Proceeds of Crime Act 2002; Terrorism Act 2000;
Money Laundering Regulations 2003
Guidance for Notaries
These notes are a concise guide to the provisions of the Proceeds
of Crime Act 2002 (POCA), the Money Laundering Regulations 2003
and the Terrorism Act 2000 as they affect notaries in England and
Wales; they will be revised from time to time. The purpose of the
notes is to assist notaries and their employees in understanding
their duties under this important legislation. In the course of
these notes reference will be made to specific guidance issued by
other professional or industry bodies where these are considered
relevant to particular issues arising in notarial practice. In view
of the fact that many notaries also practise as solicitors, guidance
issued from time to time by the Law Society of England and Wales
is of particular relevance and it is contemplated that a solicitor
- notary when carrying out legal work which has no special notarial
aspect would do so as a solicitor and in accordance with guidelines
applicable to that profession.
A RISK-BASED APPROACH
Throughout this guidance emphasis will be placed on the benefits
of a risk-based approach to money laundering and terrorism
issues. A practice that takes a risk-based approach manages
its affairs with regard to the risks of the practice being
used for money laundering or terrorist financing and monitors
the effectiveness of the controls it has put in place to manage
these risks.
A risk-based approach takes a number of discrete steps
in assessing the most cost effective and proportionate way
to manage and mitigate the money laundering and terrorist
financing risks faced by the practice. These steps are to
identify the money laundering and terrorist financing risks
that are relevant to the practice; assess the risks presented
by the practice's particular clients, specialisms and location;
design and implement controls to manage and mitigate these
assessed risks; monitor and improve the effective operation
of these controls and to record appropriately what has been
done and why.
How a risk-based approach is implemented will also depend
on a practice's size and structure. Different considerations
will apply to a sole practitioner in a rural practice than
to a multi-partner firm with an inner-city location. A risk-based
approach starts with the identification and assessment of
the risk that has to be managed. A practice should assess
its risks in the context of how it might most likely be
involved in money laundering or terrorist financing. Once
a practice has identified and assessed the risks it faces
in respect of money laundering or terrorist financing, it
must ensure that procedures to manage and mitigate these
risks are designed and implemented
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Section 1 (Introduction)
-
(i) Background
Part 7 of the Proceeds of Crime Act 2002, consolidated,
updated and reformed the criminal law in the United Kingdom
with regard to money laundering. Other parts of the Act created
the Assets Recovery Agency (ARA), consolidated existing laws
on the confiscation of assets derived from criminal conduct,
and introduced new powers to recover criminal assets through
civil proceedings. Part III of the Terrorism Act 2000 creates
a number of offences in relation to terrorism and the funding
of terrorism. The Money Laundering Regulations 2003 require
notaries to introduce systems and training to prevent money
laundering and, except in the case of sole practitioners, designate
a "Nominated Officer" to whom suspicious transactions
must be reported.
The legislation is designed to prevent the proceeds
of unlawful activities being legitimised by being applied to
carry out apparently legitimate transactions. It takes a very
wide definition of criminal conduct, including all conduct which
constitutes an offence in any part of the United Kingdom, not
just specific offences such as drug trafficking, terrorism and
fraud. The definition also includes conduct which occurs overseas
which would constitute an offence in the UK and thus includes
tax evasion and the evasion of tax in jurisdictions outside
the UK. In relation to certain categories of offences occurring
overseas, the position has been altered by section 102 of the
Serious Organised Crime and Police Act 2005 which provides a
new defence to the money laundering offences under POCA. The
defence applies where a person knows or believes on reasonable
grounds that the acts which produced the proceeds took place
in a particular country overseas and the acts were lawful in
that country. In accordance with the Proceeds of Crime Act 2002
(Money Laundering: Exceptions to Overseas Conduct Defence) Order
2006 (SI 2006/1070), the defence applies only if the act generating
the proceeds would not be punishable in the United Kingdom by
a maximum sentence of more than 12 months' imprisonment. The
Order sets out a few exceptions to this rule.
There are also requirements for certain businesses
and professions falling within the scope of the 'regulated sector'
to report suspected money laundering to the authorities. It
is important to note that the test of whether or not a transaction
should be reported is an objective one - that is to say it depends
not on whether the notary actually knows or suspects that money
laundering is involved, but whether he had reasonable grounds
for such knowledge or suspicion. There is not a de minimis limit
associated with these provisions, and it is not relevant when
the criminal conduct took place. Routine transactions may fall
into this wide pool of business and may easily form part of
a money laundering scheme.
(ii) Circumstances in which a notary may
be at risk of being used for money laundering
There are three acknowledged phases to money
laundering:
-
Placement - this occurs when cash generated
from crime is initially placed in the financial system. As many
crimes generate cash, this is the point at which the proceeds
of crime are most apparent and at risk of detection. As banks
and financial institutions have developed anti-money laundering
procedures, criminals have to look for other ways of placing
cash within the financial system. Entities which commonly deal
with client money, such as law practices, have increasingly
become at risk of being targeted to deal with cash. Practices
should decide whether to operate a policy which limits the amount
of cash they will accept (except for good reason), and explain
that to clients. This policy should apply even where cash is
tendered in payment of fees and disbursements. However, the
placement stage may not always involve cash - it will depend
on the nature of the predicate offence.
