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Under the Money Laundering Regulations 2003, all solicitors undertaking regulated work have
an obligation to set up and maintain satisfactory identification procedures for clients. The
obligation applies to one off transactions where the amount involves 15,000 Euros or more or
to all transactions where a business relationship has been established. Failure to comply is a
criminal offence carrying a maximum penalty of 2 years imprisonment.
The Regulations also provide that records of identity are kept for at least 5 years after the one
off transaction has concluded or in the case of a business relationship after the relationship has
terminated.
Money Laundering Reporting Officers were not prepared to put themselves or their firms at risk
and a very robust and cautious approach was generally taken
Having acquired satisfactory evidence of identity the next problem facing solicitors was what
to do with it. If a particular client had several matters, which file would contain the ID evidence?
Was it necessary to have a central record of ID evidence? Where was the mass of additional
paperwork to be stored?
In January 2004 the Law Society issued pilot guidelines to assist solicitors in terms of
compliance with the money laundering regime following the introduction of the Proceeds of
Crime Act 2002 and the Regulations. Most firms interpreted these guidelines as requiring, in
every case, documentary ID evidence and yet a close examination of them shows this not to
be the case. In fact the main thrust of the guidance on the topic of establishing evidence of
identity was to encourage a “risk based” approach.
Paragraph 3.68 of the guidance states:
“In deciding what evidence is satisfactory, and how much evidence is required, a common
sense approach should be applied. There will be circumstances when it will be both necessary
and permissible to apply commercial judgement to the extent of the initial identification
requirements”
Paragraph 3.71 of the guidance states:
“You may make checks by looking at actual documentary evidence such as passports and
certificates of incorporation issued by Companies House or by making electronic checks of
suitable databases”
Paragraph 3.72 of the guidance states:
“You may also ask third parties, such as investigation and information service providers, and
credit reference agencies, to obtain the evidence for you as long as you are reasonably
satisfied that they are reputable, and that the evidence they produce will be reliable, and that
you ensure that your records of the evidence are complete”
The reality is that law firms should use a common sense approach. ID evidence should be
proportionate to the risks of money laundering activity and various factors have to be taken into
account such as the type of transaction in question, the reason for the client instructing your
firm and the source of funding etc.
The Law Society has recently announced that it intends, in the near future, to issue its own
guidelines on the use of electronic ID verification. There is a certain inevitability that these will
follow the spirit of the JMLSG guidance. Indeed any new guidance to the contrary would be
quite perverse.
There are a small number of Government approved Credit Reference Agencies, such as
CallCredit plc www.callcredit.plc.uk and Equifax, www.equifax.co.uk who offer on-line electronic
ID verification. CallCredit has established CallML as its money laundering support arm and its
on-line product allows users to verify customer ID in seconds rather than hours. The web site
includes an interesting cost benefit analysis illustrating the financial gains to be made from the
use of electronic ID verification. Many UK solicitors now subscribe to this service.
CallCredit also works with most of the major case and practice management suppliers so that
their product can be incorporated into client opening procedures. The benefits of this are
enormous. Imagine a system whereby, having entered your client’s name and address in your
database, you then click a button and this fires up an on-line search of millions of records and
authentic data sets. Within seconds your client’s ID is verified. Behind the scenes the search
results produce a detailed report which is automatically attached to the document management
file. As the report is captured at client level it remains linked to the client and not the matter. The
benefits are that no paper-based copies are required, no separate central records are required
and as the information is kept within your practice management system you have no worries
about storage.
An additional benefit is that clients usually are quite prepared to pay a modest charge for this
type of service in order to avoid the inconvenience and risk of producing passports etc. The fact
that the whole process of client identification can be dealt with so quickly also means that you
can immediately get on with the client’s business.
Banks and Building Societies are already well advanced in the use of this new technology and
it is only a matter of time before solicitors follow suit.
Bill Jones is the Managing Partner of JMW Solicitors in Manchester, www.jmw.co.uk, and he
is also the Managing Director of ML Solutions 4U Ltd, www.mlsolutions4u.co.uk, a company set
up specifically for the purpose of assisting law firms in terms of providing compliant anti-money
laundering solutions.
Email Bill.Jones@jmw.co.uk.
Back to Contents.
Electronic ID Verification
By Bill JonesResponding to the new regulations
The profession’s initial response to these requirements was to become obsessed with
demanding from clients, before accepting instructions, sight of passports, driving licences, utility
bills etc. The inevitable result has been disgruntled clients and frustrated solicitors who have
become burdened with massive additional administrative responsibilities. Clients
understandably are reluctant to send important original documents, such as passports, through
the post. Law Society Guidance suggested that non original documents had to be certified as
being “true copies” and that the person checking them had to be satisfied that they were
authentic.The move to electronic data
So where is all this going? What is the way forward? With modern technology there is an
irresistible move toward the use of electronic data as opposed to conventional paper based
documentation. The benefits are obvious and have been recognised by the Joint Money
Laundering Steering Group (JMLSG) which is made up of the leading UK Trade Associations
including banks and building societies. JMLSG’s latest guidance, approved by the Treasury in
February this year, specifically aims to simplify the ID verification process. The guidance
expressly encourages the wider use of electronic means of verification of identity and
discourages the practice of important documents being sent through the postal system.