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AML CHALLENGES FOR HIGH STREET FIRMS

AML CHALLENGES FOR HIGH STREET FIRMS. Nicola Boulton Byrne and Partners London. WHY DOES IT MATTER?. Criminals need lawyers SRA/Police Reputation. 2. REAL PROBLEMS. Mr Philip Griffiths – 6 months Jonathan Krestin – Fine (£5,000) Matthew Gauntlett and Sarah Beveridge – Acquitted. 3.

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AML CHALLENGES FOR HIGH STREET FIRMS

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  1. AML CHALLENGES FOR HIGH STREET FIRMS Nicola Boulton Byrne and Partners London

  2. WHY DOES IT MATTER? Criminals need lawyers SRA/Police Reputation 2

  3. REAL PROBLEMS Mr Philip Griffiths – 6 months Jonathan Krestin – Fine (£5,000) Matthew Gauntlett and Sarah Beveridge – Acquitted 3

  4. WHAT YOU ABSOLUTELY HAVE TO DO AND HAVE A risk assessment A compliance manual A due diligence from Training for staff Monitor 4

  5. RISK ASSESSMENT Regulation 20 MLR 2007: “....must establish and maintain appropriate and risk-sensitive policies and procedures relating to: Customer due diligence measures and ongoing monitoring; Reporting; Record keeping; Internal control; Risk assessment and management; The monitoring and management of compliance with, and the internal communication of, such policies and procedures, in order to prevent activities related to money laundering and terrorist financing. “ 5

  6. THE QUESTIONS • Which of our practice areas are regulated? • What risk level do we assess each practice area to have? • Property, corporate, finance • Wills probate, employment, mental health, immigration • Trusts, tax planning, insolvency? • What types of client do we have? • New clients • Established clients • Clients we haven’t met • Peps • Cash businesses • Criminal records continued >> 6

  7. THE QUESTIONS (cont’d) • What are we going to do on the basis of our answers? • Cover it in the compliance manual • Train the lawyers in each area • Put in extra supervision • Extra monitoring of high risk areas 7

  8. COMPLIANCE MANUAL Regulation 7(3)(B) MLR 2007 “....be able to demonstrate to his supervisory authority that the extent of the measures is appropriate in view of the risks of money laundering and terrorist financing....” 8

  9. DUE DILIGENCE/CASE OPENING/NEW CLIENT FORM A form is absolutely essential When to fill it in? Who takes the decisions on the basis of the information given? Electronic ID? 9

  10. TRAIN YOUR STAFF Regulation 21 MLR 2007 All “relevant employees” are aware of law on money laundering and terrorist financing and get regular training. Compliance manual – all new employees Who to train – fee earners and support staff How to do it? Record that you have done it. 10

  11. MONITORING Risk based High risk then do it more frequently Case handler versus supervisor Recording the process 11

  12. THE LITIGATION PROBLEM You are representing vans on the GO Ltd, which is a mid-size player in the market for selling and leasing delivery vans. They instruct you to sue XYZ Ltd for contractual defaults in relation to 5 vans. The claim is valued at £200,000 including arrears in interest. You are shown one contract and a few receipts. You attend one very heated settlement meeting where your client is insisting on full payment. You then receive an offer to settle for £90,000. your client accepts immediately and asks you to resolve the matter with all haste. 12

  13. THE QUESTIONS TO ASK • What sector? • litigation – not regulated • What warning signs? • possible sham litigation • how detailed was the supporting documentation? • did this settle too easily? • Further steps • undertake cdd if you did not do so before • research whether the vehicles in fact exist • Ask the client why they are willing to take the lower amount 13

  14. MORE INFORMATION You decided to do a companies search on both parties. you find that a major shareholder of vans on the GO and XYZ Ltd is a Mr Shades. You check the registration plates included in the contract and they belong to an assortment of passenger vehicles, not delivery vans. You do a Google search on Mr Shades, and there is a press article linking him with pirated DVDs. 14

  15. MORE QUESTIONS TO ASK • What sector? • still the non-regulated sector – litigation • Is there criminal property? • You have information of possible criminal activity and that the subject of the dispute is fabricated • You are not required to know the actual criminal activity that gives rise to the suspected criminal property 15

  16. MORE QUESTIONS TO ASK (cont’d) • Is the information privileged? • the information about the contract and settlement falls under litigation privilege. • your research is publicly available information, so not privileged. • do you have prima facie evidence that you are being used to commit a crime (which could be the crime of money laundering) • What would you do? 16

  17. THE PERSONAL INJURY PROBLEM You have been acting for a client in a personal injury matter and successfully recover damages for him, including special damages for loss of earnings for a patent that he had lodged but could not work on. A “friend” of the claimant subsequently informs you that the patent part of the losses was untrue, not such opportunity was lost and it was just a lie to inflate his damages. 17

  18. THE QUESTIONS TO ASK Which sector? • litigation Is there criminal property? • The Claimant got money to which he was not entitled – see s340 POCA (proceeds of crime) • Dealings with the money amount to money laundering continued >> 18

  19. THE QUESTIONS TO ASK (cont’d) Does privilege apply? crime fraud exception Should a disclosure be made? Yes, under s328 POCA – you have a reasonable excuse for not making one earlier in that you have only just been given the information that led you to suspect. 19

  20. THE WILLS PROBLEM • You are acting for the executor of a will. he delivers to your office a large box of cash and asks you to put it onto client account. What do you do? • Is it criminal property? • Do you know or suspect that the cash is derived from criminal activity? • What is the value of the estate? • What else do you know about the deceased? 20

  21. THE CASH BUSINESS PROBLEM A local businessman, Mr Khan instructs you to advise on the cash purchase of a short term lease of a local fast food franchise. Mr Khan and the seller are distant relatives from the same community and have agreed that Mr Khan will pay £40,000 in cash for a 2 year lease. The source of funds is cash revenues from Mr Khan’s other businesses, a garage, other fast food franchises and a shop. Mr Khan owns these businesses through private companies where the shares are held by himself, his wife and his sister and brother in law. 21

  22. THE QUESTIONS TO ASK • What sector are we in? • Regulated sector – real property and a business being bought • Risk assessment? • High – cash intensive business and funding in cash • Consider whether it is a front for criminal activity (possible with any cash intensive business) • Consider possibility of tax evasion continued >> 22

  23. THE QUESTIONS TO ASK (cont’d) Who is the client? Mr Khan or a company – either way identify Source of funds? Mr Khan provides banking records showing money transfers through a money services bureau. Management accounts also supplied – all transactions are cash Audits of Mr Khan’s companies from reputable auditor and unqualified. Mr Khan answers all questions freely and openly 23

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