Anti Money Laundering Guidance
Anti-Money Laundering (AML) Guidance
Anti-Money Laundering (AML) is a set of laws, regulations and procedures which are intended to prevent criminals from disguising funds obtained illegally, as legitimate income.
The Chartered Institute of Legal Executives is committed to ensuring that our members can play their part in helping to safeguard the UK against money laundering activities.
The legal sector is one of the sectors at risk of being targeted because of the skills and services that legal professionals offer. Therefore, our members are amongst the professionals that play a key role in both detecting and preventing money laundering.
The legal profession is one of the professions that the AML regulations apply to. Therefore, you may need to be covered by a supervisor from the sector. See the Government website for more information.
CILEX is the named supervisory authority under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘The Money Laundering Regulations 2017’) although it has delegated all regulatory functions to CILEX Regulation (as the independent regulator of our members). CILEX Regulation acts independently and is responsible for monitoring and enforcing relevant members’ compliance with their AML obligations.
CILEX shares the government’s objectives in ensuring the UK has a robust and effective AML regime. To that end, we work in conjunction with government, law enforcement agencies and other supervisory authorities to improve the wider framework on AML.
Government sanctions against Russia: related CILEX members’ AML Obligations
Full details of the measures are available on the Foreign, Commonwealth & Development Office website.
Where there is a failure to adhere to the sanctions, the Office of Financial Sanctions Implementation (OFSI) has the power to levy civil monetary penalties for breaches of financial sanctions. The FCA has also published a statement in response to the sanctions. For further details and guidance on financial sanctions you should contact OFSI or, for trade and expert sanctions, you should contact the department for International Trade’s Economic Control Joint Unit.
Updated March 2023
In March the Legal Sector Affinity Group (LSAG) published the latest changes to its Treasury Approved Guidance on preventing money laundering in the legal sector. The changes include:
- Guidance on the new requirement to carry out proliferation financing risk assessments, and
- Changes to the duty to report discrepancies to company registries.
The following list covers the details of the changes made:
- 4.8 – Added references to Proliferation Financing.
- 5.3.1 – Added Proliferation Financing risk assessment.
- 5.4 – Removed reference to EU Supra-national Risk Assessment to be taken into account with Practice-Wide Risk Assessments.
- 5.4.1 – Added guidance on how to assess Proliferation Financing risk.
- 220.127.116.11 – Clarification on High Risk Third Countries list.
- 6.19.1 – Updated ‘EEA country’ to ‘country with controls equivalent to 5MLD’.
- 12.6 – Updated section on reporting discrepancies.
- 18.10 – Proliferation Financing risk factors added.
Legal Sector Affinity Group – Changes and approval by HM Treasury
We are pleased to announce that the anti- money laundering (AML) guidance (often referred to as the “LSAG guidance”) issued in 2021 has now been approved by HM Treasury (HMT).
This means that according to The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“the regulations”) the LSAG guidance has full standing, including in regulation 86(2)(b)(ii).
This specific regulation sets out that when judging whether a legal practitioner or practice has committed an offence by not following the regulations, the court must decide whether the guidance has been followed. It is similarly relevant where the imposition of civil penalties is being considered (under regulation 76).
The fact that the guidance is approved by HMT also means firms must consider it when deciding how to comply with the regulations, specifically:
- Regulation 19 – policies controls procedures
- Regulation 21 – internal controls
- Regulation 24 – training and
- Regulation 35 – enhanced due diligence on politically exposed persons
LSAG Summary of changes
The key areas of change to note are:
- Updated content around the verification of the identities of beneficial owners (6.14.10) which underlines the expectations of supervisors and HMT for new beneficial owners to be verified, in general, to the same standard as you would apply to a client that is a natural person
- Redirecting away from the old EU High Risk Third Country lists and towards the UK’s own list (18.104.22.168 which relates to risk assessments and 6.19.1 which relates to EDD).
- Small clarifications to the section on Legal Professional Privilege, particularly where it may not apply as you know or suspect a money laundering offence has occurred, invoking the need to make a Suspicious Activity Report (13.4.2 and 13.4.3)
- Clarification on what is not “an arrangement” for the purposes of POCA (16.3.6) and further clarification on the “adequate consideration” defence 16.4.2
There were also some minor amendments to the guidance, which were corrections and/or formatting changes.
Other guidance changes
From time to time, the LSAG group issues advisory notes. While they do not have the same standing as the LSAG guidance, as they are not approved by HM Treasury, they still contain useful content and express the expectations of the Legal Sector Professional Body Supervisors.
At the beginning of the Covid 19 outbreak, LSAG issued an advisory note on changes to risk caused by the different ways of working, the need to social distance and the changes in the market.
