Recent years have seen a consistent re-evaluation and consequential amendment to the anti-money laundering regulations as set out in various statutes, directions and professional body practice notes.
The Law Society are currently seeking comment on the proposed revision to two central rules in the Law Society of Scotland Practice Rules 2011 – Anti Money Laundering Rules 2017, in particular Rules B6 and B9 (the ‘Rules’).
Before considering the detail of the revisions proposed it may be useful to set these amendments into the context of the evolution of the anti-money laundering regulations.
Laterally there has been a progression in the tone and application of the regulations towards a greater emphasis on understanding and having knowledge of clients’ backgrounds, transactional rationales and most importantly how these relate to, principally but amongst others, the objectives of the Proceeds of Crime Act 2002 and The Terrorism Act 2000. The development of this approach is in part the result of a growing concern around the extent to which professions, such as the legal profession, are susceptible to money laundering activities. The desire for a more cohesive approach, led by HM Treasury Anti Money Laundering task force which now also includes participation by the Law Societies of England and Wales, Norther Ireland and Scotland as well as the SRA. Revision by the Society of the Rules plays a part in underpinning and implementing these regulations.
The revision to Rule B6 introduces a mandatory duty to co-operate with the Society and a set of obligations applicable in the event of a client complaint and its recording from initiation to closure. Revision to Rule B9 brings into effect the tenets of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Rule B6 – Duty of Co Operation
Rule B6 is formed of a clear obligation upon Society Members to co-operate with the Society in a ’open, timely and co-operative manner’.
Further amendment creates an obligation in the event of a client complaint, made to the Firm, which requires that it is recorded in a centrally maintained record. That record is obligated to include details further defined in a list of 13 elements ranging from and including a file reference number, name, date and means of communication of the complaint, the substance of the complaint and the area/work which gave rise to it, the person against whom the complaint is made and the by whom it is being handled, the procedure, handling of and conclusion of the complaint, whether further conversation with the SLCC was suggested to the complainant and what lessons were learnt by the Firm or suggested by the complainant.
Rule B9 – Compliance with Money Laundering Rules
The compliance aspect of this revision to the Rules is well established – a requirement for managers within a Firm to comply with the Rules, the maintenance of records demonstrating compliance and submission of these to the Society. Taking these established principles further the proposed revisions create a link joining compliance of anti-money laundering obligations to record keeping and management to the review and inspection regime allied with the new duty to co-operate with the Society specifically in relation to the Rules.
The proposed amendment looks to establish a landscape where the Society refines and tailors the type, range and scope of inspection and assessment that it carries out. The Society’s purpose in so doing seeks to focus on the management of the risk created by an increase in legal professionals being targeted by and effected by money laundering activity
Reviews conducted under the Rules are to be based on a ‘thematic’ or ‘desk based concepts. The Rules’ overall approach seeks to focus on the nature of the application of the compliance system within the Firm as to money laundering regulation. Viewed as part of a wider picture this is an emphasis on applying the rationale of the Rules in contrast to adherence to the Rules performed as a box ticking exercise. In seeking so to do the hope is that risk will be better identified, quantified, recorded and avoided.
The Society may carry out any one of three types of reviews or investigation: (i) a desk bound or thematic review, (ii) a routine inspection or (iii) a non routine review classed as an investigation.
During a review, or where applicable investigation, the Firm is obligated to produce its records at a time and place so notified by the Society such review to be undertaken by a person authorised so to do. The Rules allow for, in the case where it is reasonably considered that the records have not been maintained as required or the Rules have not been complied with to give notice of this. Such notice may lead to further investigation by the Society into the matters revealed by the review. In the case of a request for further time to produce records the Society may permit this, for a period of time not exceeding three months. Where a deviation from the Rules is detected the Society may consider the nature and extent of any further action to be taken. Underpinning all aspects of this aspect is the requirement to co-operate with the Society under Rule B6.
The direction of the proposed revisions lays a path to further delineate the expectations of record keeping, within the context of an obligation of co-operation with the Society.
Responses to the consultation should be submitted no later than noon on Wednesday 11 October to SGM2017Consult@lawscot.org.uk.