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Representing our members

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Title: Representing our members


1
Representing our members
Lorna Jack, Chief Executive
2
Societys Aim
To lead and support a successful and respected
legal profession
3
Strategic objectives
  • Excellent solicitor professionalism and
    reputation
  • Our members are the trusted advisers of choice
  • Our members are economically active and
    sustainable
  • The Society is the professional body and
    regulator of choice
  • The Society is a high performing organisation

4
Last year
  • Banks and building societies
  • Legal aid
  • Cadder Carloway
  • Holyrood and the Society manifesto

5
Last year
  • PEAT implementation
  • Consolidated practice rules / revised accounts
    rules
  • New online rules and guidance
  • Membership renewal online
  • CPD record online
  • Registered Paralegal Scheme

6
Engagement
  • Visited 30 faculties
  • Held 216 events for more than 8500 delegates
  • 20,000 member enquiries to professional practice
  • Membership survey
  • Cost of Time survey
  • Consultations and feedback

7
Current work
  • Banks and building societies
  • Court closures
  • Legal Aid
  • Auditors of court
  • Cloud computing guidance
  • Developing the legal provider regulatory model

8
Looking ahead
  • Mergers
  • ABS
  • Scotlands constitutional future
  • LP regulatory scheme

9
Threats and Opportunities currently existing for
law firms in Scotland
  • Presented by Alistair Morris
  • March 2012

10
AFP  Mon, Feb 13, 2012 CBI slashes growth
forecasts for UK economy The Confederation of
British Industry (CBI) said in a statement that
it expected the economy to expand by 0.9 percent
in 2012 and by 2.0 percent next year, and warned
the outlook remains subdued due to the eurozone
crisis.
The Economic Background
15 FEBRUARY 2012 LAST UPDATED AT 1505 Bank of
England says UK economy 'to zigzag' this year
BANK OF ENGLAND GOVERNOR SIR MERVYN KING SAYS
"PATH TO RECOVERY SLOW AND UNCERTAIN" The uk
economy will "zigzag" this year, dipping in and
out of growth, but avoid going back into
recession, Bank of England chief Sir Mervyn King
has said.
17 Feb 2012 11.21 GMT Eurozone crisis live
World markets rise on Greek bailout hopes
Wednesday 15 February 2012 17.33 GMT
Eurozone economy shrinks for first time since
2009 Struggle to save the single currency takes
its toll on eurozone's economic growth
11
March 19, 2012 12.23am UK Law firms need more
restructuring BY Caroline Binham, legal
Correspondent, Financial Times UK law firms will
have to cut another 5 per cent of their headcount
in order to return to the profitability they
became used to before the downturn.
The Economic Background
Business confidence at its lowest for 30 months,
survey shows The Guardian, Monday 31 October
2011 Business confidence has slumped to a
30-month low before crucial GDP figures on
Tuesday that are expected to show that the UK
economy is slipping towards recession.
851PM GMT 15 Feb 2012 Unemployment jumped by
48,000 in the quarter to December to 2.67
million, a jobless rate of 8.4 per cent, the
worst figure since the end of 1995.
The Guardian, Monday 6 February 2012 Second
recession fears grow as small business confidence
plummets Three gloomy reports will put pressure
on Bank of England to pump 50bn more into
economy when it meets this weekThe beleaguered
state of the UK economy has been underlined by
three separate reports revealing that Britain's
one million small and medium-sized businesses
were facing their most difficult year since the
recession of 2009.
Law firms survey 2011 Benchmarking analysis of
the Top 51-100 firms
12
Law firms queue up for part in Big Bang 2
The Legal Profession in England and Scotland?
FOCUS Alternative Business Structures Law and
New Order November, 2011
WH Smiths new "Legal Access Point" (LAP to its
friends).
13
Our Profession and Sustainability
The Legal Profession in England and Scotland?
Law chief warns City will shrink in tough year as
bank finance dries up Peter Ranscombe, 18
Mar-12 Alastair Dickson, senior partner at
corporate law firm Dickson Minto, has warned that
2012 will be a much tougher year than the City
is expecting due to the lack of bank finance to
drive mergers and acquisitions.
Pinsents and McGrigors confirm merger under
Pinsent Masons brand Author Rose Orlik 06 Feb
2012 1112 Pinsent Masons and McGrigors are
set to merge on 1 May, with the combined firm to
operate under the Pinsents banner. Partners at
both firms approved the union in a vote which
closed on Friday (3 February), paving the way for
the creation of a firm with combined revenues of
around 282m.
ANDERSONS is latest Scots law firm to link up
with London 23 Mar, 2012 Consolidation in
Scotlands legal sector continued yesterday with
Glasgow based insurance specialist Andersons
Solicitors being taken over by larger London
rival DAC Beachcroft.
Legal firms Tods Murray and Fyfe Ireland to
merge Greig Cameron Deputy Business
Editor Tuesday 24 January 2012 .. are the
latest to announce a merger in a further sign of
a tough Scottish legal market
COST OF TIME SURVEY Law firms in profit again?
Bonar Mackenzie join Morisons Edinburgh based law
firm, Bonar Mackenzie, is to join Morisons
solicitors operating from the Morisons Edinburgh
office in Queen Street with immediate effect.
14
Our Profession and Sustainability
The Legal Profession in England and Scotland?
Impact of ABS on Scottish law firms will be like
an earthquake, predicts specialist By DAVID LEE
19 Mar2012 Law firms in Scotland will be warned
next week that the 51 per cent rule might not
be sufficient to protect them from a tsunami of
external competition as a result of alternative
business structures.


