This is the first of a number of posts, looking at the implications EU’s Fourth Anti-Money Laundering Directive on the UK’s Regulated Sector
Obliged Entities
This is the logical place to start for a business within the scope of the Regulated Sector of the UK Money Laundering Regime, ‘Obliged Entities’ is a new term being used to describe you, whether you are natural person, (that is an individual) or operate within a partnership or a company structure or any other type of legal person including trusts. This term ‘obliged entities’ is introduced to describe those businesses to whom the directive applies.
Financial Threshold
This is a significant amendment concerning traders in high value goods, which is high value dealers (HVD’s), who want to receive payments in cash for their products. The financial threshold in this type of an obliged entity is reduced from €15,000 to €7,500, either in single or linked operations. (Art 2.1(e)). As with the 3rd Directive, the UK may permit exemptions where there is little risk of money laundering though the fourth directive does list guidance as to what lower risk factors may be, this are set out in schedule 2 of the Directive, whereas they broadly reflect the risk based exemption criteria set out in the current UK Regulations, there is one glaring omission, which I will discuss next.
Lawyers’ Client Accounts
Under the 3rd Directive and transcribed into the Money Laundering Regulations 2007 under simplified due diligence, Article 13(4) we have the following
(4) The customer is an independent legal professional and the product is an account into which monies are pooled.
For non EEA lawyers a set of criteria including equivalent standards and supervision meant most law firms around the world enjoyed this simplification of due diligence.
In practice this meant that monies emanating from a lawyers client account was deemed to be clean and not subject to any due diligence and as such not one single Suspicious Activity Report (SAR) has ever been filed for any transaction emanating from a lawyers’ client account. We have seen in the UK up £40 billion each year from potentially criminal and overseas sources being poured in to the housing market with properties in certain areas of London now largely owned by companies registered in BVI and other off shore jurisdictions, were the trail to the ultimate beneficial owner may be obscured. This has led many to dub London as the money laundering capital of the world.
The Law Society comments as follows: “The removal of specific simplification provisions for lawyers’ client accounts could undermine client confidentiality and result in disproportionate data processing by financial institutions”.
They go to say that they will be looking carefully at the provisions and making representations to ensure that the simplification measures do not actually result in an increase in red tape and compliance activity.