-
Layering - after the proceeds of crime
have been placed into the financial system, layering occurs
when the money passes through a series of complex transactions
in order to obscure the origin. These transactions often involve
different entities, such as companies and trusts and can take
place in multiple jurisdictions. Notary practices are at risk
of being targeted to assist in money laundering at this stage,
although detection can be more difficult.
-
Integration - The criminal wishes to
be able to use his funds without fear of detection and thus
needs to integrate them into the financial system to give them
the appearance of legitimacy. Once the origin of the funds has
been obscured, the funds can reappear as legitimate funds or
assets. At this stage the criminals will invest funds in legitimate
businesses or other forms of investment. Legal professionals
will often be used in this process, for example through buying
a property, setting up a trust or acquiring a company.. This
is not an exhaustive list.
Important note:
Although the above describes the usual money laundering phases,
note that the definition of money laundering offences in the
Proceeds of Crime Act 2002 is much wider and extends to the
passive "possession" of criminal property and arrangements
which facilitate the acquisition, retention use or control
of criminal property by or on behalf of another person.
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Notaries are potentially at risk of carrying out
money laundering on behalf of clients in many common areas of work.
Great care therefore needs to be taken when accepting and following
instructions, particularly when these cover both the receipt and
disbursement of client monies. Notaries should always be conscious
of the real benefits to money launderers of having funds passed
through a notary's client bank account on the way to the next level.
Particular care should be paid to any last minute change of instructions,
unusual or unnecessary arrangements or the use of third party names
in connection with normal commercial arrangements. More generally,
the addition to a document of a notary's signature and seal (even
if he is only witnessing a signature) may lend an appearance of
legitimacy to a fraudulent transaction.
Section 2 (The Proceeds of Crime Act 2002)
The Act established three sets of money laundering offences:-
-
the 'Principal' offences
- s.327: Concealing etc.
- s.328: Arrangements
- s.329: Acquisition, use and possession
A notary who knows or suspects or has "reasonable
grounds" for suspecting that a person has committed any
of these offences must make a disclosure as soon as is practicable
to the Serious Organised Crime Agency (SOCA). Where disclosure
is made before a transaction likely to give rise to a money
laundering offence has taken place, the transaction must not
proceed until SOCA has given its consent.
-
'failure to disclose' offences
- s.330: Failure to disclose: regulated sector
- s.331: Failure to disclose: nominated officers in the regulated
sector
- s.332: Failure to disclose: other nominated officers
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'Tipping off' offences
- s.333: Tipping off
- s.342: Offences of prejudicing an investigation
Being familiar with terms of these sections is important.
A person guilty of one of the 'principal' offences is liable to
a maximum prison sentence of 14 years and/or a fine, while the other
offences carry a penalty of up to 5 years imprisonment and/or a
fine.
For further information on this important legislation, please
refer to Section 5 of these guidance notes and Part 7 of the Act
itself (attached as Schedule 2).
Section 3 (Terrorism Act 2000 as amended by the Anti-terrorism,
Crime and Security Act 2001)
The offences created by Part III of this Act (relevant sections
of which are reproduced in Schedule 3 together with the Terrorism
Act 2000 (Business in the Regulated Sector and Supervisory Authorities)
Order 2003) include:
- fund-raising (section 15)
- use and possession of money or other property for the purposes
of terrorism (section 16)
- funding arrangements (section 17)
- laundering of terrorist property (section 18)
A notary who knows or suspects or has "reasonable grounds"
for suspecting that a person has committed any of these offences
must make a disclosure as soon as is practicable. The disclosure
procedure is the same as that applying under the Proceeds of Crime
Act 2002 (see section 5 below).
Section 4 (The Money Laundering Regulations 2003)
The Money Laundering Regulations 2003 ("the Regulations"),
which, for the most part came into force on 1 March 2004, apply
to a number of aspects of a notary's work, in particular financial
and real property transactions and the provision of services in
relation to the formation, operation or management of companies
and trusts. Individual notaries or firms of notaries may also
undertake other activities covered by the Regulations, for example
investment business. The Regulations (attached as Schedule 1 to
these notes) therefore bring the majority of notaries for the
first time within the Regulated Sector; this has a number of important
consequences for notaries, not only under the Regulations themselves,
but also for the purposes of the Proceeds of Crime Act 2002.
Services of the nature mentioned above are "Relevant Business"
for the purposes of the Regulations. It is important to note that
the Regulations extend only to "Relevant Business" and
many aspects of a notary's practice (such as the taking of affidavits
and declarations, protests, translating, certifying the execution
of documents and authentication work in general) will not be affected;
accordingly, the Regulations do not apply to work undertaken by
the notary as an independent certifying officer where he has no
substantive role in the underlying transaction. However, in respect
of Relevant Business notaries will be subject not only to the
Practice Rules and other rules made from time to time by the Faculty
Office, but also the obligations imposed by the Regulations.
The Regulations require notaries to introduce systems and training
to prevent money laundering. These include:
(i) Identification Procedures (Regulation 4)
Proper notarial practice already requires notaries to verify the
identity of parties to instruments which they authenticate; as a
minimum, this involves inspection of the original passport or other
official identity document of each signatory to the instrument.
Identifying your client is now even more important in terms of the
Regulations.
In respect of the majority of transactions falling within the category
of Relevant Business the Regulations require a notary, as soon as
is reasonably practical after contact is first made and, in any
event, before any substantive work is undertaken, to obtain satisfactory
evidence of the identity of the prospective client and, where that
client acts or appears to act for another person, take steps to
establish the identity of that other person.
The identification requirements under the Regulations apply in the
following circumstances:
- to "one-off" transactions which involve the payment
by or to or on behalf of the client of an amount of €15,000
(currently approximately £9,000) or more, and to any transactions
which appear to be linked with others where the aggregate of
the amounts involved is in excess of € 15,000;
- if you suspect that your client is engaged in money laundering
or terrorist funding, or that a transaction is being carried
out on behalf of someone else who is engaged in money laundering
or terrorist funding;
- in every case where the practice forms or resolves to form
a business relationship.
The terms "relevant financial business",
"business relationship" and "one-off transaction"
are defined in the Regulations (r.2 (1)).
Identification has a number of aspects, for example, name, date
of birth, place of birth, address, occupation, appearance and so
on. For the purposes of the Regulations "satisfactory evidence
of identity" is evidence which is reasonably capable of establishing
(and does in fact establish to the notary's satisfaction) that the
client is the person he claims to be. Practices have to decide what
pieces of information to verify although as a minimum this should
include the full name of the client and EITHER his date and place
of birth OR his current address.
In cases where a client acts or appears to act for another person
(natural or legal), the Regulations require the notary to take reasonable
measures to establish the identity of that other person.
Examples of satisfactory evidence of identity are given in paragraph
5.8 of these guidance notes. For more detailed information about
types of evidence that customers might use to prove they are who
they say they are, reference may be had to Part I, Chapter 5 of
the JMLSG Guidance for the UK Financial Sector www.jmlsg.org.uk
published by the Joint Money Laundering Steering Group (JMLSG) in
January 2006.
However, depending upon the notary's assessment of the money laundering
risk inherent in a particular transaction or activity, he may need
to make broader enquiries of his client and his affairs than merely
establishing his identity - additional information collected in
respect of a client is referred to as "know your customer"
or "KYC" information and is an essential tool in managing
the money laundering risk. However, the nature of notarial work
is such that the notary will often have less opportunity to obtain
this information than other legal professionals: notaries need to
be aware that this factor increases the risk that they may unwittingly
become involved in money laundering activity.
The Guidance for the UK Financial Sector referred to above
identifies two broad reasons why practices need to "know their
customers"(para. 5.1.3)
-
to help the practice, at the time due diligence
is carried out, to be reasonably certain that customers are
who they say they are, to know whether they are acting on behalf
of another and that there is no legal barrier… to providing
them with the product or service requested;
-
to enable the practice to assist law enforcement,
by providing available information on customers or activities
being investigated.
(ii) Record Keeping Procedures (Regulation 6)
The Notaries Practice Rules 2001 already require notaries to keep
records sufficient to identify "the person or persons …
intervening in a notarial act and the method of identification of
the party or parties so intervening". The Regulations go further
by requiring that copies of the evidence of identity produced be
retained by the notary, a practice which many notaries already in
fact follow. They also require the notary to maintain a record containing
details of all transactions carried out in the course of Relevant
Business.
Records of identity must be kept for at least five years:
- where a business relationship has been formed, from the date
on which the relationship ends. (See paragraph (i) above for the
definition of "business relationship");
- In the case of a one-off transaction (or a series of such transactions),
from the date of completion of all activities taking place in
the course of that transaction (or, as the case may be, the last
of the transactions). (See paragraph (i) above on one-off and
linked transactions.)
Details of each transaction must be kept for at least 5 years commencing
with the date on which all activities taking place in the course
of the transaction were completed. In most cases, keeping a copy
of the client file and the accounting records for this period should
satisfy this requirement. This is of course without prejudice to
the notary's obligations under the Notaries Practice Rules and any
other statutory or regulatory requirements relating to the keeping
of records.
(iii) Internal Reporting Procedures (Regulation 7)
Practices must designate a Nominated Officer to whom anyone in the
practice handling relevant business who knows or suspects, or has
reasonable grounds to know or suspect, that a transaction involves
money laundering must report. Failure to report in such circumstances
is a criminal offence for the purposes of the Proceeds of Crime
Act 2002, s.330.
The function of the Nominated Officer should be fulfilled by a partner
in the practice or a senior employee with sufficient authority,
responsibility and experience to obtain all relevant information.
It then will be the responsibility of the Nominated Officer to consider
that report and if appropriate make a formal report to the Serious
Organised Crime Agency (SOCA). A Nominated Officer will commit an
offence if, as a result of a disclosure received by him under section
330, he knows or suspects, or has reasonable grounds for knowing
or suspecting, that another person is engaged in money laundering
and fails to report as soon as practicable to SOCA.
A sole practitioner, who does not employ or act in association with
anyone else, does not have to maintain internal reporting procedures
under Regulation 7, nor appoint a Nominated Officer. However, other
parts of the Regulations and the money laundering criminal law still
apply and the sole practitioner must report to SOCA if he or she
knows or suspects money laundering, or has reasonable grounds for
suspicion.
