Money Laundering Regulations 2007: A New Regime

The EU Third Money Laundering Directive is due for implementation in the United Kingdom on 15th December 2007, with the coming into operation of the Money Laundering Regulations 2007. The new Regulations will repeal and replace the existing Money Laundering Regulations 2003. The Regulations provide for various steps to be taken by the financial services sector and other persons to detect and prevent money laundering and terrorist financing. Obligations are imposed on “relevant persons” who are credit and financial institutions, auditors, accountants, tax advisers and insolvency practitioners, independent legal professionals, trust or company service providers, estate agents, high-value dealers and casinos.

“Independent Legal Professional” means a firm or sole practitioner who by way of business provides legal or notarial services to other persons, when participating in financial or real property transactions concerning:

For this purpose, a solicitor participates in a transaction by assisting in the planning or execution of the transaction or otherwise acting for or on behalf of a client in the transaction.

Relevant persons are required, when undertaking certain activities in the course of business, to apply customer due diligence measures where they establish a business relationship, carry out an occasional transaction, suspect money laundering or terrorist finance or doubt the accuracy of customer identification information.

Customer due diligence measures consist of identifying and verifying the identity of the customer and any beneficial owner of the customer, and obtaining information on the purpose and intended nature of the business relationship.

“Customer due diligence measures” means:

• identifying the customer and verifying the customer’s identity on the basis of documents, data or information obtained from a reliable and independent source;
• identifying, where there is a beneficial owner who is not the customer, the beneficial owner in taking adequate measures, on a risk-sensitive basis, to verify his identity so that the relevant person is satisfied that he knows who the beneficial owner is, including in the
  case of a legal person, trust or other similar legal arrangement, measures to understand the ownership and control structure of that person, trust or arrangement;
  and
• obtaining information on the purpose and intended nature of the business relationship.

The Regulations set out the general rule on the timing of the verification of the customer’s identity with certain exceptions.  Solicitors must verify the identity of the customer (and any beneficial owner) before the establishment of a business relationship or the carrying out of an occasional transaction.
Such verification may be completed during the establishment of a business relationship if:

• this is necessary not to interrupt the normal conduct of business;
  and
• there is little risk of money laundering or terrorist financing occurring provided that the verification is completed as soon as practicable after contact is first established.

Failure to apply such measures means that solicitors cannot establish or continue a business relationship with the customer concerned or take an occasional transaction.

The Regulations provide enforcement powers to certain supervisors, including powers to obtain information and enter and inspect premises. Civil penalties may be imposed by these supervisors on persons who fail to comply with the Regulations. Relevant persons who fail to comply with certain requirements of the Regulations will also be guilty of a criminal offence. Persons convicted of a criminal offence may not also be liable to a civil penalty.

Please note our letter of engagement will be amended to comply with the Money Laundering Regulations 2007.