LSAG comments on the UK Economic Crime and Corporate Transparency Act 2023 (ECCTA)
The Legal Sector Affinity Group (LSAG) has published an important update to its anti-money laundering (AML) guidance for the UK legal profession. In the update they comment upon
- UK Economic Crime and Corporate Transparency Act 2023 (ECCTA)
- ECCTA received Royal Assent on 26 October 2023 and introduces a number of changes to corporate structures and registration, as well as amending the Proceeds of Crime Act 2002.
Company due diligence
- ECCTA has brought in a number of changes to the way that companies are registered and what information must be declared on an ongoing basis.
- These increase the volume and detail required on registration and in annual returns to Companies House. While this information will be very useful in assessing risk and completing due diligence, R28(9) is not affected. It does not, therefore, in itself satisfy the obligation to carry out due diligence on bodies corporate under regulation 28(4), however it may usefully form part of your wider checks.
- De minimis exemption for paying away funds on terminating relationships ECCTA has amended the Proceeds of Crime Act 2002 so under certain circumstances AN OFFENCE WILL NOT BE committed in the following circumstances:
- Criminal property is transferred or converted under s.327(1)(c) and (d)[*]
- [*]Note that these provisions do not apply where property is concealed (s.327(1)(a)), disguised (s.327(1)(b)), or removed from the jurisdiction (s.327(1)(e)).
- A person acquires, retains, uses or controls criminal property or on behalf of another person under 328(1)
- Criminal property is used, acquired or possessed under s.329(1).
- If the transaction:
- Takes place in the regulated sector
- Involves money or property valued at less than £1,000
- Involves transferring or handing over to the client money or other property which belongs to or is owed to the client
- Is made for the purpose of exiting the relationship with the client and
- If CDD on the client has been completed.
- There is accordingly no need to seek appropriate consent in order to make such a transfer to the client if all the conditions above are satisfied.
- However, a reporting obligation under s.330/331 would still arise if a suspicion has been formed in the course of regulated sector work, so, subject to privilege considerations, an information SAR may still be needed.
- It should be noted that the exemption is extremely narrowly defined, and therefore it is LSAGs opinion that it is likely to apply very rarely.
- The Home Secretary may also make regulations excluding certain transactions or sectors from these provisions.
Mixed-property transactions (in force from 15 January 2024)
- ECCTA also provides a further exemption to the above offences in the case of transfers where:
- The firm is carrying on business in the regulated sector; and
- The firm makes the transfer in connection with holding any money or assets for the client [This also applies to acts done in operating an account which a client holds with a firm, but this unlikely to be relevant in the legal sector]
- There is knowledge or suspicion that part but not all of the money or assets is criminal property (the suspect part being the relevant criminal property); but
- It is not possible, at the time the transfer takes place, to identify the part of the funds or property that is the relevant criminal property; and
- The value of the funds in the account or accounts, or of the property which continues to be held by the firm, is not, as a direct or indirect result of the transfer, less than the value of the relevant criminal property at the time of the transfer.
- As with the 'paying away' exception described above, if all these conditions apply then there would be no need to seek appropriate consent in order to make such a transfer.
- However, a reporting obligation under s.330/331 (ie an information SAR) would still arise if a suspicion has been formed in the course of regulated sector work, subject to privilege considerations.
- Again, this is a very particular set of circumstances and LSAG would strongly caution against any attempt to enter into a transaction in anticipation of using these exemptions.
- If you are unable to determine whether this section would apply to funds or assets you or your firm are handling, we recommend you submit a defence against money laundering SAR in the usual way.
READ THE FULL UPDATE OF CHANGES
Law Society UK AML guidance changes to be approved by HMT
The Legal Sector Affinity Group (LSAG) has published an important update to its anti-money laundering (AML) guidance for the UK legal profession.
The addendum to the 2023 version of LSAG's guidance contains important legislative updates, along with changes in LSAG position and supervisory interpretation and expectations.
It covers several key topics:
- Economic Crime Levy considerations for larger firms
- Discrepancy Reporting Guidance
- Registers of Overseas Entities update
- Changes brought in by the Economic Crime Act, including a new POCA de minimis limit of £1,000
- A definition of Supply Chain Risk, which is particularly relevant in the context of financial sanctions requirements
- Supervisory expectations in respect of evidencing Third-Party Source of Funds involved in a transaction
- LSAG-proposed amends to the Identification & Verification approach set out in existing LSAG guidance
- Erratum regarding Beneficial Ownership thresholds.
- Proposed amends to Identification & Verification approach
READ IT HERE
It is important to note that LSAG has taken the step of publishing intended changes to the profession’s approach to the identification and verification aspect of client due diligence, as set out in the current LSAG guidance.
The intended changes do not supersede the current HM Treasury-approved LSAG guidance.
However, given how fundamental this aspect of AML control is, LSAG wishes to give advance notice regarding the proposals prior to HM Treasury approval, in a format that allows practitioners full visibility of the proposed changes.
These changes will only take effect should HM Treasury approval be granted and will then be written into the main body of the LSAG guidance.
The changes have been submitted to HM Treasury and, if accepted, will be integrated into the text of the next iteration of LSAG's main guidance. This will be communicated as soon as is possible.
Full details as below:
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