LEGAL SERVICES REFORMS catalyst, cataclysm or
catastrophe?
Mon 09 Jan2012 The Scottish Legal Market in 2011
Opportunities, not problems
Sun 22 Jan 2012 Debts set to stall law firm
mergers
Mon 30 Jan 2012 Talks give way to action as
mergers go ahead
15
Sustainability
The Legal Profession in England and Scotland?
16
The Balance of Risk and Opportunity
17
Thank you for your time today. Any questions ?
18
Branding MARKETING Social Networking Referrals
Office Space ADMIN SUPPORT Virtual
Receptionist Dictation Typing
Planning Start-up Advice BUSINESS Accounting Banki
ng Funding Legal
Community LawStart Membership
Telephony Social Media Web CLOUD
TECHNOLOGY Case Management Software Disaster
recovery Equipment
Law Society Outsourced Cashroom LEGAL
COMPLIANCE Risk Management HR Payroll HMRC
19
Overview
  • LawStart is a business advisory service support
    network dedicated to law firms in Scotland and
    more specifically to simplifying the process of
    starting a new law practice.
  • It is operated by an alliance of key industry
    experts who have a strong interest in the legal
    sector operating Business, Cloud Technology,
    Legal Compliance, Administrative Support and
    Marketing.
  • Even though LawStart is aimed at new startups, it
    is equally as relevant for law firms looking to
    modernise traditional practices.
  • LawStart is working in close collaboration with
    key industry bodies including Business Gateway,
    The Chamber of Commerce and from a purely
    advisory capacity, The Law Society of Scotland,
    to ensure that members receive the best advice.
    Commercial partners have been carefully selected
    as the best in their field.
  • A key benefit of LawStart is the automatic
    association with a like minded member community,
    giving access to a huge shared knowledge resource
    and providing valuable help with non competing
    referral business. Member community activities
    reduces feelings of isolation that can be a part
    of running your own business and strengthens
    client care and retention.

20
Meet the team
  • Marketing
  • Social Media SEO optimisation
    stephen.moore_at_moorelegaltechnology.co.uk
    gavin_at_moorelegaltechnology.co.uk
  • Branding Web Site development Stuart Macpherson
    stuart_at_platinumgraphics.co.uk
  • Marketing emmat_at_impactmarketingsolutions.co.uk
  • Technology
  • Practice software warren_at_lawware.co.uk
    simon_at_lawware.co.uk
  • Equipment, Broadband Network archie_at_waverleylane
    .com
  • Compliance
  • Cashroom, financial planning Accountancy
    david.calder_at_thecashroom.co.uk Jim.mcginty_at_thecash
    room.co.uk
  • Data Protection Compliance advice
    tim_at_computerlaw.org.uk
  • Business Support Admin
  • Virtual Receptionist / Mailing Address / Meeting
    Space pcasey_at_mwbex.com IAmara_at_mwbex.com
  • Transcription / Typing gafordyce_at_btinternet.com
  • Banking (varied)
  • Business
  • Planning Growth John.Harkins_at_edinburghchamber.co
    .uk david.chisholm_at_edinburghchamber.co.uk
  • Legal issues stewart_at_brymerlegal.co.uk
  • HR Advice claire_at_121HRSolutions.co.uk
  • Change Consultant raymondmclennan_at_yahoo.co.uk

21
Do you think there are different needs to be
considered for start up firms versus existing
firms?
Do you think there are different needs to be
considered for sole practitioners versus firms
with partners and/or employees?
22
Do you have any knowledge of any other similar
offerings which already exist?
What experience, if any, do you have of these
existing offerings?
23
What is your attitude to outsourcing?
Do you currently outsource any elements of your
business at the moment?
24
Which particular elements of your business would
you feel comfortable to outsource?
Are there any particular elements of your
business that you would not feel comfortable to
outsource?
25
Do you hire in expert advice as and when you feel
you need it?
What sort of advice is this?
Do you envisage any risks to your business in
either outsourcing or hiring expert advice?
26
Looking back, what is the single most important
thing that would have helped to make starting up
easier for you?
27
Looking forward, what is the single most
important thing that could help to develop your
business?
28
What would you consider is the most acceptable
model for this concept to offer a bespoke
solution to each customer or a range of packages
to choose from?
29
What would you consider to be the most
appropriate pricing model for this concept
bespoke costing prepared for each solution or
fixed price packages?
30
If this concept launched, would you consider
using it?
31
If this concept launched, what would be important
to you when considering engaging the service
(dealing with the team or any member of the team)?
32
What would you see as the main benefits of the
service?
33
Is there any element that makes this concept
particularly attractive?
Are there any essential services you feel are
missing from the current team?
34
How would you like to engage with the service and
the team? Through events, online, or personal
contact (phone, email or meetings)
35
What particular media do you read when gaining
knowledge, latest trends, news etc to develop
your business?
What would you say is the best way to promote
this service? To start up firms To existing firms
36
What are your thoughts on the working name we
have LawStart?
37
Is there anything else that you think we need to
consider?
38
On behalf of the consortium, we would like to
thank you for taking the time to help us with our
research.
39
Traineeship Issues and Options
40
Key facts
  • 488 traineeships commenced in 2011
  • 73 of traineeships commenced in 2011 were in
    Glasgow and Edinburgh
  • 9 of trainees are in-house trainees
  • 57 of traineeships are at firms with 11 or more
    partners
  • 623 full time and 35 part time students on
    2011/12 Diploma in Professional Legal Practice

41
Trainee distribution by type/size of firm
  • In-house (all types) 9.2
  • Sole practitioners 9.0
  • 2 partners 10.0
  • 3 partners 4.7
  • 4 partners 3.1
  • 5 partners 1.4
  • 6-10 partners 5.7
  • 11-20 partners 16.8
  • 21-30 partners 10.4
  • 31 partners 29.7