(iv) Training (Regulation 3)
Appropriate employees, in particular any who conduct Relevant Business
on behalf of the practice, must be made aware of the provisions
of the Regulations, Part 7 of the Proceeds of Crime Act 2002 (attached
as Schedule 2 together with the Proceeds of Crime Act 2002 (Business
in the Regulated Sector and Supervisory Authorities) Order 2003
and the Procceds of Crime Act 2002 (Money Laundering: Exceptions
to Overseas Conduct Defence) Order 2006) and sections 18 and 21A
of the Terrorism Act 2000 (attached as Schedule 3 together with
the Terrorism Act 2000 (Business in the Regulated Sector of Supervisory
Authorities) Order 2003. Furthermore, such employees must be given
training in how to recognise and deal with transactions which may
be related to money laundering. It is the responsibility of individual
practices to determine how and to whom that training is to be given,
and how often it is to be repeated, for example by requiring staff
to attend seminars or undertake self-teach courses, or a combination
of both. Practices will also need to decide the level of training
appropriate to different categories of staff.
Section 5 (Answers to common questions)
General
5.1 Can you give any help regarding the categories of work where
the Money Laundering Regulations will apply?
The Regulations apply to "Relevant Business" as defined
in Regulation 2(2). This definition includes:
(l) the provision by way of business of legal services by a body
corporate or unincorporate or, in the case of a sole practitioner,
by an individual and which involves participation in a financial
or real property transaction (whether by assisting in the planning
or execution of any such transaction or otherwise by acting for,
or on behalf of, a client in any such transaction);
(m) the provision by way of business of services in relation
to the formation, operation or management of a company or a trust;
5.2 Are there any particular circumstances in which a Notary
might be at risk of being used for money laundering or terrorist
funding?
See section 1 paragraph (ii). Additionally, the following general
comments may be helpful although the examples given do not purport
to be exhaustive:
a. Sale and purchase of real estate, ships and other major assets.
In both purchase and sale transactions, proper identification must
be undertaken of clients and enquiry made as to the source of incoming
funds; that source may need to be investigated, particularly if
the funds are received otherwise than from the identified client's
own bank account or a recognized financial institution. Any changes
to a funding arrangement, particularly when carried out without
reasonable explanation and close to the settlement date require
to be considered, particularly if funds are being introduced from
a third party.
Purchasing an asset in a nominee name for the benefit of an undisclosed
principal also requires to be considered carefully to ensure you
have properly identified the ultimate beneficial owner and satisfied
yourself that the source of funds is legitimate. Note that the 3rd
EU Money Laundering Directive will introduce a requirement to take
adequate measures to verify the identify of the beneficial owner
.
Ownership of real estate is a very desirable target for money launderers.
Setting up a number of unnecessary steps in creating final ownership
or holding the title in a corporate vehicle is a popular device
employed by criminals and professional money launderers.
The simple step of providing funds as a deposit for a substantial
conveyancing transaction or on account of fees and disbursements
for future work, then cancelling the project and seeking recovery
of the funds to the originator or a third party's nominated account
is another popular device to use legal professionals to achieve
the money launderer's ends.
b. Trusts and Offshore Investment vehicles; unusual business
structures.
The creation of specialist trusts or other corporate structures
sometimes in an offshore jurisdiction, in such a way as to obscure
the true beneficial ownership of funds or assets is also a popular
target for money launderers. However, industry norms must be taken
into account: for example, in the shipping industry complex corporate
structures (often involving offshore companies) are widespread and
- although care should be taken to identify the vessel managers
or ultimate owners - their use in this context may not by itself
be a reason for undue suspicion.
Particular care should be taken in dealing with monies which are
being placed offshore as part of a tax planning regime. Tax avoidance
is legitimate but tax evasion constitutes a criminal offence and
would amount to money laundering for the purposes of the Proceeds
of Crime Act 2002.
| Note: Tax avoidance is the legal utilisation
of the tax regime to one's own advantage, in order to reduce
the amount of tax that is payable by means that are within the
law. Examples of tax avoidance involve using tax deductions
or changing one's tax status through incorporation; depending
on the legal regime applicable to the tax payer, it might even
extend to establishing an offshore company, trust or foundation
in a tax haven. By contrast tax evasion is the general term
for efforts by individuals, firms, trusts and other entities
to evade the payment of taxes by illegal means. Tax evasion
usually entails taxpayers deliberately misrepresenting or concealing
the true state of their affairs to the tax authorities to reduce
their tax liability, and includes, in particular, dishonest
tax reporting (such as under declaring income, profits or gains;
or overstating deductions). |
Generally, the notary should be wary of business structures which
appear abnormal, unduly complicated or are outside his professional
experience; in the latter case he should decline to act.
c. Probate.
Although this is much less likely to be an area of concern,
money laundering issues may arise. Unusual instructions from beneficiaries
or legatees regarding the payment of funds to their order should
be reviewed, particularly if the sums are in any way substantial.
There may also be tax issues, for example where the deceased under-declared
his income during his lifetime. Also, it may become apparent during
the winding-up of an estate that certain assets represent the proceeds
of acquisitive crimes committed by the deceased. As was mentioned
in paragraph 1(i) for the purposes of the anti-money laundering
regime it is irrelevant how long ago the criminal conduct took place.
d. Investment Business.
This activity, although unlikely to have any relevance to ordinary
notarial practice, is specifically defined as a regulated activity
by the Money Laundering Regulations and must always be handled with
particular care.
