H M Treasury – the Sanctions Scheme and its impact upon Law Firms.
Clive Black Regional Manager at The Law Society (TLS) reports that the Society has been approached by HM Treasury who are finding that smaller firms are finding themselves in breach of its Sanctions Policy without realising that it applies to them. Despite a number of training initiatives run by TLS (including one at Wolves Molineux stadium earlier this year) it seems the message is still not getting through to all firms. In the following article Emma Oettinger anti-money laundering policy officer at TLS provides an overview of the scheme as it applies to the Profession.
Sanctions – what do they mean for law firms?
By Emma Oettinger
The UK government imposes financial restrictions on persons and entities as part of its domestic counter-terrorism regime, as well as those persons proscribed by the United Nations and/or European Union. This regime restricts the receipt of payment from, the dealing with economic resources of and even legitimate payments to, persons on the sanctions list.
In a 2008 survey conducted by the Law Society, 48% of respondents said that they did not check their clients against these sanctions lists. Despite the Law Society providing extensive training and e-alerts on the topic, HM Treasury is still finding smaller law firms and sole practitioners acting for persons on the sanctions list because they have failed to check the list.
Law firms need to realise that the sanctions regime applies to them. They need to consider their client demographic and the risks of breaching the sanctions regime through the transactions and retainers they undertake. While AML systems will assist in compliance, they will not on their own ensure that all sanctions risks are identified and mitigated.
The legislation
Under The Al Qaida and Taliban (Asset-Freezing) Regulations 2010 and the Terrorism (United Nations Measures) Order 2009, it is a criminal offence for any natural or legal person to:
· deal with the funds of designated persons, or
· make funds and economic resources available, directly or indirectly for the benefit of designated persons.
Under the Terrorism (United Nations Measures) Order 2009, you must not make financial services available, directly or indirectly to or for the benefit of designated persons.
Finally, you must not knowingly and intentionally participate in activities that would directly or indirectly circumvent the financial restrictions or enable, or facilitate the commission of any of the above offences.
Who is on the list?
HM Treasury issues a consolidated list of all persons and entities that are subject to sanctions which are effective in the UK. This list can be obtained from:
http://www.hm-treasury.gov.uk/fin_sanctions_index.htm
The persons and entities included on the list come from a wide range of nationalities and currently reside in a wide range of countries.
There are a number of regimes to which financial sanctions have also been applied, including:
· Al Qaida and the Taliban
· Belarus
· Burma/Myamar
· Democratic Republic of Congo
· Persons indicted by the International Criminal Tribunal for the former Yugoslavia
· Iran
· North Korea
· Zimbabwe
Assessing your risk profile
When assessing your firm's anti-money laundering risk profile, you should consider your likely exposure to clients on the sanctions lists.
Due to the wide range of persons and entities listed, it is difficult to categorise the clients that may need to be checked simply by their nationality or country of residence. There are UK nationals and UK residents on the list, so you may still be at risk even if you only act for local clients.
The regimes list is a useful indicator in assessing risk, but there may be some retainers where it is not readily apparent that a person or entity may have some connection to the relevant regime.
You cannot limit the risk assessment to the regulated sector, as the payment of personal injuries settlements and property settlements following a divorce are key situations where HM Treasury are finding solicitors in breach of the sanctions regime. Further, the use of legal aid payments for the benefit of a person on the list will also be a breach of the sanctions regime.
A good indicator of your present risk will often be your previous experience. As such, if you have never checked any of your clients against the sanctions list, you may find it difficult to properly assess your risk. So the first step in assessing risk is actually having a look at the consolidated sanctions list.
Checking individual clients
You may apply a risk based approach to setting up a system for checking your clients against the sanctions lists.
Some key factors which may increase the risk of a person being on the sanctions list and so increase the reason for checking the list inclued:
· Clients or transactions with links to high risk jurisdictions, even if the clients are based locally
· Clients or transactions involving senior political persons from jurisdictions subject to sanctions
· Clients or transactions involving complex corporate jurisdictions with high terrorist financing risks
· Clients who seem unable to receive funds or send funds from a bank account in their name, for no good reason
You can check directly against the publicly available list, by simply undertaking a general ‘control-F’ find search. This may be appropriate on a case by case basis where your firm has a low general risk of working for clients on the sanctions list, but individual clients have higher risk indicators.
A number of e-verifiers also incorporate this list into the databases against which they check for identity information. Use of one of these services may be appropriate for firms with higher risks of dealing with clients on the sanctions list.
You should also have processes which enable you to ascertain whether key beneficial owners or the intended recipient of funds from a transaction you are undertaking are subject to the restrictions, where there are higher risk indicators.
Obtaining a licence
You can still act for a person who is on the sanctions list, but you can only do so with a licence from the HM Treasury Asset Freezing Unit. You may also discuss the person’s sanctioned status and the implications with your client without being concerned about tipping off, as sanctions list is public information.
You must:
· suspend the transaction pending the advice from the Asset Freezing Unit,
· contact the Asset Freezing Unit to seek a licence to deal with the funds, and
· finally consider whether you have a suspicion of money laundering or terrorist financing which requires a report to SOCA.
You must not:
· return funds or deal with the resources to the designated person without the approval of the Asset Freezing Unit
The Asset Freezing Unit has the power to grant licences exempting certain transactions from the financial restrictions. Requests are considered on a case-by-case basis, to ensure that there is no risk of funds being diverted to terrorism. They have also issued general licences which govern certain situations, such as the use of legal aid payments.
For more information on the Asset Freezing Unit and obtaining a licence see their website: http://www.hm-treasury.gov.uk/fin_sanctions_contact.htm
Emma Oettinger is the anti-money laundering policy officer at the Law Society of England and Wales.