42
Possible solutions flexible traineeships?
  • Traditional traineeship 1 firm for two years
  • Issues of time, cost, breadth of experience for
    trainee
  • Two or more firms sharing trainees?
  • Split the week between two firms
  • One year at firm A, the other at firm B
  • eight months at each of three firms
  • Other models that we havent even thought about
    may be possible

43
Flexible traineeship considerations
  • All of the flexible traineeships registered to
    date have been at trainees initiative
  • All firms involved have to be satisfied that the
    model will work
  • Law Society has to be satisfied that the model
    will work
  • Katie Wood in the Registrars Department is happy
    to discuss possibilities with firms/trainees who
    are interested

44
QUESTION TO PONDER
  • Is there interest in the Law Society working with
    faculties on a more formal basis to promote
    flexible traineeships?

45
Trainee Continuing Professional Development (TCPD)
  • Introduced September 2011
  • Trainees must complete a minimum of 60 hours
  • At least 40 hours of authorised TCPD (including
    4 hours of mandatory ethics)
  • Up to 20 hours of non authorised provision
  • Internal and external TCPD

46
TCPD opportunities for local faculties?
  • Offering non authorised TCPD
  • Working together to offer authorised TCPD for
    local trainees
  • Working with existing providers to offer TCPD for
    local trainees

47
  • Who we are and what we do
  • Sarah Prior
  • Events Manager
  • Update conference events

48
Who are we?
  • One of Scotlands leading providers of continuous
    professional development
  • Hosted 216 events for over 8500 delegates in 2011
  • A 74 increase in four years
  • Roadshows held in six main locations across
    Scotland
  • Provide video links for up to 12 locations in
    Scotland
  • Winners of the 2011 the Scott Co Legal Awards
    Training Provider of the Year and Finalists in
    2012

49
What do we do?
  • Update Online Our online library of seminars and
    updates
  • Update Direct Tailored training brought to your
    offices and the provision of Society speakers for
    external conferences and seminars
  • Update Paralegal Specific seminars and
    conferences tailored for Registered Paralegals
    and Paralegals
  • Update TPCD Accredited modules for trainees to
    achieve PEAT 2 Learning Outcomes

50
What do we do?
  • Update Online
  • Five seminars now live, with a further six
    available by the end of April.
  • 45min sessions to watch at a time and location to
    suit you.
  • Verifiable CPD to comply with the new CPD
    regulations

51
What do we do?
  • Update Direct
  • Tell us what training your firm needs and well
    bring the seminar to you
  • We provide
  • Printed delegate packs
  • Expert speakers for your offices and external
    seminars or conferences
  • All equipment

52
What do we do?
  • Update Paralegal
  • Consulted all Registered Paralegals on events for
    2012
  • Specialised programme of six events based on
    Registered Paralegal domains
  • Mixture of events and Update Online
  • Reduced cost

53
What do we do?
  • Update TCPD
  • Module 1 (Personal and Professional Development)
    Compulsory
  • Recognise and value what you are good at
  • Build confidence in yourself and your
    professional judgment
  • Forecast where you want to be in 2 to 5 years and
    put in place specific actions to achieve this
  • Work with an independent mentor who will support
    your learning and development
  • Collate your work to enable you demonstrate your
    skills and abilities to third parties, help build
    your cv and complete job applications

54
What do we do?
  • Update TCPD Our Electives
  • Our Module 2 (Ethics) develop ability to make
    complex professional choices in relation to
    professional ethics and standards.
  • Our Module 3 (The Client Solicitor
    Relationship, Interviewing and Negotiations)
    practice your client-facing skills, including
    interviewing and negotiating
  • Our Module 4 (Personal, Professional and
    Commercial Development) learn about the
    complexities of running a successful law firm,
    responding to a complaint and developing good
    professional judgement
  • All of our electives are supported by
    constructive feedback from trained and
    experienced tutors.

55
  • Thank you
  • Any Questions?

56
Anti-Money Laundering Procedures
  • Richard Farquhar
  • Financial Compliance Department
  • Law Society of Scotland

57
Useful Resources
  • The Law Society of Scotland Rules Guidance A-Z
  • Link-
  • http//www.lawscot.org.uk/rules-and-guidance/brow
    se-a-z
  • Select M then Money Laundering Links to
    further information
  • This page contains links to all relevant
    legislation, guidance as well as other useful web
    pages such as the FATF, HM Treasury, SOCA and the
    JMLSG.

58
The Legislation
  • European Legislation
  • Directive 2005/60/EC of the European Parliament
    and of the Council of 26 October 2005
  • UK Legislation
  • Proceeds of Crime Act 2002
  • Terrorism Act 2000
  • Money Laundering Regulations 2007

59
Money Laundering Regulations 2007
  • The Money Laundering Regulations 2007 (MLR) came
    into force on the 15 December 2007
  • The Law Society of Scotland is the supervisory
    authority for all relevant persons who are
    regulated by it (Regulation 23 (1) (c) MLR).
  • Therefore all regulated persons (as defined by
    Schedule 1 of the Law Society of Scotland
    Practice Rules 2011) who also meet the definition
    of relevant persons (as provided at Regulations 3
    4 of MLR) have the Law Society of Scotland as
    their supervisory authority.
  • NB This is not restricted to solely to those
    meet the definition of independent legal
    professional under Regulation 3 (9).

