If, like me, you run company searches on a daily basis as part of an enquiry service, yet when it comes to client checking feel at a loss as to what the lawyers actually need to know, then the CLIG Money laundering Seminar, arranged by Catherine White and Dunstan Speight, provided some welcome answers.

Che Odlum, Anti-Money Laundering Policy adviser at the Law Society kicked off the session by giving us the background as to why money laundering had become a major issue for law firms. She explained that heightened concerns about money laundering had arisen after 9/11, and it was really a terrorism funding issue. She also defined money laundering as when the proceeds of crime changed so as to appear to come from a legitimate source, e.g. through buying commercial property, or in setting up companies, the sort of transactions that could be arranged unwittingly by solicitors.

The Financial Action Task Force on money laundering (FATF) was established by the G-7 Summit in Paris in 1989 to develop a coordinated international response to money laundering. In Europe, the EU responded by introducing the Money Laundering Directives, implemented in the UK by the Money Laundering Regulations. The Proceeds of Crime Act (POCA) 2002 came into force in February 2003, and the UK also has industrial guidance such as the Joint Money Laundering Steering Group’s Guidance Notes for the Financial Sector and the Law Society Guidance.

The regulations impose the following obligations on law firms: to appoint a money laundering reporting officer; to train relevant staff; to keep records of identification and transactions for the relevant period; to have systems in place to deal with money laundering and reporting to NCIS, and to identify clients.

The legislation is quite clear as to who it covers, namely the legal profession acting on behalf of clients in financial or real estate transactions, so not all lawyers. Surprisingly, POCA applies to everybody, but special offences apply to solicitors, such as the 14-year prison sentence for solicitor offenders.

If a solicitor suspects money laundering, they have to make a report to the National Criminal Intelligence Service (NCIS). The Consent and Disclosure sections of the NCIS then reply as to whether the firm can continue the transaction. Since the Money Laundering Regulations have been in force solicitors have made over 12,400 reports to date, but the banking sector has made even more. Many of the reports made have been about small amounts - for example a £10 benefit fraud, or a lie on a mortgage application - as all of these have to be reported in the same way as a multi-million pound fraud.

There are also “tipping off” provisions in the legislation. A solicitor cannot disclose to a client that a transaction has been put on hold and this sometimes put solicitors in a position where they have to lie to a client rather than risk committing a "tipping off offence". This was one of the examples Che gave of the regulations conflicting with the ethical principles of lawyers and there are other occasions where the regulations result in a breach of lawyer-client confidentially. The Law Society has had a campaigning role to protect legal professional privilege. In the ruling P v P, once a solicitor had a suspicion of money laundering offences, however small, he or she could not continue with the case until NCIS had given consent. As a result, thousands of family cases, for example, were affected because of possible minor tax evasion. But the Court of Appeal judgment in Bowman v Fels makes it clear that lawyers involved in litigation owe a primary duty to the court and to their client, and it exempts them from making money laundering reports.

Che concluded by talking about the Third EU Money Laundering Directive (MLD3). She was of the opinion that MLD3 will not bring many changes in the UK as our legislation is already way ahead of that of many jurisdiction. New regulations will be produced in 2007 and the Law Society guidance will be updated.

The second speaker was Liz Carpenter, a name those of you who have been law librarians for some time will recognise. Liz is now Practice Manager at Pictons and explained how the firm put the legal requirements into practice and how they affected the day-to-day running of the firm. Responsibilities are taken very seriously and permeate across the firm, from the reporting officer, down to the receptionists, secretaries or cashiers who may be accepting clients’ cash. Procedures, which run to 12 pages, are on the firm’s intranet, along with links to guidance and internal forms. She re-iterated that there is a personal responsibility for money laundering reporting and that breaches incur a 14-year sentence - indeed a serious matter for the reporting officer entrusted this level of responsibility. One aspect that Liz also stressed was staff training and raising staff awareness of money laundering. They have two levels of training as fee-earners and accounts personnel complete a two-and-a-half hour session, while other staff receive a one-hour induction.

Identification checks have to be made, even on clients that are well known to them, which can be awkward. A passport is the usual form of identification, but she said it was remarkable how many people have incorrect details on their passports. Electronic checks are only used as a last resort.
The firm monitors compliance by staff as an audit team go through the files periodically. Generally though, if a report has to be made this is not discussed throughout the firm, but only on a “need to know” basis.

A common scenario is they often come across a trail of a client who has gone to several firms, all ending up making a report, and refusing the business, while the authorities will be on the look out for the firm who accepts the business, and carries out transactions, without making a report.


If a money laundering situation arises, the firm has to stall transactions for 30 working days if a report has been made. This is another common scenario, where the client gets frustrated but the lawyer cannot disclose why the work on the file is stalled. The advice here is always to refer the client up to senior partner, so that secretaries do not get unwittingly involved in alerting the client.

The evening concluded with the third speaker, Jim Lound from Experian Ltd, showing us how easy it was to fake an identity with just one or two pieces of stolen/acquired personal information. Jim then gave us a demo of Experian’s data stores, explaining how their Authentication Index scores an individual’s identity and address details. Experian databases include six years’ back data (which is difficult to forge!) and now identity elements from Credit Account Information Sharing (CAIS) files, which are industry-shared files that contain information about credit accounts.

The audience all felt this has been a very informative evening and there were some pertinent questions. One piece of Liz Carpenter’s advice sticks in my mind – do ask your employer for money laundering training, even if you feel you are not directly involved.