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Customer Due Diligence Tree Step 1: do the Money Laundering Regulations 2007 (MLR) apply to this type of work?
The requirement to undertake Customer Due Diligence (CDD) is set out in the MLR:
1. Regulation 3(1)(d) provides that the MLR apply to 'independent legal professionals'.
2. Regulation 3(9) then defines independent legal professionals, and sets out a list of transactions the MLR apply to. a.
Apply the Regulation 3(9) factors to the facts.
Step 2: what steps must you take if the MLR apply?
1. Regulation 7 provides you must apply CDD measures if you satisfy one the Regulation 7(1) factors.
2. Apply to the facts and conclude that you need to undertake CDD in relation to the client/s.
Step 3: define CDD
1. Regulation 5 defines CDD - "identifying/verifying customer's identity..." a.
2. Regulation 5(b) and Regulation 6: CDD can also extend to certain 3 rd party "beneficial owners" who are not your client, but have a control or financial interest in the client.
Three types of CDD - a.
Standard - Reg 5 - AML Practice Note para 4.6
Simplified - Reg 13 - AML Practice Note para 4.8
Enhanced - Reg 14 - AML Practice Note para 4.9
Step 4: what type of CDD is required for the client?
Usually rule out simplified CDD as customer won't be type listed in Regulation 13.
STANDARD CDD - apply on the facts if there are no suggestions enhanced CDD is necessary in the case. o
*Apply the relevant 4.6 AML Practice Note paragraph.If a company, enquire whether there is a beneficial owner that falls under Reg 5(6)/Reg 6. The last annual return should identify who the shareholders were, so you can identify if any of them hold more than 25% of the shares/voting rights in the company.
You should GO FURTHER and attempt to formally identify the shareholders as some of the beneficial owners may have transferred their shares since the last annual return.
Also enquire into any individual who exercises control over the management of the company.
ENHANCED CDD - Regulation 14 - the facts may suggest there is a risk of Money Laundering (see Chapter 11 AML Practice Note warning signs). o
Is it a company or individual?
Regulation 7(3) requires you to determine the extent of CDD required on a "risk-sensitive basis". If there are suggestions of ML, enhanced CDD is preferable. This means undertaking:Standard CDD - i.e. checking/copying original passport/DL or verifying identity from a person in the regulated sector; andEnhanced CDD - e.g. check embassy to verify identity, get more information on the purpose of the retainer (why is he investing in [X] property?), further information on the source of funds.
NO CDD NECESSARY: ONGOING MONITORING - if the client is an establish client of the firm with an existing business relationship, you wouldn't routinely need to undertake further CDD before commencing further work for the client. o
Regulation 8 - requires 'ongoing monitoring' of the business relationship with the client by continuing to riskmanage your instructions and keep your CDD up-to-date.This means keep your eyes open to any unusual changes and whether the facts suggest the client could be money laundering.For example, if a director was previously ID'd and his passport expired, the MLRO should request an up-to-date passport or a check on his details with a reputable electronic verification service provider.
Step 5: when should CDD be conducted?
* ESTABLISHING A BUSINESS RELATIONSHIP - defined in Regulation 2 - apply.
Regulation 9(2) - requires CDD to be undertaken before the establishment of the relationship.
If that is not possible, Regulation 9(3) merits verification to be completed during the establishment of the relationship - apply 3 factors.
AN OCCASIONAL TRANSACTION (I.E. ONE-OFF) - same as above.
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