60
Pre 1 November 2011 - Rule 24 Solicitors
(Scotland) Account etc Rules 2001
  • Rule 24 - Money Laundering
  • (1) Every solicitor shall, in respect of all
    business carried on by the solicitor in relation
    to which the solicitor is not a relevant person,
    comply with the provisions of the Money
    Laundering Regulations as if the solicitor were a
    relevant person.
  • (2) For the avoidance of doubt, paragraph (1) is
    without prejudice to the application of the Money
    Laundering Regulations to all business carried on
    by a solicitor in respect of which the solicitor
    is a relevant person.
  • (3) Every solicitor shall comply with the
    provisions of Part 7 of the Proceeds of Crime Act
    2002

61
Post 1 November 2011 - Rule B6.23 of the Law
Society of Scotland Practice Rules 2011
  • Money Laundering
  • 6.23.1 Every independent legal professional who
    is regulated by the Society shall comply with the
    provisions of the Money Laundering Regulations.
  • 6.23.2 A regulated persons shall demonstrate to
    the Society on request that the information held
    by him or by his practice unit is sufficient to
    evidence compliance with the provisions of Part 7
    of the Proceeds of Crime Act 2002 and Part 3 of
    the Terrorism Act 2000.

62
JMLSG Part 1 Guidance (Dec 2009)
  • The JMLSG guidance was adopted by the Law Society
    of Scotland
  • Available online at www.jmlsg.org.uk and via the
    link on the Law Society of Scotlands Money
    Laundering Links to Further Information page
  • This guidance is very important and where a
    practice unit is not adhering to the guidance it
    should be able to explain why it is appropriate
    for it not to do so.

63
Money Laundering Regulations 2007
  • Offences
  • 45. (2) In deciding whether a person has
    committed an offence under paragraph (1), the
    court must consider whether he followed any
    relevant guidance which was at the time
  • (a) issued by a supervisory authority or any
    other appropriate body
  • (b) approved by the Treasury and
  • (c) published in a manner approved by the
    Treasury as suitable in their opinion to bring
    the guidance to the attention of persons likely
    to be affected by it.
  • The December 2009 version of the JMLSG Guidance
    has received HM Treasury approval (there is a new
    version of the guidance)
  • It is therefore important that all practice units
    are familiar with this guidance and are adhering
    to it wherever possible.

64
Money Laundering Regulations 2007
  • Application of customer due diligence measures
  • 7. (3) A relevant person must
  • (a) determine the extent of customer due
    diligence measures on a risk-sensitive basis
    depending on the type of customer, business
    relationship, product or transaction and
  • (b) 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.
  • Risk sensitive approach is a paramount
    consideration
  • Being able to evidence that the measures applied
    by the practice are appropriate is essential and
    this requires all steps taken by the practice to
    be recorded.

65
Risk Assessment
  • Record the Risk Assessment
  • A practice unit should record how it has
    assessed the risk of being used for money
    laundering (JMLSG 4.29)
  • Factors to take into consideration when assessing
    risk-
  • Client
  • Type of client (individual/corporate/trust etc),
    Prior contact with client (repeat client),
    Location of client (Local, UK, EU), Nature of
    contact (face-to-face etc).
  • Transaction
  • Type of transaction (conveyance, Will,
    litigation), Value of transaction, Complexity of
    Transaction (is complexity required)
  • Funding
  • Source of Funds, Destination of Funds, Size of
    Funds
  • This list is not exhaustive and the assessment
    should be tailored for each practice units
    business type.

66
Risk Assessment
  • Common failings-
  • No risk assessment being recorded by the practice
    unit.
  • Failure to demonstrate how the risk assessment
    was reached.
  • Risk being assessed per client and not per
    transaction.
  • The method of assessing risk is not fit for
    purpose (i.e. adoption of a Risk Assessment Form
    that always shows the risk as medium even when
    the solicitor is aware this is not the case).
  • Risk is not subject to ongoing monitoring
    (carried out at the start of a transaction and
    never revisited).
  • No change in behaviour despite different
    assessment of risk.
  • Please see Style Risk Assessment Form.

67
Money Laundering Regulations 2007
  • Meaning of customer due diligence measures
  • 5.  Customer due diligence measures means
  • a.) identifying the customer and verifying the
    customers identity on the basis of documents,
    data or information obtained from a reliable and
    independent source
  • b.) identifying, where there is a beneficial
    owner who is not the customer, the beneficial
    owner and taking adequate measures, on a
    risk-sensitive basis, to verify his identity so
    that the relevant person is satisfied that he
    knows who the beneficial owner is, including, in
    the case of a legal person, trust or similar
    legal arrangement, measures to understand the
    ownership and control structure of the person,
    trust or arrangement and
  • c.) obtaining information on the purpose and
    intended nature of the business relationship

68
Client Identification
  • Private Individuals
  • JMLSG 5.3.68 5.3.114
  • Guidance states that you should obtain the
    following information for your client-
  • Full name
  • Residential address
  • Date of Birth
  • This information should be verified by either
    documentation provided by the client or
    electronic verification carried out by the firm.

69
Client Identification
  • Regulation 9 Timing of verification
  • Guidance on the timing can be found at 5.2.2
    5.2.5 JMLSG Guidance.
  • Identification of client to be carried out at the
    outset.
  • Exemption at 9(3) would allow for identification
    to be obtained after some work has been carried
    out which was necessary not to interrupt the
    normal conduct of business.
  • NB - Regulated persons are advised to be careful
    and consider the law of agency when carrying out
    work without having first obtaining ID (i.e.
    submitting an offer on behalf of a client you do
    not hold ID for without any suspensive conditions
    could result in difficulties for the practice
    unit if the client turns out not to be who they
    claim to be).

