Summary of changes:
(Please note that some of the wording in the Schedule didn’t make it into the body of the guidance as intended!)
4.2.2/ 6.16.2/ 6.18.1 & 6.18.2 – Beneficial owners: definitions changed in these sections to “more than 25%” as opposed to “25% or more” and correspondingly “25% and below” as opposed to “below 25%” (most other references to beneficial owners in the guidance already made this point, so this is clarification rather than big news).
4.7 – Economic Crime Levy: Further information and references the obligation to register with and pay the levy to HMRC if annual turnover exceeds £10.2 million.
5.1.1 – Supply chain risks: New subsection about the importance of:
- understanding the purpose of the service you are providing and who is ultimately benefiting from it
- looking at the bigger picture into which your instructions fit – does it make sense (e.g. your involvement and that of other professionals) or could you be assisting criminal activity by your involvement?
- taking a holistic approach to risk assessments
As the Law Society has pointed out, there is no reference yet to the issues raised in the World Uyghur Congress case which involved proceeds of crime in a supply chain.
5.6.2.1/ 6.19.1 – High-risk third countries (HRTCs): Removes reference to Schedule 3ZA to the Money Laundering Regulations (MLR) and substitutes the new definition of HRTCs in R33(3)(a) – i.e. the Financial Action Task Force (FATF) black and grey lists (as from 23/1/24).
6.14.1: ECCTA/ Companies House information: Clarifies that the Economic Crime and Corporate Transparency Act 2023 (ECCTA) changes to information companies are required to provide to Companies House will not affect R28(9) MLR – namely that you can’t rely solely on information at Companies House when carrying out due diligence on beneficial owners. In essence, seek confirmation from your client/ other evidence that the Companies House information is accurate.
6.14.4: ID documents: Clarifies obligations to obtain ID documents which verify all three of a natural person’s name, address and DOB. A photocard driving licence may therefore do the job on its own (assuming the address is up to date). The amendments clear up the confusion caused by the 2023 version of LSAG which implied you didn’t necessarily have to verify all 3 things.
6.14.10: Ownership and control structure: What do you have to do to understand the ownership and control structure of non-natural persons and their beneficial owners, given complex corporate structures are seen as a specific high-risk factor which may require EDD (R33(6)(a)(vi))? Regulation 27(3A) requires firms to take “reasonable measures” to do so. This is more than simply identifying who the beneficial owners are but involves considering whether the information obtained is likely to assist in addressing the money laundering risks posed. As well as obtaining and verifying the entity’s registered details etc, you must also identify the beneficial owner (where there is one) and take reasonable measures to verify their identity. If the beneficial owner is also an entity, you must again take reasonable measures to understand its ownership and control structure and identify its beneficial owners.
6.14.11.4: Register of Overseas Entities (ROE): New section addressing overseas entities wishing to buy, sell or transfer property or land in the UK who must register with Companies House. Don’t forget that no register (including ROE) should be relied on solely to understand beneficial ownership which should be verified independently.
6.17.2.1: Source of funds: Further guidance when dealing with third party transaction funds. Essentially, carry out the same enquiries as you would for a client (taking a risk-based approach). Transactions involving payments to and from third parties are a high-risk factor, which may require EDD (R33(6)(b)(iv)).
6.19.3.1 to 6.19.3.3: PEPs: Updated links to FCA guidance on the treatment of PEPs and added text to address the distinction between domestic and non-domestic PEPs (since 10/1/24) and the level of due diligence to carry out, the starting point being that domestic PEPs present a lower level of risk, requiring a lower level of EDD, than a non-domestic PEP (assuming no other enhanced risk factors) are present.
12.6: Discrepancy reporting: Added links to gov.uk guidance regarding when a discrepancy needs reporting to Companies House (re companies) and to HMRC (re trusts).
13.4.3: Redundant footnote removed from Legal Professional Privilege: Suspecting a transaction constitutes an offence section.
16.4: Defences to principal money laundering offences: ECCTA added 2 defences:
- if the criminal property is valued at less than £1,000 and the transaction is taking place in the regulated sector (‘de minimis exemption’ – see also 16.4.4);
- in certain circumstances where the proceeds of crime were part of a mixed-property transaction (‘mixed-property transactions exemption’ – see also 16.4.5).
16.7.4: Chinese currency controls: Further information in the ‘POCA Offences: Jurisdictional scope’ section – duty to report suspected money laundering, even if your suspicion relates to overseas criminal conduct, which would also have been a crime in the UK. Whilst Chinese currency controls prevent Chinese citizens moving more than $50,000 worth of funds out of China, evasion of these controls is not a crime in the UK so there is no automatic criminal property in such circumstances. However, the issue to address is how these funds were removed from China to the UK and whether ‘underground banking’ was involved, making source of funds enquiries more onerous. See LSAG’s guidance on Chinese currency controls and ‘underground banking’ but be aware that China is not the only country with currency restrictions in place.
If you have any questions, please do get in touch.