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The Legal Sector Affinity Group’s anti-money laundering guidance

Author: Nicola Sharp  9 September 2022
2 min read

Nicola Sharp of Rahman Ravelli summarises the most notable aspects of the LSAG guidance that has been approved by the Treasury.

HM Treasury has approved the updated anti-money laundering (AML) guidance that was produced by the Legal Sector Affinity Group (LSAG)

LSAG is made up of UK legal services regulatory and representative bodies, including the Solicitors Regulation Authority (SRA) and the Law Society of Scotland. It produced the guidance last year to help legal professionals and firms comply with the Money Laundering Regulations 2017 (as amended by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 and the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020).

As the Treasury has approved the guidance, it now has full standing. This means that the guidance and the money laundering regulations themselves will carry equal weight when it is being considered whether a legal practitioner or practice has committed an offence.

Principles

In basic terms, the guidance is set out as 36 core compliance principles that provide a framework for AML risk control within a firm. The document introduces new information and requirements for firms, a key example being the requirement to have a policy and to carry out checks on “frontline AML staff”, beneficial owners, officers and managers of the firm. Checks on staff are to be carried out both before and during employment and involve examination of criminal records, credit details, any adverse media, references and electronic ID.

The guidance is in two sections and runs to more than 200 pages. The first part relates to AML guidance for the legal sector. The second part consists of specific AML guidance for barristers and advocates, trust or company service providers and notaries.

In summary, the guidance focuses on:

  • Vetting staff and beneficial owners, officers and managers
  • Firm-wide risk assessments
  • The need for enhanced due diligence
  • Sources of funds and wealth checking
  • Process documentation
  • Electronic identity checking

It highlights the importance of firms carrying out all relevant checks on clients and staff and emphasises the need to focus on areas such as electronic Identity checks in the wake of the pandemic-related increase in remote working.

The new guidance differs from the previous version of the guidance in a number of ways:

  • There is now an expectation that verification of the identities of new beneficial owners will be to the same standard as would be applied to a client that is a natural person.
  • The UK's list of high-risk third countries replaces the European Union’s list in the guidance.
  • There are small clarifications to the section on legal professional privilege, particularly where it may not apply when a suspicious activity report is made due to knowledge or a suspicion that a money laundering offence has been committed.
  • There is clarification on what is not 'an arrangement' for the purposes of the Proceeds of Crime Act 2002 and further clarification on the 'adequate consideration' defence. 

Conclusion

The guidance is lengthy and comprehensive and sets out clear expectations of the legal sector.   Firms have to view it as a reminder that it is now more important than ever that they make sure that they comply with the regulations and keep up to speed with changes in the market and working practices and the associated risks.

Nicola Sharp C 09983

Nicola Sharp

Partner

nicola.sharp@rahmanravelli.co.uk
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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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