Financial Crime
The Faculty Office is one of 22 Professional Body Supervisors (PBSs) in the UK and has designated responsibility for the anti-money laundering supervision of around 750 practising Notaries.
As a PBS the Faculty Office’s role is to:
- provide AML information and guidance to Notaries
- assess the money laundering and terrorist financing risks within the notarial profession
- monitor and assess compliance with the application of anti-money laundering controls within notarial practices
- take decisions on the suitability of a Notary holding a practising licence
- apply appropriate enforcement measures to ensure that the reputation of the notarial sector is not undermined
Regulation 17 of the Money Laundering Regulations requires supervisors to undertake a risk-based approach taking account of the risk of money laundering and terrorist financing in its own sector.
Our supervisory approach is in line with guidance provided by the Office for Professional Body Anti-Money Laundering Supervision OPBAS, which is underpinned by the Money Laundering Regulations: Section 4 of the OPBAS Sourcebook requires PBSs to:
- adopt a risk-based approach, focussing efforts and resources on the highest risks
- ensure measures to reduce money laundering are proportionate to the risks
- regularly review the risks to their sector
- support their members in the adoption of a risk-based approach
Recommended further reading:
Assurance (Risk and Supervision) Policy (The Faculty Office)
Money Laundering and Terrorist Financing (Amendment) Regulations 2019
Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020
To understand and mitigate the threat of money laundering, HM Treasury and the Home Office are required to ensure that a periodic national risk assessment (NRA) is undertaken to identify and assess the risks of money laundering and terrorist financing affecting the UK.
The third NRA published in 2020 sets out the key money laundering and terrorist financing risks for the UK, how these have changed since the UK’s second NRA was published in 2017, and the action taken since 2017 to address these risk. The key points include:
- The legal profession is not attractive to terrorist financing, but it continues to be at a high risk of being used in money laundering as criminals seek to abuse legal services.
- The UK Court System is vulnerable to being exploited for money laundering insofar as criminals may be able to sue each other with the payment of damages being used to launder money.
- There is still a risk that “some legal professionals are complicit and willingly enable money laundering” and therefore it is essential that Notaries apply a risk-based approach rather than a “tick box” approach to compliance.
- Notary services could be exploited for money laundering by willingly or unwittingly verifying forged documents to help clients obtain overseas bank accounts
- There is an intelligence gap on the risks associated with the services provided by notaries but no evidence to suggest that the level of risk has changed since the last NRA. This intelligence gap is being addressed through the Intelligence Sharing Expert Working Groups and building closer intelligence and information sharing relationships between the relevant regulatory bodies and law enforcement
- High risk services include conveyancing, trust and company services, and client accounts
- The UK Court System is vulnerable to being exploited for money laundering insofar as criminals may be able to sue each other with the payment of damages being used to launder money.
- Additionally, whilst use of cryptoassests is not necessarily suspicious, cryptoassests can be used to obscure the origins of a payment.
Recommended further reading:
National assessment of money laundering and terrorist financing
The Money Laundering Regulations do not apply to work undertaken by a notary acting solely as a public certifying officer where they have no substantive role in the underlying transaction.
However, a notary may fall within the definition of an independent legal professional under the Money Laundering Regulations when participating in certain financial or real property transactions.
A notary must therefore carefully consider processes and procedures in place to distinguish between their work as a public certifying officer and their work where they have a substantive role in the underlying transaction.
For example, while providing notarial services, a notary
- may be asked to assist beyond the notary’s strict authentication function,
- will often advise clients on the appropriate manner of executing a deed under the law of England and Wales, and
- may also assist with the preparation of additional documents such as minutes of a meeting of the board of directors of a company.
Providing additional detailed legal advice on the terms of the document or transaction, or the preparation or material amendment of the power of attorney would amount to a substantive role and the regulations would apply.
In these circumstances a notary should carefully review their own AML governance, policies, controls and procedures and update where necessary in accordance with Parts 1 and 2 of the Legal Sector Affinity Group guidance.