5.3 What checks should be made on client funding?
Where you are substantively involved in the planning or execution
of a transaction, it is recommended that you take appropriate steps
to check the source of funds.
5.4 How do I go about checking the source of a client's funds?
There is a simple flowchart attached to these notes under sections
7 and 8. Use them to help your checking system. Extra enquiries
are needed if the funds are provided in cash, bank drafts or third
party cheques. Be alert to last minute changes to the source of
funds - this is a common ploy used by money launderers.
5.5 Is it ever safe to accept cash?
Yes - if you are told at the start about cash being used by the
client and you have made reasonable enquiries about the reasons
why the client is using cash and its source. However, you may wish
to establish a policy limiting the amount which you will accept.
Record the explanations and your reasons for being satisfied in
the particular circumstances.
5.6 How can I minimise the risk of assisting in the carrying
out of a transaction involving money-laundering?
Knowing your customer, understanding and complying with the requirements
of the Proceeds of Crime Act 2002 and the Regulations is the surest
recipe for minimizing the risk. Additionally, you should make a
full note of your enquiries and answers in connection with client
identification and (where relevant) source of funds and of course
keep copies of relevant documents. Ask all the relevant questions
at the earliest stage of any transaction. If you are instructed
by an existing client after some years without contact, recheck
the whole position. If you receive regular instructions from the
same client, consider whether there is any pattern to these instructions
which might give rise to suspicion, particularly if you are not
sure of the underlying background. Be sure to enquire as to the
client's general financial background, and specifically check the
intended source of funds to be produced later in the transaction.
Emphasise the fact that changes late in the day may affect your
ability to proceed with the matter. Include a reference to this
in your Terms of Business letter.
You should also make a note of any concerns which you may have
raised at the time and fully record the client's response. This
record is important to you and may in fact become very significant
at a much later date in circumstances where criminal investigations
are being carried out or you have to satisfy a court that you acted
reasonably in not making a disclosure. Your notes should state any
reasons why no disclosure was made.
Verifying identity
5.7 Do I have to identify clients?
Yes. Refer to paragraph 4(i) above. Quite apart from your obligations
under the Practice Rules, if, when carrying out Relevant Business
as defined by Regulation 2 (2), satisfactory evidence of the identity
of new clients in compliance with the Regulations is not obtained
you must not proceed with the transaction, activity or business
relationship. Note, however, the transitional provisions in the
Regulations (r. 30) which mean that you do not have to identify
clients with whom you formed a business relationship prior to 1
March 2004
5.8 When is evidence of identity satisfactory?
When it is reasonably capable of establishing that the client is
the person he claims to be; and when the person who obtains the
evidence is satisfied, in accordance with the procedures maintained
under the Regulations, that the evidence does establish that the
client is the person he claims to be.
For individual clients it is suggested that, for the purposes of
the Regulations, that you obtain evidence showing: -
- physical appearance (i.e. photographic evidence)
- the true name and/or names used
- EITHER the date and place of birth
OR current permanent address, including postcode
Documents appropriate to evidence physical appearance, full names
and date of birth might include the following:
- a document from an official source which has a photograph of
the applicant, e.g. a current valid full passport or national
identity card or new style driver's licence.
The following are examples of documentary evidence of address:
- confirmation from an electoral register search that a person
of that name lives at that address;
- a credit reference agency search;
- an original recent electricity, gas, telephone, council tax
bill or bank statement.
| Note: documents differ in their integrity, reliability
and independence - for example greater reliance may be placed
on a document issued by a government department (such as a passport
or driver's licence) than by a private organization such as
a utility provider. For detailed advice on this point, consult
section 5.3 of the Guidance for the UK Financial Sector published
in January 2006 by the Joint Money Laundering Steering Group. |
For corporate clients
No specific steps are needed if clients are:-
- a listed company or a subsidiary of a listed company although
the notary will need to be satisfied that the individual appearing
does in fact represent that company;
- a private company or partnership one or more of whose directors/partners
have already been identified in accordance with the Regulations.
Steps are needed if clients are:-
- an unquoted company or a partnership and none of the directors/partners
has already been identified, in which case the identity of one
or more of the controlling directors/partners and/or shareholders
(generally those holding 25% or more of the issued capital) as
applicable should be verified as if they were individual clients
(see above).
You should also verify the existence of a company by obtaining
copies of:-
- certificate of incorporation/certificate of trade/goodstanding
certificate or equivalent;
- and perhaps for companies their latest report and accounts (audited
where applicable).
Where appropriate, the above information may be obtained by an
on-line search of the relevant companies' registry. Note, however,
in the case of companies incorporated in England and Wales, that
Companies House rarely checks the information supplied to it; accordingly
the filed records of directors, shareholders etc. must be treated
with caution.
The Regulations require the retention of copies of documents which
you obtain to identify your client or information as to where a
copy of that evidence can be obtained(or where neither of these
options are reasonably practicable, information enabling the evidence
of identity to be re-obtained); this goes somewhat beyond the record-keeping
provisions of the Notaries Practice Rules 2001 which require the
notary to maintain records "sufficient to identify…the
method of identification of the party or parties intervening in
the notarial act …", but fall short of requiring retention
of copies of the identification documents. For more detailed information
on documents appropriate for identifying clients reference may be
had to sections 5.3 and 5.4. of Part I of the JMLSG Guidance
for the UK Financial Sector referred to above. However,
notaries should always bear in mind that the key to effective compliance
with the legislation is risk assessment and risk management. Accordingly,
subject to compliance with the Practice Rules, a common sense risk-based
approach should be applied to determining the extent of identification
requirements in particular cases.