In view of the permanence of some of the changes to ways of working LSAG have revised this note so it continues to be relevant. In time we will seek to wind elements of this into the formal LSAG guidance.
This content is split into two notes:
- Remote Working, Client Interaction and associated use of AML technology
- Impacts of Economic Stability
If you have any questions about the content of either this note, or the wider LSAG guidance, please contact us.
There remains the further guidance for specialist areas of legal practice. The latest guidance has been published in three parts.
- Part 2a – AML Guidance for Barristers and Advocates
- Part 2b – AML Guidance for Legal Professionals providing Trust or Company Services; and
- Part 2c – AML Guidance for legal professionals offering Notarial services.
Coronavirus (COVID-19) update – Anti-Money Laundering and risk awareness
The National Crime Agency has warned that organised crime groups may try to exploit any opportunities that they may spot during current coronavirus crisis. Please see the information which CILEX Regulation have put together here.
Legal Sector Affinity Group (Advisory Note) – the Legal Sector Affinity Group have prepared an Advisory note to assist in preventing Money Laundering/Terrorist financing in legal practices, setting out the risks and other issues to consider.
National Risk Assessment 2017
The National Risk Assessment (NRA) was Published in October 2017, setting out the key money laundering and terrorist funding risks for the UK, how these have changed since the UKs first National Risk Assessment in 2015, together with the action taken to address those risks.
The NRA states that professional services are a crucial gateway for criminals looking to disguise the origin of their funds. The report notes the legal services – like banking and accountancy services – remain at high risk of being abused by money launderers and suggests that high end money laundering almost always requires facilitation by legal services, even if they are unwitting.
The identification of the sector as ‘high risk’ means that those working in the sector “should be vigilant towards the persistent efforts of criminals and terrorists to exploit vulnerabilities.”
The NRA specifically highlights the following services to be at high risk of money laundering:
- Conveyancing services
- Client account services
- Trust and company formation.
To mitigate risks when operating in these areas you must make sure you comply with the latest AML guidance and pay attention to red flags that could cause you to have suspicions of money laundering.
You should also ensure that the conclusions of the NRA are reflected in your firm’s AML policies, controls and procedures, as well as in your risk assessments.
The full report can be read here.
Suspicious Activity Reports.
The National Crime Agency offers a range of resources around filling in your Suspicious Activity Reports (SAR), which include:
- SARs Regime Good Practice – Frequently Asked Questions – updated May 2020
- SAR guidance notes – provides a quick guide to the fields to complete when submitting a SAR via SAR online or in print form.
- Submitting a SAR within the regulated sector – provides general guidance on best practice when making a disclosure.
- Guidance on submitting better quality SARs – updated May 2020 – is a detailed note on best practice for all reporters.
- SAR Glossary Codes and Reporting Routes – November 2020
- Defence against money laundering FAQs – tackle some basic questions and misunderstandings with regard to the consent/DAML regime.
- SARs In Action Magazine – August 2019 edition
- SARs In Action Magazine – November 2019 edition
- SARs In Action Magazine – March 2020 edition
- SARs In Action Magazine – September 2020 edition
- SARs in Action Magazine – February 2021 Edition
- SARs In Action Magazine 21st Issue – August 2023
- Updated SARs Reporter Booklet
- National Crime Agency 2020 Annual Report on the Suspicious Activity Reports regime – November 2020
In June 2019, The Law Commission published its Anti-money laundering: the SARs regime report.
The third UKFIU podcast is available at ukfiu.podbean.com, Apple Podcasts, Google Podcasts, Podtail and Amazon music/audible. LEAs explain what makes a good quality SAR.
Flag it up campaign
CILEX supports The Home Office’s “Flag it up campaign.”
Copies of posters and images for the legal sector for use can be downloaded from here.
Financial Action Task Force (FATF)
The FATF is an inter-governmental body with objectives to set standards and promote the effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other threats of the international finance system.
The FATF has developed a series of recommendations which are recognised as the international standard for tackling money laundering and the financing of terrorism. It has also reported on money laundering and terrorist financing – vulnerabilities of legal professionals.
It has also updated its Risk based Approach Guidance for Legal Professionals.
In March 2023, FATF produced ‘Beneficial Ownership of Legal Persons’ Guidance.
Additional information and resources
You can also find information on your Anti-Money Laundering obligations and the reporting of suspicious activity.
A lawyers Guide to detecting and preventing money laundering, was published by the International Bar Association (IBA) in conjunction with the American Bar Association (ABA) and the Council of Bars and Law Societies of Europe (CCBE).
Sanctions and high risk jurisdictions
Selected sanctions lists:
High risk jurisdiction list: