New antimoney laundering legislation means upping the ante on client checks

Don’t be caught napping by new rules: it could cost you, says Gary Donaldson

With the changes to anti-money laundering (AML) legislation coming into force in recent months, Scottish lawyers, and indeed all independent legal professionals, must up the ante when it comes to ensuring the correct checks are made against any potential client.

These checks need to be robust and adhere to the risk-based approach set out by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017).

Mlr 2017 replaces the money laundering Regulations 2007 (MLR07), updating and restructuring the previous framework, with three new, more comprehensive areas of focus: changing the approach to customer due diligence; trying to prevent new methods of terrorist financing (the techniques used by money launderers is constantly evolving) and setting clear transparency requirements about beneficial ownership of companies and trusts.

Serious and organised crime and money laundering represents a significant threat to society, and solicitors have a responsibility to impose due diligence to ensure they are not used as conduits in facilitating criminal activity. With the complex checks and record keeping that’s now required to comply with these new directives, law firms must put in place rigorous compliance systems, regardless of their size, to ensure they meet the regulations. Without the appropriate procedures in place, companies face increased fines and even imprisonment.

For example, the simplified Customer Due Diligence (CDD) of pre-

vious years will be more restricted in cases where it’s applicable, which is a significant departure from the Mlr07rulingwhere‘automatic’simplified due diligence for transactions was allowed. Now, practitioners will need to consider both the geographical risk and customer risk factors and then decide whether simplified due diligence is an appropriate course.

The changes also apply to parent undertakings who are required to apply their policies, controls and procedures to any subsidiaries and branches in the UK and overseas. In EEA states, subsidiaries and branches must also comply, whilst subsidiaries and branches in third countries with less strict regimes must follow equivalent measures.

Corporate bodies and other legal entities will also be required to maintain accurate and current information on their beneficial owners. Any beneficial owners, officers or managers of a firm must apply to the SRA for approval by 26 June, 2018.

Another major change is the creation of high risk jurisdictions, which if they’re involved in a transaction, will make enhanced due diligence and additional risk assessment compulsory. In these cases, firms must also act to identify and verify the person purporting to act on behalf of the customer. Although CDDS carried out by a third party can be relied on still if they’re subject to the MLR 2017 or equivalent regime, the conditions for doing so are more prescriptive.

Millar and Bryce has created an online solution that automatically updates and creates alerts if there are any changes, meaning even the smallest detail changes in reports won’t go unnoticed. Solicitors can keep track of any adjustments to CDD and be notified, saving time and money.

Much of the new regulations require a degree of common sense. If something seems suspicious, then it is your duty to act on it.thenewlegislationbringseven more scrutiny to processes at law firms, placing unprecedented demands on solicitors, accountants, estate agents and other regulated businesses, along with the heaviest penalties the industry has seen for non-compliance. Online systems can alleviate this additional workload and let clients focus on their business. Gary Donaldson is head of Product & Innovation, Millar & Bryce