5.9 How do I go about deciding if I need to comply and also in
identifying new clients - particularly when all I am doing is authenticating
a power of attorney or other document?
Where your role is limited to the authentication of documents (including
certifying their execution) which form part of a transaction in
whose execution or planning you are not otherwise involved the Regulations
do not apply; however, this does not affect your obligations as
a notary to identify your client in accordance with proper notarial
practice. Where the Regulations do apply, the notary's obligation
is to satisfy himself as to the identity of the client and, if the
client acts in a representative capacity, take reasonable steps
to establish the existence of the person or entity whom the client
represents. For this purpose, the principal's existence might be
established by, for example, production of a notarized power of
attorney or other written authority, a search of the relevant companies
register, a letter of introduction or written assurance from a law
practice or other regulated body, or by the notary contacting the
principal. If in doubt there is a Verification of Identity Flowchart
and an Evidence of Identity Form at sections 6 and 7.
Most notarial business is by its nature conducted on a face-to-face
basis. In cases where a client is not physically present, additional
considerations apply. The JMLSG Guidance for the UK Financial
Sector (Part I, paras. 5.4.26 et seq.) referred to in Section
4 above is a useful reference for managing the risks inherent in
such circumstances.
The record-keeping requirements under the Regulations must of course
be complied with.
Record Keeping
5.10 What records do I have to keep and for how long?
See section 4(ii) above. Remember that different periods apply under
the Accounts etc and Practice Rules.
5.11 Does the Proceeds of Crime Act 2002 affect the records
I need to keep?
Yes. The Act creates specific powers to allow an investigation of
your client accounts, files and records. It is important to keep
detailed records including notes of meetings and telephone calls.
An examination of these records will expect to find explanations
or evidence which demonstrates your reasonable enquiries made of
the client at the appropriate time.
For further advice on this, see paragraph 5.6 above.
Grounds for suspicion
5.12 What should I be looking out for as suspicious circumstances?
Financial position, other business interests, property ownership
are all important, i.e. more than just the specific business being
brought to you. Local knowledge is important - the client may already
have a dubious reputation.
WARNING SIGNS -
- An address c/o a third party
- Delays in providing ID documents
- Mobile phone line as only contact
- No contact address
- No clear business purpose for the activity proposed
- Unlikely proposal from the individual in front of you
- Evasive answers or a failure to answer your questions.
- Delays in producing funds and/or
- Switching the source of funds e.g. producing a bank draft instead
of a personal cheque
- Unusual destination of funds or destination different from that
expected
- Destination of funds is a country classified by FATF as a Non-Cooperative
Country or Territory (see Section 9 below)
- Being asked to hold substantial funds without a clear purpose
- Being asked to issue the client funds for a different purpose
than that originally sought- such as buying expensive cars, boats
or other luxury items which do not need a notary to be involved
in the normal course of business.
- Being asked to participate in creating tax planning structures
where tax evasion may be a factor.
N.B. The above list is not exhaustive.
5.13 Any other advice about what constitutes suspicious activity
which should be reported to the Nominated Officer?
Know your clients and always take time to look at the big picture.
You need to do more than tick boxes. In taking on new work or a
new client it is best practice to get adequate information concerning
income streams - employment, businesses or investment vehicles.
Sudden affluence on the part of an existing client may warrant enquiry.
Carrying out these checks will help to understand your clients'
needs and type of legal/financial services which are likely to be
required - this makes good business sense as well as minimizing
the money laundering risk. If the client is an established businessman
or woman, be sure to check as to other legal professionals who are
also retained by them. All these enquiries are meant to help you
to understand your client and their legal needs. It will allow you
to advise them properly. It may also help with any concerns leading
to suspicions which may arise during the transactions. Detailed
enquiries made at the early stages may provide the answers to concerns
or suspicions of money laundering which develop at a later stage.
If you have any cause for concern, review the file and report to
the Nominated Officer (or directly to SOCA if you are a sole practitioner).
Information about foreign jurisdictions with high risk assessments
as identified by the Financial Action Tax Force can be found on
the following web-site: http://www.oecd.org/FATF/ . Further information
on FATF is given in section 9 below.
5.14 What should I do if I receive funds from a suspicious source
where I might be deemed to "know" that the money belongs
to a third party other than my client?
This raises the prospect of a constructive trust being created.
This is a complex area of civil law, and creates a risk of your
becoming in breach of trust by handling the funds in a manner which
is detrimental to the rights of the original owner. A suspicion
about funds arising from a fraud or other criminal activity will
result in having to consider the question of whether to continue
with the arrangement. If you find yourself in such circumstances
or in any case where you are unsure of your position under the Proceeds
of Crime Act, take advice from a suitably experienced solicitor,
particularly on the need to obtain appropriate consent from SOCA
(see para. 5.19) below.
Disclosures
5.15 Do I have to have a Nominated Officer?
Yes, unless you are doing no Relevant Business or are a sole practitioner
who does not employ or act in association with another person.
5.16 What do I have to tell the Nominated Officer?
As explained above, the Proceeds of Crime Act 2002 introduced a
range of offences, including that of failure to disclose knowledge
or suspicion of money laundering. Any information or other matter
which comes to your attention in the course of handling Relevant
Business, as a result of which you know or suspect or have reasonable
grounds for suspecting that a person is engaged in money laundering
should be reported to your Nominated Officer.
"Reasonable grounds" are a matter only a court can determine,
but it seems clear that the following circumstances will not give
rise to a defence to a charge of failure to disclose:-
- Turning a blind eye to the obvious
- Recklessly failing to make enquiries
- Negligently failing to assess the facts.
| Note - The assessment is made by reference to
the information available at the time, the individual's experience
and awareness, actions and inquiries, training given and comparison
to a peer group, "the reasonably competent notary".
It is therefore important to take all reasonable steps to know
your client's business circumstances and understand the underlying
reasons for the transactions. In this connection, it may be
helpful to refer to guidance issued by other legal professional
bodies, and in particular you are referred to paragraphs 6.35
- 6.48 of the pilot money laundering guidance issued to solicitors
by the Law Society of England and Wales. |
If you disclose your suspicions to your Nominated Officer and record
the fact that is your responsibility concluded. The Nominated Officer
has to consider the whole position and disclose the position or
not to SOCA, according to the situation. You must not proceed with
the transaction without the consent of the Nominated Officer.
If you are a sole practitioner you must report directly to SOCA.
| DO NOT TELL ANYONE OTHER THAN THE NOMINATED OFFICER THAT
YOU HAVE MADE A REPORT OR DISCUSS MAKING A REPORT WITH YOUR
CLIENT. Tipping off is an offence under the Proceeds of
Crime Act 2002, section 333. Refer to paragraph 5.22 below.
Note that there are exception under POCA ss. 333 and 342 to
the tipping off offences which apply to "professional legal
advisers". These exceptions are covered in detail in the
pilot money laundering guidance issued by the Law Society of
England Wales www.lawsociety.org.uk (see paras. 4.59 et seq.),
but notaries should be wary of relying on these exceptions since
their role will often be that of independent certifying officers
rather than of legal advisers. |
5.17 What does the Nominated Officer have to do?
Consider all such reports and any other relevant information and
decide if this gives rise to a knowledge or suspicion of money laundering
or reasonable grounds for such knowledge or suspicion. If so pass
that information to SOCA. Keep a record of what he/she decides to
do and why. Copies of reports submitted and notes of any contacts
with SOCA should of course be kept; as recommended above (see paragraph
5.6), these should be stored separately from the client's file.
5.18 How should a disclosure to SOCA be made?
Although no reporting format is currently prescribed, SOCA's preferred
method is for reporters to submit their suspicions on the SOCA Suspicious
Activity Report (SAR) Format. The form can be downloaded from the
SOCA website www.soca.gov.uk where advice on its completion will
be found. SOCA prefers reports (including consent requests) to be
submitted electronically via the internet-based SAR reporting mechanism
"SAR Online" which has been established on the SOCA web-site.
SAR Online was constructed in consultation with SARs reporters and
aims to provide a range of benefits to the reporting sectors, including:
- Effective and secure web-based electronic reporting
- On-line user groups to facilitate information-sharing
- Ability to save work in progress for up to 28 days
- Capacity to store copies of reports submitted locally
- Speedy acknowledgment of submissions.
Alternatively, reports may be submitted by fax or post, but neither
of these methods is encouraged.
In urgent consent cases, telephone or fax the SOCA duty officer,
but note that SOCA is unable to give legal advice.
Telephone Number: 020 7238 8282
Fax Number: 020 7238 8286
5.19 When should the disclosure be made?
Disclosure should be made as soon as practicable after the information
on which your knowledge or suspicion that another person is engaged
in money laundering comes to you. When disclosure is made before
a "prohibited act" takes place, this forms a request for
consent to do a prohibited act. Consent is covered in more detail
in paragraph 5.20 below. A prohibited act is involvement in one
of the following money laundering offences established by POCA:
concealing etc. (s.327), entering into an arrangement (s.328) or
acquisition, use etc of criminal property (s.329). If the prohibited
act is done before disclosure is made, the question of obtaining
consent does not arise, but if disclosure is not made as soon as
is practicable, you may commit an offence of failure to disclose
(POCA ss. 330,331 and 332).
SOCA Consent
5.20 How is SOCA consent obtained to proceed with a suspicious
transaction?
Once a pre-transaction disclosure has been made, the transaction
must not be proceeded with unless appropriate consent is obtained
from SOCA. A period of up to seven working days may be needed
to obtain consent. If you hear nothing from SOCA for seven working
days starting the day after the disclosure is made, consent may
be presumed and you may proceed with the transaction. If consent
is refused within that seven day period, you cannot proceed for
a further 31 calendar days starting on the day of refusal unless
consent is given prior to the expiration of that period. These procedures
are set out in greater detail in chapter 7 of the Law Society of
England and Wales pilot Guidance on Money Laundering. This can be
accessed at www.lawsociety.org.uk/professional/conduct/guideonline.
Reference may also usefully be made to the JMLSG Guidance
to the UK Financial Sector already mentioned.
