities
• the business relationship should be scrutinised throughout its existence and not just at the beginning

In addition, Relevant Persons may rely on due diligence conducted by those regulated by the FSA or supervised by a listed professional regulator e.g. the Solicitors Regulation Authority. Relevant Persons will however, become liable for any failures of those upon whom they are relying and so should only depend on third parties they completely trust.

Due diligence is a complex area and advice should be sought if uncertain.

Regulation Compliance

Non-compliance is a criminal offence and so to monitor observance:

• Relevant Persons must register with one of the supervisory bodies, listed in Regulation 23, by 15th December 2007
• for those who do not register, HMRC will now act as a default regulator
• spot checks will be carried out

What should relevant persons be doing?

Training and reviewing current systems before 15 December 2007!

• all relevant employees should be given adequate training for them to recognise and deal with transactions involving money laundering
• although the 2007 Regulations state that training should be ‘regular’ they do not define how often that is; annual training is now generally regarded as what the new Regulations require
• untrained staff may have a defence for failing to disclose money laundering if s/he did not know or suspect it; however the Relevant Person could then be prosecuted for a breach of the Regulations

The key is to prepare, take heed of all obligations imposed and keep records as evidence of compliance. As seen throughout the years, consequences of failing to observe the Regulations, even if unintended, could lead to imprisonment!

If you have any comments or questions about this article or any corporate related matters, please contact Padma Tadi of Watson Burton LLP at padma.tadi@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .