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Money Laundering Update

 The Money Laundering (Amendment) Regulations 2012

The Regulations, which came into effect on 1st October 2012, were introduced to strengthen the anti-money laundering regime whilst reducing the regulatory burden on British businesses.

Drafting of the Regulations followed a consultation process which saw a number of proposals rejected by the Government, including de-criminalising offences and providing exemptions for small businesses. Changes were introduced across a range of areas, but most will have little impact upon the legal profession. The majority of the key areas for lawyers have been deferred for consideration when implementing the 4th European Money Laundering Directive, which is expected in 2013.

The most impactive changes that came into force on 1st October 2012 are around reliance on other regulated persons for customer due diligence and the definition of Safe Custody Services.

The type of persons that can be relied on to complete Customer Due Diligence is now extended to include members of a wider range of professional bodies, such as management accountants and bookkeepers. The distinction between bodies listed in Parts 1 and 2 of the Money Laundering Regulations 2007 has now been removed; the full list of persons that can be relied on to conduct Customer Due Diligence can be found under Schedule 3 'Professional Bodies'

The definition of 'Safe Custody Services' has now been clarified as to what constitutes a service for the purposes of conducting due diligence. It has been confirmed that the holding of legal documents by lawyers is excluded from the definition. The aim of the original legislation was to capture banking activity, such as the storage of cash and securities in a vault or secure facility, and an unintended consequence was that the definition also potentially covered a lawyer storing documents such as a will.

Shah & Anor v HSBC Private Bank (UK) Ltd [2012] EWHC 1283 (QB) (16 May 2012)

This was a landmark decision which confirmed the right to delay execution of a customer's instructions and refuse to provide information to a client in circumstances where a suspicion of money laundering had been reported to the Serious Organised Crime Agency.

Firms are not under a duty to provide clients with an explanation to account for any delay caused when seeking consent to proceed with an activity following submission of a Suspicious Activity Report. Information should not be given that might amount to tipping off, unless an exemption can be claimed.

What can be said will depend on the facts of each case and a specific exemption exists within the Proceeds of Crime Act 2002 for lawyers giving legal advice to a client to dissuade them from engaging in criminal conduct.