Anti-money laundering – FAQs

I am acting for the purchaser of residential property. The client has advised me that he’s a member of a political party in the UK. Should I treat him as a politically exposed person (PEP) pursuant to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulations)? His wife will be living with him in the property so do the PEP rules apply to her as well?

Regulations 35 and 36 deal with PEPs. The definition of a PEP applies to all persons appointed by governments and authorities anywhere in the world, including in the UK.

A PEP is a person who’s been entrusted within the last year (or for a longer period if you consider it appropriate to address the risks in relation to that person) with a prominent public function by:

• a community institution
• an international body
• a state

Middle-ranking and junior officials are not PEPs. Members of political parties would not be regarded as PEPs nor will members of their family.

However, members of the governing body of a political party with some representation in a national or supranational parliament and their family members and known close associates will be regarded as PEPs.

Generally, this will only include members of the national governing body of the party who have significant executive power: for example, significant power in the selection of candidates or the distribution of party funds.

If your client’s wife is not going to be a co-owner or client of your firm, then the Regulations are not applicable to her.

A full list of who would be regarded as a PEP is set out in Regulation 35.

For more information, see the anti-money laundering guidance for the legal sector.

You should also refer to the FCA guidance on the treatment of politically exposed persons for anti-money laundering purposes.

I am a money laundering reporting officer (MLRO) and have been consulted by a fee earner about potential money laundering by a conveyancing client, where the information comes to us in ‘privileged circumstances’. If the fee earner receives information in ‘privileged circumstances’ (within the meaning of the Proceeds of Crime Act 2002 (POCA) s 330 (6)(b)) and then proceeds to make a disclosure to me, can I still rely on the exemption based on ‘privileged circumstances’ (as defined in s 330(10)) to avoid my obligation to make a disclosure to the National Crime Agency (NCA) under s 331?

Section 330(9A) allows for a fee earner to consult with their MLRO without necessarily triggering an obligation on the MLRO to make a suspicious activity report.

This provision affords an MLRO in a law firm the opportunity to consider the circumstances in which a suspicion may have arisen, before deciding whether a report to the NCA is the correct course of action.

To come within section 330(9A), the communication from the fee earner to the MLRO must be for the purpose of obtaining advice about making a required disclosure under section 330.

Here there appears to be no basis for making a required disclosure under section 330.

The information giving rise to the suspicion came to the fee earner in privileged circumstances.

Unless the information was communicated in furtherance of a criminal offence, the obligation to make a report will not arise.

The Legal Sector Affinity Group’s Anti-money laundering guidance for the legal sector (the guidance) states at Chapter 7:

“If the communication was received in privileged circumstances and the crime/fraud exception does not apply, you are exempt from the relevant provisions of POCA, which include making a disclosure to the NCA.”

The fee earner has consulted you in your role as MLRO as to whether there is a requirement to make a disclosure under section 330. You have satisfied yourself that no requirement arises.

In these circumstances, the fee earner’s internal report is not considered a disclosure for the purposes of section 331, and you are not obliged to make a disclosure to the NCA under that section.

This is where the design of the reporting procedure and your training is important.

Chapter 6 of the Law Society’s Anti-Money Laundering Toolkit (2^nd edn) advises that a firm will need to decide the procedure for making internal reports and whether a report should be made only after a request for guidance from the MLRO has been considered.

The firm’s procedure should make it clear that fee earners must report internally to the MLRO and not report directly to the NCA, giving the MLRO the opportunity to assess whether he should be making a disclosure.

For more information, see Chapter 7 of the anti-money laundering guidance for the legal sector and the Law Society’s Anti-money Laundering Toolkit (2nd edition).