Tipping-off
5.21 Most of my work involves attesting documents for clients
on a "while they wait" basis. If I am suspicious, how
do I tell the client that I am unable to deal with the matter without
"tipping him off"?
On admission, a notary swears that he will not perform a notarial
act in cases where he knows there is violence or fraud, and this
duty is paramount. If a client brings in a document which the notary
suspects is being made for a fraudulent purpose and it is impractical
for the notary to retain possession of the document without alerting
the client of his suspicions, he should simply inform the client
that he is unable to act, return the document to him unattested
and report the matter to the Nominated Officer for him to consider
making a report to SOCA based on such information as is available.
However, in circumstances where the client is not expecting the
immediate return of the document (e.g. the notary is arranging legalisation),
the Nominated Officer should submit a report to the SOCA Consent
desk prior to taking any action with regard to the document.
Consent Desk Officer -
Telephone No: 020 7238 8282
Fax No: 020 7238 8286
Client confidentiality/privilege
5.22 What about my duty of confidentiality to the client? Does
legal professional privilege apply?
As a notary, you are obliged to keep the affairs of your client
confidential. In the case of solicitors, the client's right to confidentiality
is protected by the doctrine of legal professional privilege; under
section 330(6) of the Proceeds of Crime Act 2002, the failure by
a "professional legal adviser" to make a disclosure is
not an offence if the information or other matter giving rise to
his suspicion came to him in privileged circumstances. The extent
to which legal professional privilege attaches to a notary's records
has not been the subject of a legal decision in England and Wales,
and in view of the notary's role as a public certifying officer
his position is not necessarily analogous to that of other lawyers.
Privilege is a difficult and evolving area of the law and one where,
pending clarification of the status of notarial records, the notary
may need to seek specific advice in particular circumstances. However,
some assistance may be found in Chapter 4 of the pilot money laundering
guidance issued by the Law Society of England and Wales.
Section 6 VERIFICATION OF IDENTITY FLOWCHART
 |
Section 7 Verification of Client Identity Checklist
Note: Subject to compliance with
the Notaries Practice Rules, the question of whether or not
an ID document (or a combination of documents) is satisfactory
evidence of the client's identity for the purposes of the Regulations
depends upon the risks inherent in the transaction concerned.
See the note to paragraph 5.8 above on the relative robustness
of different categories of documents.
A RISK BASED approach is key to successful compliance |
1. Evidence not obtained - reasons:-
Client previously identified in: - Month ……………Year………….
Client identified personally by - Name_________________________________________
Position_______________________________________
Other - state reason fully
___________________________________________________________________________________________________________
A. Evidence obtained to verify identity (see para. 5.8. above)
Valid national Passport
Valid photocard national driving licence (full or provisional)
Valid (old style) full UK driving licence
Armed forces ID Card
National Identity Card (non-UK nationals)
Firearms certificate or shotgun licence
Identity card issued by the Electoral Office for
Northern Ireland
Instrument of court appointment (e.g. appointment as liquidator
or grant of probate)
Recent evidence of entitlement to state or local authority-funded
benefit, tax credit, pension, educational or other grant*
Building Society passbook*
Credit Reference agency search*
Utility bills* (not ones printed off
the internet)
Mortgage statement*
Council tax demand*
Bank/Building Society/credit card statement* (but not ones printed
off the internet)
Home visit to applicant's address*
Check of voters roll*
*Suitable for proof of address only.
B. Evidence obtained for unquoted company or partnership
Certificate of Incorporation or equivalent
Certificate of Trade or equivalent
Company search
Latest report and audited accounts
Principal shareholder/partner
Principal director
I confirm that:-
a) I have seen the originals of the documents indicated above
and have retained copies (if copies not retained, state why and
give full particulars of documents inspected on separate sheet),
or
b) In accordance with the Regulations, evidence is not required
for the reasons stated.
Signed _________________________________
Date _____________
Section 8 MONEY LAUNDERING CHECK LIST
Source and destination of Funds
If you have properly identified the new client, this flow chart
should be used to ensure that the appropriate level of checking
is applied to the funds.
Question
Have you received funds from the client?
Question 2 Have you received non cash payment?
Section 9 FINANCIAL ACTION TASK FORCE (FATF) BLACKLIST
As at 1 December 2006 there were no countries or territories listed
as NCCTs (non-cooperative countries and territories) by the FATF.
Updates of this FATF list can be obtained at www.oecd.org/FATF/
and refer to the Joint Money Laundering Steering Group website www.jmlsg.org.
uk for information on country risk generally.
| NOTE: The FATF is an inter-governmental body
whose purpose is the development and promotion of national and
international policies to combat money laundering and terrorist
financing. Since its creation the FATF has spearheaded the effort
to adopt and implement measures designed to counter the use
of the financial system by criminals. The principal objective
of the NCCT initiative is to reduce the vulnerability of the
financial system to money laundering by ensuring that all financial
centres adopt and implement measures for the prevention, detection
and punishment of money laundering according to internationally
recognised standards. |
Section 10
Specific Guidance to Nominated Officers
Now that you've accepted the responsibilities for implementing
your practice's anti-money laundering policies do you have an adequate
set of procedures to meet the requirements of the anti-money laundering
legislation and your policy objectives?
1. Training and management issues.