70
Client Identification
  • Ongoing Monitoring
  • Practice units should keep records / information
    held for the purposes of applying customer due
    diligence up-to-date (Regualtion.8(b)) (JMLSG
    5.3.23)
  • It may be necessary to ask occasional clients to
    re-verify their residential address.
  • It is advisable to ensure that all photographic
    ID held for a client has not expired.
  • NB - On the face of it a modern photographic
    driving license contains all necessary
    information required for customer due diligence.
    When presented with a photographic driving
    license, practice units should consider whether
    further ID is necessary to ensure the address on
    the ID is the current address for the client
    (i.e. if you are sending correspondence to
    another address then the photographic driving
    license is insufficient).

71
Client Identification
  • Miscellaneous
  • Where the client does not have photographic ID a
    practice unit should obtain two forms of ID for
    the purpose of verifying identity.
  • - The first must be a Government Issued Document
    (such as a old style driving license or
    documentation issued in relation to benefits or
    pensions etc)
  • - The second must be current utility bill or
    bank statement (but not one printed from the
    internet).
  • Where a practice unit is acting in the sale of
    property that is not the residential or business
    address for its client, it is good practice to
    obtain documentation that links the client with
    the property being sold (often the client (even
    as landlord) will still insure the property, a
    copy of the lease or rental agreement may be also
    be available).

72
Client Identification Third Party Payments
  • If a solicitor is aware that a client has
    received a payment from a third party into their
    bank account immediately before paying the sum
    into the Client Account of his practice, that
    solicitor should make enquiries of the clients
    until they understand the reason for this third
    party payment.
  • If the money is received into the Client Account
    of a practice directly from a third party the
    solicitor acting should make enquiries of the
    client and obtain customer due diligence for the
    third party and record this as well as the
    explanation for the transfer on their file.

73
Client Identification Third Party Payments
  • Money received from most financial institutions
    and PLCs is subject to Simplified Due Diligence
    (Regulations 13 MLR).
  • In the current climate it is increasingly likely
    that money received for the client by way of
    equity release or a bridging loan will come from
    a small limited company (sometimes a company with
    a sole beneficial owner and one director). In
    this case it is unlikely that simplified due
    diligence can be applied and you must therefore
    obtain full customer due diligence for the
    company providing the finance.
  • NB This type of transaction should be
    considered a red flag

74
Client Identification
  • Common Failings with CDD for Individuals
  • No identification documentation obtained.
  • Insufficient identification documentation
    obtained (e.g. mobile phone bill as proof of
    address)
  • Failure to keep information held on a client
    up-to-date (e.g. the proof of address is 9 months
    old)
  • The practice unit has accepted copy ID from the
    client.

75
Client Identification Beneficial Ownership
(Regulation 6) (JMLSG 5.3.130 5.3.276)
  • Beneficial Ownership this requires solicitors
    to obtain information on the shareholders of a
    company and not just the directors (likewise
    beneficiaries of a trust and not just the
    trustees)
  • All persons with a 25 plus share in the
    company/trust must have their identification
    verified.
  • All person exercising control over the company
    must also be subject to customer due diligence.
  • Keep information for companies up-to-date (annual
    accounts as a bare minimum but more frequent
    checks may be required depending on risk
    attributable to the transaction and business of
    the company).
  • How far should you go to check beneficial
    ownership? See table overleaf as an example.

76
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77
Client Identification Beneficial Ownership
  • In the previous slide you would need to
    understand why this company was structured in
    this way.
  • Common Problems
  • Foreign Jurisdictions
  • Some jurisdictions (such as British Virgin
    Isles) provide anonymity for beneficial owners of
    companies.
  • Some other jurisdictions (such as the
    Seychelles?) have no public Company Register.
  • Obtaining details of the beneficial owners and
    directors will therefore take a lot of effort.

78
Client Identification Beneficial Ownership
  • Control
  • Practice units should ensure that they are
    entitled to take instructions from those
    purporting to have authorisation on behalf of the
    Company. (Obtain Articles of Association,
    Company Minutes, authorisation from Shareholders.

79
Client Identification - Reliance (Regulation17)
  • 17 Reliance (extract)
  • (1) A relevant person may rely on a person who
    falls within paragraph (2) (or who the relevant
    person has reasonable grounds to believe falls
    within paragraph (2)) to apply any customer due
    diligence measures provided that
  • (a) the other person consents to being relied on
    and
  • (b) notwithstanding the relevant persons
    reliance on the other person, the relevant
    person remains liable for any failure to apply
    such measures.
  • (2) The persons are
  • (a) a credit or financial institution which is an
    authorised person
  • (b) a relevant person who is
  • (i) an auditor, insolvency practitioner,
    external accountant, tax adviser or independent
    legal professional and
  • (ii) supervised for the purposes of these
    Regulations by one of the bodies listed in Part 1
    of Schedule 3

80
Client Identification - Reliance (Regulation 17)
(JMLSG 5.6.4 5.6.42)
  • If relevant persons are relying on another
    individual to carry out their customer due
    diligence they should communicate with that
    individual.
  • If a relevant person is contacting an individual
    who has carried out customer due diligence on
    their behalf they should contact that individual
    using details obtained from an independent source
    (e.g. Law Society of England webpage etc).
  • If a relevant person is receiving certified ID
    this should come direct from the party certifying
    the ID and not from the Client.
  • Any individual carrying out CDD on a practice
    units behalf should be independent of the Client
    (A director of a corporate client who is also a
    Chartered Accountant is not independent).

81
Client Identification Electronic Verification
(JMLSG 5.3.79 5.3.85)
  • Electronic Reports are often used incorrectly.
  • Practice units should use the Report to verify
    information provided by the client (such as date
    of birth and residential address).
  • Mitigate Impersonation Risk (JMLSG 5.3.82)
  • A Report by itself will usually only vouch that
    a person with the name provided by the client
    lives at the address suggested by the client
    it does not confirm that the client is the person
    who was the subject of the Report. By asking
    further questions of the client using the
    information obtained on the Report the practice
    units can reduce the risk of impersonation

82
Source of Funds Source Account
  • A practice unit should be able to confirm the
    source of any funds received from a client.
  • Bank Drafts must have accompanying letter from
    the bank confirming the account the money has
    come from.
  • CHAPs transfers Payment Advice Slips are not
    always sufficient and whether you can use these
    will depend on the service provider and the
    information contained within the slip.
  • Cheques any cheques received by the practice
    unit should be copied and the copy placed on the
    file. Solicitors should check to ensure the
    cheque bears the name of the client.

83
Source of Funds Beneficial Ownership
  • Ask about the source of funds at the outset of
    the transaction (make it part of the risk
    assessment) and monitor the position to ensure
    that the source does not change.
  • Practice units must understand who the
    beneficial owner is and the source of funds can
    be relevant to establishing this.
  • Where funds are coming directly from third
    parties, it will be necessary to obtain
    identification for the third party.
  • Linked to Proceeds of Crime Act 2002.

84
Policies, Procedures and Training Regulations 20
21
  • Policies and Procedures
  • 20.(1) A relevant person must establish and
    maintain appropriate and risk-sensitive policies
    and procedures relating to
  • (a) customer due diligence measures and ongoing
    monitoring
  • (b) reporting
  • (c) record-keeping
  • (d) internal control
  • (e) risk assessment and management
  • (f) the monitoring and management of compliance
    with, and the internal communication of, such
    policies and procedures,
  • Training
  • 21.  A relevant person must take appropriate
    measures so that all relevant employees of his
    are
  • (a) made aware of the law relating to money
    laundering and terrorist financing and
  • (b) regularly given training in how to recognise
    and deal with transactions and other activities
    which may be related to money laundering or
    terrorist financing.

85
Policies, Procedures and Training Regulations 20
21
  • Common Failings
  • No Anti-Money Laundering manual in place
  • No record of random sample checks
  • No regular review of Money Laundering Procedures
  • No record of staff training
  • What will be sufficient to comply with Regulation
    20 and 21 will be specific to the practice unit.
    Any procedures put in place must be fit for
    purpose.

86
Enhanced Due Diligence (Regulation 14)
  • 14. (1)  A relevant person must apply on a
    risk-sensitive basis enhanced customer due
    diligence measures and enhanced ongoing
    monitoring
  • (a) in accordance with paragraphs (2) to (4)
  • (b) in any other situation which by its nature
    can present a higher risk of money laundering or
    terrorist financing.
  • (2)  Where the customer has not been physically
    present for identification purposes, a relevant
    person must take specific and adequate measures
    to compensate for the higher risk, for example,
    by applying one or more of the following
    measures
  • (a) ensuring that the customers identity is
    established by additional documents, data or
    information
  • (b) supplementary measures to verify or certify
    the documents supplied, or requiring
    confirmatory certification by a credit or
    financial institution which is subject to the
    money laundering directive
  • (c) ensuring that the first payment is carried
    out through an account opened in the customers
    name with a credit institution.

87
Enhanced Due Diligence (Regulation 14)
  • Following a risk assessment of high it is not
    uncommon for there to be no difference in the way
    the practice unit has applied its customer due
    diligence measures needless to say this defeats
    the purpose.
  • Practice units should have clear procedures on
    what is to happen when a transaction is
    identified as high risk and there should be some
    difference between the measures applied to
    different risk categories.

88
FATF
  • JMLSG 3.24
  • An MLRO should ensure that the practice unit
    obtains, and makes appropriate use of, any
    government or FATF findings concerning the
    approach to money laundering prevention in
    particular countries or jurisdictions. This is
    especially relevant where the approach has been
    found to be materially deficient by FATF.

89
HM Treasury Consolidated List of Targets
  • JMLSG 5.3.41 5.3.50
  • The United Nations, European Union, and United
    Kingdom are each able to designate persons and
    entities as being subject to financial sanctions,
    in accordance with legislation . Such sanctions
    normally include a comprehensive freeze of funds
    and economic resources, together with a
    prohibition on making funds or economic resources
    available to the designated target. A
    Consolidated List of all targets to whom
    financial sanctions apply is maintained by HM
    Treasury, and includes all individuals and
    entities that are subject to financial sanctions
    in the UK.
  • This list is at www.hm-treasury.gov.uk/financials
    anctions-
  • Asset Freeze Target List
  • Investment Ban List
  • If you use the excel version of the lists you
    can use the Find function.

90
Rule B6.23 of the Law Society of Scotland
Practice Rules 2011 and the Proceeds of Crime Act
2002
  • Richard Farquhar
  • Financial Compliance Department
  • Law Society of Scotland

91
Useful Resources
  • The Law Society of Scotland Rules Guidance A-Z
  • Link-
  • http//www.lawscot.org.uk/rules-and-guidance/brow
    se-a-z
  • Select M then Money Laundering Links to
    further information
  • This page contains links to all relevant
    legislation, guidance as well as other useful web
    pages such as the FATF, HM Treasury, SOCA and the
    JMLSG.

92
Part 7 of the Proceeds of Crime Act 2002
  • S.327 Concealing
  • S.328 Arrangements
  • S.329 Acquisition, use and possession
  • If a solicitor has acted in a transaction that
    involves activity prohibited by any of the above
    three sections then a disclosure must have be
    made and consent obtained in order to prevent
    prosecution of an offence.