Regardless of the nature of the work undertaken, notaries must stay alert to:
- their professional obligation (in England and Wales under the Notaries Practice Rules 2019 and Code of Practice) to identify appearing parties and keep records of the means of identification employed
- the offences under the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000 (TACT):
Recommended reading
Notaries Code of Practice - Money Laundering
As part of the practice certificate renewal application for 2020, the Faculty Office required notaries to submit a copy of their practice risk assessment. All notaries are required to complete a risk assessment under Regulation 18 of Money Laundering and Terrorist Financing Regulations 2017 (“MLR 2017”). At the start of 2020 the Faculty Office undertook a detailed review of these risk assessments.
The results are published in the Risk Assessment Review Report.
The Faculty Office sets out its supervisory and monitoring activities in its annual report required under the Money Laundering Regulations.
Annual Anti-money laundering report 2021
UK Financial Sanctions
Financial sanctions prohibit certain transactions. Financial sanctions are used to bring about a change in behaviour, protect assets or to communicate a strong political message. By imposing restrictions through prohibition, the sanctioned entity or individual is forcibly constrained.
Sanctions are imposed by the Government on a UK wide basis. The UK has over 35 thematic and country-specific sanctions regimes in place under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), which is the main legislation used by the UK Government to impose sanctions.
Failure to comply with sanctions can result in a criminal offence and can lead to criminal prosecution and/or a large fine.
Individuals and entities subject to UK sanctions under these regimes are listed in the consolidated UK Sanctions List and are referred to as designated persons the details of which are found below.
Rule of Law
Notaries must uphold the rule of law and act in a manner befitting the profession. Their obligations under the Rule of Law dictate the approach that should be taken to the Financial Sanctions Regime.
Office of Financial Sanctions Implementation (OFSI)
According to OFSI, the most common types of financial sanctions used are:
- targeted asset freezes, which are usually applied to named individuals, entities and bodies, restricting their access to and ability to use funds and economic resources.
- restrictions on a wide variety of financial markets and services. These can apply to named individuals, entities and bodies, to specified groups or to entire sectors. To date they have taken the form of investment bans, restrictions on access to capital markets, directions to cease banking relationships and activities, requirements to notify or seek authorisation before certain payments are made or received, and restrictions on provision of financial, insurance, brokering, advisory services or other financial assistance.
- directions to cease all business of a specified type with a specific person, group, sector territory or country.
Notaries are therefore prohibited from dealing with designated persons unless they have obtained a licence from the Office of Financial Sanctions Implementation (OFSI). Whilst technically the provision of legal services is not prohibited as receiving payment for notarial work is inextricably linked to the notarial work itself it is the view of the Faculty Office that in the case of Notaries sanctions should be viewed as effectively prohibiting notarial services to designated persons (in the absence of a OFSI license).
If a Notary is applying to the OFSI for a licence they will need to demonstrate that the fees and disbursements being charged are reasonable.
N.B. Since 31 October 2022 payments from a person designated under either the Russian or Belarus regime is covered under OFSI general licence. The current licence, which has been updated is INT/2023/3744968. This licence expires on 28 April 2024.
Where the sanction is an asset freeze, Notaries must ensure that they do not:
- make funds or economic resources available, directly or indirectly, to, or for the benefit of, a designated person
- engage in actions that, directly or indirectly, circumvent the financial sanctions prohibitions
- make funds available to an entity who is owned or controlled, directly or indirectly, by the designated person
Notaries must exercise diligence in screening clients and informing the Registrar if they (the Notary) are being investigated or sanctioned by OFSI or have been found guilty of committing an offence.
Notaries can find out more about sanctions invasion and how to identify frozen asset transfers, enablers and suspicious payments by viewing the Red Alert issued by the Joint Money Laundering Intelligence Taskforce (JMLIT) common techniques suspected of being used by criminals.
The OSFI consolidated list search is available at: OFSI Consolidated List Search (hmtreasury.gov.uk). We recommend that Notaries use the alert to build on their existing business processes. The email alerts are important because the list can change quickly and there are no excuses for not knowing the current list.
Breaching sanctions
Breaching trade and financial sanctions is a criminal offence with imprisonment of up to 7 years. As of June 15, 2022, civil enforcement of the UK’s financial sanctions is on a strict liability basis, which means Notaries could be held liable even where they had no knowledge or reasonable suspicion of the breach. It is therefore imperative that Notaries maintain appropriate knowledge of the Financial Sanctions regime to avoid any breaches.
Russian and Belarussian General License
There is a general licence INT/2023/3744968 which allows legal service providers to be paid for specific activities relating to a person under the Russian or Belarussian regime. This general license expires on 28 April 2024. When using the general license there is still an obligation to report to the OSFI when you come across a designated person. You must also report when your use of the General Licence has ended or upon the expiration of the General Licence. For more information please visit: Legal Fees General Licence - Office of Financial Sanctions Implementation (blog.gov.uk)
We would caution notaries against operating under the new general licence and expect them to consider the wider policy rationale of the sanctions regime before doing so. You must keep records relating to using the General Licence for 6 years.
Ban on providing trust services to those connected with Russia
Whilst it is unlikely to be an issue for Notaries, please note that there is a ban on providing trust services to those connected with Russia or designated persons under the Russia (Sanctions) (EU exit) (Amendment) (No.17) Regulations 2022.
Regulation 19(A)2 defines those connected with Russia as (broadly) an individual is considered to be connected with Russia if they normally live in or are located in Russia. To do this work, a licence would need to be obtained from OFSI.
Checklist on Financial Sanctions
This is not intended to be exhaustive but indicative of the steps that should be taken by practitioners.
- Sign up to OFSI email alerts
- Regularly review your processes for flagging and identifying risks associated with Financial Sanctions. This includes reviewing the status of the Financial Sanctions regime and the associated obligations which are known to frequently evolve.
- Report to OFSI if you know or suspect that a breach of financial sanctions has occurred, that a person is a designated person, or you hold frozen assets.
- The reporting form is available at: https://www.gov.uk/guidance/suspected-breach-of-financial-sanctions-what-to-do
- If you act for a sanctioned Russian or Belarussian individual under the General Licence, you must notify The Faculty Office before acting under that licence.
- You must provide a report to the OFSI when the use of the General Licence has ended or upon the Expiration of the General License.
- Keep associated records for 6 years.
- If you are being investigated by the OFSI you must notify the Registrar of the Faculty Office. You must notify the Registrar without delay.
- If you are found guilty of committing an offence in respect of Financial Sanctions you must notify the Registrar of the Faculty office. You must notify the Registrar without delay.
Useful links and contacts
• OFSI’s consolidated list of asset freeze targets
• OFSI’s Russia regime page
• Russia regime specific guidance
• Russia statutory guidance
• OFSI’s general guidance
• OFSI’s general licences
• Legal Fees General Licence
• Apply for a licence
• Report to OFSI
• OFSI contact email
• CRL Anti Money laundering – further information
• Email: ofsi@hmtreasury.gsi.gov.uk Telephone: 020 7270 5454.
Those working in the regulated sector are required under Part 7 of the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000 (TACT) to submit a Suspicious Activity Report if in the course of their business they know, suspect, or have reasonable grounds for knowing or suspecting, that a person is engaged in, or attempting to engage in, money laundering or terrorist financing.
According to Vince O’Brien, Head of the UK Financial Intelligence Unit (UKFIU) “SARs are vital to the fight against money laundering, illicit finance and wider criminality”.
UKFIU reported that in the last financial year:
- 901,255 SARs were received and processed - a 21% increase on the previous year.
- £305.7M denied to suspected criminals as a result of Defence Against Money Laundering (DAML) requests – a 120.6% increase on the £138.6M denied in 2020-21.
The UKFIU website contains additional helpful information on the submission of SARS including a Frequently Asked Questions booklet.
Importantly, Notaries must demonstrate that they are submitting good quality SARS. The Faculty Office would therefore urge you to read the following helpful guidance produced by the NCA to help improve the quality of the SARs submitted: