2nd European Money Laundering Directive • Apply to all 25 European nations • 3rd Directive due to come into force domestically by 15 December 2007 • Lawyers seen as front line against abuse
DOMESTIC REGULATIONS (2003) These regulations came into force in the UK on1March 2004 and impose the following obligations on UK law firms:- • To verify the identity of prospective new clients. • To have in place procedures to enable suspicions of money laundering activity to be recognised and reported.
KNOWING YOUR CLIENT Lawyers must be satisfied that they are dealing with a real person or organisation (natural, corporate or legal) and obtain satisfactory evidence of identity to establish that the client is that person or organisation. For the purposes of Regulations 2003 “satisfactory evidence of identity” is evidence which is reasonably capable of establishing (and does in fact establish to the satisfaction of the person obtaining it) that the client is the person he or she claims to be.
HOW CAN IDENTITY BE ESTABLISHED? • Individuals – UK Residents • Confirmation from an electoral register search that a person of that name lives at that address; • Passport; • Recent utility bill or statement; • Local council tax bill for current year; • Current full UK driving licence;
HOW CAN IDENTITY BE ESTABLISHED? • Individuals – Non UK Residents • Passport or national identity card as evidence of name and, if it gives it, an address. Can be certified by an embassy, qualified lawyer etc. • Where prospective client is a national of, or resident in, a country on the FATF list of non co-operative countries and territories lawyers are obliged to consider whether or not we need to carry out further checks to find out who the client is. • Separate evidence of client’s permanent residential address should usually be obtained. E.g. from a national identity card or a qualified lawyer who confirms that the client is known to him and that he lives or works at the address given.
HOW CAN IDENTITY BE ESTABLISHED? • Corporate Clients • UK Listed Company – Evidence of listing is sufficient. • UK Unlisted Company – Certificate of incorporation, lists of directors and shareholders and registered address is required. In addition individual identification evidence of the director, shareholder or other person normally instructing the Firm should be obtained. • Companies Registered Abroad – Comparable documents to those for UK unlisted companies should be obtained where possible from the company’s foreign lawyers. • In cases of doubt obtain a reputable credit reference agency search.
HOW CAN IDENTITY BE ESTABLISHED? • Partnerships – Individual identification of the partner instructing the Firm and one other partner, unless there is a partnership dispute. • Limited Partnerships and LLPs – Similar evidence as for UK unlisted companies. With professional partnerships / LLPs it will be sufficient to rely on the register of the professional body or a recognised professional directory. • For Trusts - Individual identification will be required for the settlor and each of the trustees. • For Deceased Estates - Individual identification will be required for each of the executors or administrators. • Where Client not the Principal – The identity of the Principal should be verified.
NOMINATED OFFICERS AND REPORTING PROCEDURES A firm’s internal reporting procedures must require: • A “nominated officer” to receive reports of money laundering. b) Anyone in the firm handling relevant business must make an internal report to the nominated officer if he / she knows or suspects or has reasonable grounds for knowing or suspecting that a person is engaged in money laundering. • Nominated officer considers any internal report in the light of any relevant information available to the firm, and determines whether that information gives rise to such a knowledge or suspicion, or reasonable grounds for knowing or suspecting; and d) That the nominated officer makes an external report to a person authorised by the Director General of NCIS if he or she does so determine. Failure to report to NCIS as soon as is practicable is an offence under s331 of The Proceeds of Crime Act 2002.
CLIENT IDENTIFICATION: CONTEXT & CHANGE • The ML Regulations 2003 were introduced to give effect to the 2nd European Money Laundering Directive. • Regulations due to give effect to the 3rd Directive are due to come into force by 15 December 2007. • The draft Regulations require that lawyers obtain identification from not just their client but, where a trust, company or legal entity are involved in the transaction the natural people who have a beneficial interest in that arrangement or entity. • This will obviously broaden money laundering requirements and create problems within English trust law if “beneficial interest” is not defined. • There is currently a campaign to urge the government to incorporate a clear definition of beneficial interest.