93
Part 7 of the Proceeds of Crime Act 2002
  • S.330 Failure to disclose regulated sector
  • S.331 Failure to disclose nominated officer in
    the regulated sector
  • Knowledge or suspicion of money laundering is not
    required for an offence under these sections. If
    there are reasonable grounds for knowing or
    suspecting money laundering then a regulated
    person may commit an offence under these sections
    regardless of whether the client is actually
    convicted of a money laundering offence.
  • Regulated persons are therefore encouraged to
    consider the factors of a transaction and
    identify if the transactions is in any way
    suspicious.

94
Part 7 of the Proceeds of Crime Act 2002
  • The submission of a SAR to SOCA can assist a
    regulated person in avoiding prosecution under
    the Proceeds of Crime Act 2002 (POCA) and the
    Terrorism Act 2000.
  • The submission of a SAR to SOCA does not
    necessarily provide the solicitor with protection
    against prosecution under any other statute or
    the common law. Regulated persons may wish to
    consider whether they want to continue acting
    (where a solicitor is considering ceasing to act
    they should contact the Professional Practice
    Department of the Law Society of Scotland for
    guidance and be mindful of tipping off under
    S.333 of the POCA).

95
Pre 1 November 2011 - Rule 24 Solicitors
(Scotland) Account etc Rules 2001
  • Rule 24 - Money Laundering
  • (1) Every solicitor shall, in respect of all
    business carried on by the solicitor in relation
    to which the solicitor is not a relevant person,
    comply with the provisions of the Money
    Laundering Regulations as if the solicitor were a
    relevant person.
  • (2) For the avoidance of doubt, paragraph (1) is
    without prejudice to the application of the Money
    Laundering Regulations to all business carried on
    by a solicitor in respect of which the solicitor
    is a relevant person.
  • (3) Every solicitor shall comply with the
    provisions of Part 7 of the Proceeds of Crime Act
    2002

96
Post 1 November 2011 - Rule 6.23 S. B6 of the
Professional Practice Rules 2011
  • Money Laundering
  • 6.23.1 Every independent legal professional who
    is regulated by the Society shall comply with the
    provisions of the Money Laundering Regulations.
  • 6.23.2 A regulated persons shall demonstrate to
    the Society on request that the information held
    by him or by his practice unit is sufficient to
    evidence compliance with the provisions of Part 7
    of the Proceeds of Crime Act 2002 and Part 3 of
    the Terrorism Act 2000.

97
Rule 6.23.2
  • Where the Financial Compliance Department of the
    Law Society of Scotland have identified a
    transaction as suspicious it will look for
  • a.) evidence that the practice unit has submitted
    a SAR to SOCA reporting the suspicious activity
    in line with the Proceeds of Crime Act 2002.
  • b.) evidence that the practice unit obtained
    sufficient information about the matter to allay
    any suspicions held thus negating the need to
    report the matter.

98
What should be reported?
  • Any activity where there exists reasonable
    grounds for knowing or suspecting that another
    person or your client is engaged in money
    laundering.
  • The proceeds of crime are not always the proceeds
    of drugs trade and tax evasion. Profits and
    money generated by a business operating without a
    necessary license may also constitute the
    proceeds of crime and regulated person must
    therefore carry out reasonable checks into any
    money received by the practice unit and into the
    business of any client.

99
What should be reported?
  • Most common breaches
  • a.) selling where it is reasonable to suspect
    that the purchaser and/or his agent are engaged
    in mortgage fraud.
  • Example the agents acting for the purchasers
    in a series of similar sale transactions
    repeatedly fail to raise observations that would
    allow them to note the title properly.
  • b.) selling where it is reasonable to suspect
    that the seller is involved in a rebate scheme
  • Example the seller has provided the practice
    unit with a mandate to pay a large percentage of
    the sale proceeds to a third party without
    satisfactory explanation for why this is
    required.

100
What should be reported?
  • c.) purchasing where it is not clear where the
    money received from the client has come from.
  • Example The purchasers explanation for the
    source of funds can not be verified
    satisfactorily and is out with the risk profile
    for the client.

101
Source of Funds - POCA
  • 5.1.13 JMLSG
  • It may often be appropriate for the firm to know
    rather more about the customer than his identity.
    It will, for example, often need to be aware of
    the nature of the customers business in order to
    assess the extent to which transactions and
    activity undertaken with or through the firm is
    consistent with that business.

102
Source of Funds - POCA
  • Source of wealth having identified the risk
    attributable to the transaction and the source
    account, regulated persons should consider
    whether it is necessary to enquire about the
    originating source of the clients money
  • Information provided by clients should be
    recorded and unless the explanation is in keeping
    with the practice units knowledge of the client
    further evidence to verify the explanation may be
    necessary.

103
Source of Funds Source of wealth
  • Verification for a source account is essential
    but regulated persons can use their knowledge of
    the clients to manage the risk concerning source
    of wealth.
  • Example A professional couple who are long
    established clients of the practice unit are
    looking to downsize the property before beginning
    their retirement. The agent sells their existing
    property and redeems the outstanding mortgage.
    The purchase price for the new property is bought
    using the net free proceeds of sale and 10,000
    received from the clients own bank account. The
    clients have confirmed this is part of their
    savings/pension fund.
  • In this circumstance a file note explaining that,
    given the profile held for these existing
    clients, it is reasonable to expect this retiring
    professional couple to have access savings of
    10,000 available to them - would usually be
    accepted as compliant by the Financial Compliance
    Department.

