Money Laundering - do you know your client?

Money Laundering is an ever changing area and is something that conveyancers and solicitors must consider throughout the conveyancing process.

What does Money Laundering mean? 

A general definition for money laundering is ‘the process through which the proceeds of crime, and the true ownership of those proceeds, are altered so it appears as though the source of the funds is legitimate. ’ The Proceeds of Crime Act 2002 provides a broader definition stating that money laundering can arise out of profits from even minor offences such as minor tax evasion or benefit fraud. The POCA 2002 should be referred to for expansion on this.

Identification Checks

At the start of the conveyancing process your conveyancer will need to carry out identification checks to ensure they know who their client is. You will be requested to provide your conveyancer with proof of your identity and proof of address. Your passport or driver’s licence is sufficient proof of identity. A utility bill, bank/building society statement, letter from HMRC (not more than 3 months old) or your driver’s licence will serve as proof of your address. (This list is not exhaustive. Your conveyancer will provide you with a list of acceptable documents).

In the current climate where much of the communication is conducted by email it is very important that there is at least one face to face meeting with the conveyancer. This benefits all parties. If a client is unable to attend their conveyancer’s office to provide identification documents, e.g. they are abroad or live far away, then they should provide certified copies (copies that have been certified by a solicitor).

Failure to provide suitable identification documents at an early stage will cause delays in the transaction since your conveyancer/solicitor should not proceed until the documentation is produced and the identity of the client is established.

The need for Money Laundering training and awareness

Fraudsters have become increasingly creative in their ways to commit fraud and money laundering offences and this is especially so in these modern times when much of what we do is on-line. Solicitors and conveyancers should undergo regular training on money laundering. In serious cases there can be criminal sanctions if it transpires that a solicitor or conveyancer was a party to money laundering.

Solicitors and conveyancers have a heavy burden on their shoulders when it comes to money laundering regulations and many have said the responsibilities are way too onerous. It would seem that at the slightest suspicion of anything untoward the matter must be flagged up with the money laundering officer within the firm and, if necessary, the matter must be disclosed to the Serious Organised Crime Agency (SOCA). There is a great deal of guidance on this and the Law Society website is a particularly good source for practice notes on the area and current legislation.                       

Things to Look out for

Solicitors and conveyancers must therefore be extra vigilant. Consider the following scenarios:

Instructions are given by an overseas client, by email

You should ensure identification checks are carried out before you receive any funds/initial payment on account from your overseas client. A client care letter can be sent out but solicitor’s bank account details should not be supplied until identity has been established. (Some companies offer a service whereby they will undertake money laundering checks on your behalf – especially useful when dealing with overseas clients).

Large cash sum being paid by the client

There should be a limit on the amount you receive in cash from a client. Some firms accept as little as £250. A large bag of notes should immediately raise suspicion!

Receiving funds from an unknown third party in the solicitor’s client account

Detailed instructions should be taken and the interest of the third party in the transaction should be established. Their identity may also need to be established.

Is your client going to pay capital gains tax/inheritance tax where appropriate once the sale of their /the inherited property has completed?

Instructions should be taken from the client and the tax liability properly explained in these circumstances. If the conveyancer believes the client is going to evade payment of tax then it has been suggested they should consider notifying HMRC. Very onerous on the part of the solicitor to say the least!

A new client pays in a substantial amount of money into the solicitor’s client account in relation to a transaction only to withdraw instructions suddenly

Questions should be raised as to why the sudden change of mind on the part of the client. Could this have  just been a quick way to 'launder' dirty money?