104
Source of Funds Source of Wealth
  • If a regulated person is acting for a new client
    it will be less likely that the regulated person
    will be able to use their knowledge of the client
    to satisfy concerns regarding source of wealth.
  • Furthermore, if the explanation provided by a
    client is out with the knowledge of the regulated
    person or the profile held for a client,
    verification of the explanation should be sought.
  • Regulated person often express concern about
    delaying settlement or missing payment deadlines
    due to the requirement to verify the source of
    funds. To prevent delay regulated persons are
    encouraged to make the process part of the Terms
    of Business and ask the client about funding as
    early as possible.
  • If the client changes the arrangements regarding
    funding then the Terms of Business letter can
    have already advised that this may delay
    settlement to the cost of the client.

105
Source of Funds Source of Wealth
  • Verification of clients explanation
  • Savings this may be evidenced by receipt of a
    bank statement
  • Inheritance this may also be evidenced by
    receipt of bank statements or correspondence from
    the solicitor acting in the executry.
  • Lottery/Pools/Premium Bonds windfall bank
    statements and correspondence
  • Sale of assets, shares, property etc receipts,
    correspondence from DVLA, stockbroker or selling
    agent.
  • Company loans have the company accountant
    confirm.

106
Source of Funds (CML Handbook 5.9)
  • If a regulated person is acting in the purchase
    of a transaction where the purchaser is using a
    loan, then the regulated person may be instructed
    to in accordance with CML Handbook.
  • If so there is a requirement to ensure that the
    balance of the purchase price is coming from the
    purchasers own funds.
  • NB There has been a recent trend of purchasers
    resident in England purchasing Scottish
    properties using equity release against their
    English properties many such transaction appear
    to involve mortgage fraud.

107
Proceeds of Crime 2002 Mortgage Fraud
  • The receipt of sums that are a result of a
    mortgage fraud is the receipt of sums which may
    be criminal property.
  • The sellers agent in a conveyancing transaction
    has no contractual obligation to the lender
    funding the purchaser.
  • The sellers agent does have a duty under S.330 /
    S.331 to report activity that he knows or
    suspects involves money laundering and this
    includes where he knows or suspects that the
    purchase price has been obtained from a lender
    fraudulently.

108
Mortgage Fraud
  • Warnings signs common in transactions mortgage
    fraud
  • Sales under Power of Attorney
  • Sales where a Standard Security has been
    registered within 6 months of the date of
    settlement.
  • Sales where the sellers has signed a mandate
    instructed payment of the price to a third party
  • Back-to-back transactions
  • Please note that just because a transaction
    involves any of the above it doesnt
    automatically mean there is mortgage fraud.

109
Mortgage Fraud
  • Regulated persons acting for both the
    purchaser/borrower and lender should check to see
    if they are instructed under the CML Handbook.
  • Solicitors should familiarise themselves with
    Part 1 of the CML Handbook and read Part 2
    applicable for the lenders client they are
    acting on behalf of.
  • If in doubt as to whether a circumstance should
    be reported then a good rule of thumb is that it
    should be reported.

110
Rebate / Revolving Deposit Schemes
  • The objective of these schemes is for the
    purchaser to be able to purchase a property with
    no / or a significantly smaller deposit being
    paid.
  • Lending conditions are strict and many
    individuals cannot find sufficiently large
    deposits. These schemes create the illusion of a
    full deposit being paid but the only money that
    is exchanged on a permanent basis is the loan
    funds.
  • Most lenders would therefore consider that a
    purchaser taking part in this scheme has sought
    to mislead them and that the purchaser/borrower
    has committed a mortgage fraud.

111
Rebate / Revolving Deposit Scheme
  • Older Style
  • Purchaser claims that the deposit exchanged
    directly between purchaser and seller this no
    longer that common although occasionally seen in
    some new build developments.
  • Current Style
  • Sellers agent makes payment of sums to a third
    party (the third party is either linked to the
    purchaser or has loaned money to the purchaser on
    a temporary basis). The sellers agent is
    usually making the payment in order to obtain a
    discharge registered against the sellers
    property a short time prior to sale or in
    implementation of a mandate.

112
Third Party Mandates
  • A regulated person acting in a sale who receives
    a mandate in favour of a third party authorising
    payment of a sum in excess of 5 the value of the
    sale should consider this suspicious.
  • Regulated person in this scenario should ask
    about and then record details of the purpose of
    the mandate. If the explanation does not
    alleviate the suspicions held a SAR should be
    submitted.
  • Commons explanations are that the mandate is to
    protect the fee being charged by the third party
    for finding a buyer for the property. A fee of
    10 the value of the property for what is
    essentially estate agency services is not usually
    considered reasonable even when the seller is
    desperate to sell.

113
Third Party Mandates
  • The purchasers agent should notice a sale under
    Power of Attorney, a back-to-back transaction or
    a second Standard Security as part of noting
    title.
  • A mandate in favour of a third party would not
    normally form part of a title pack and therefore
    it is unlikely that the purchasers agent (and/or
    the lender) would be aware of the mandate.
  • Mandates are a common features in transaction
    involving mortgage fraud but also feature in
    transactions involving other types of money
    laundering.
  • Given the risk of implementing a mandate some
    practice units are included in their Terms of
    Business letter a statement that they no longer
    make third party payments including those
    instructed under mandate.

114
Proceeds of Crime Act 2002
  • Transactions that are unnecessarily complicated
    should also be treated as suspicious.
  • As previously stated a person need not know or
    suspect money laundering for a crime to be
    committed - it is a failure to report suspicious
    activity where it was reasonable to do so that is
    important. If a regulated person never
    understood the purpose behind a clients
    instruction the risk of breaching S.330/S.331 of
    the Proceeds of Crime Act is increased.

115
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