The decision in XTX Markets Technologies Limited v Mazars (District Judge Avant, Central London County Court, unreported, 1 August 2023) involved a firm of accountants which had decided not to act for Russian clients due to the complexities of compliance with Russian sanctions legislation which is constantly evolving (most recently, The Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2023) – even when the claimants and their Ultimate Beneficial Owner (UBO) were not subject to sanctions.
The claimants alleged that this constituted discrimination under sections 13 and 29 of the Equality Act 2010. The claimants’ application for summary judgment was dismissed and the issue will have to be determined at trial. Space does not permit a full analysis here, but firms which make a similar decision as a matter of policy should analyse their rationale and ensure that this is reflected in their Practicewide Risk Assessment (PWRA).
The Office of Financial Sanctions Implementation (OFSI) published its Annual Review 2022-23. Meanwhile the US Office of Foreign Assets Control (OFAC) has published a brief tutorial on how to use OFAC’s Sanction List Search tool to assess potential matches to sanctioned persons.
The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 (in force 10 January 2024) provide that the starting point for the risk assessment of UK domestic Politically Exposed Persons (PEPs) is that the customer or potential customer presents a lower level of risk than a non-domestic PEP; firms should review their policies, controls and procedures.
The Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No.2) Regulations 2023, in force from 5 December 2023, substitute the list of high-risk third countries specified in Schedule 3ZA of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) adding Bulgaria, Cameroon, Croatia, Nigeria, South Africa and Vietnam and removing Albania, Cayman Islands, Jordan and Panama to reflect changes in FATF lists.
Firms should consider how they ensure that they reflect these changes in their handling of current matters and the enhanced customer due diligence requirements in regulation 33(1) of the MLR 2017. When auditing files for firms under regulation 21 we have noted a number of instances where it would be difficult to say that the enhanced due diligence requirements, either for PEPs or High Risk Third Countries (or both), have been met: is the due diligence being applied enhanced?
Economic Crime and Corporate Transparency Act 2023 (ECCTA)
The Government has published Guidance on money laundering reporting obligations in relation to the DAML exemption provisions introduced by the Economic Crime and Corporate Transparency Act 2023.
When the Bribery Act 2010 came into force, law firms were active in advising clients on the provisions but, in our experience, rather less so when considering its application to their own practices. Law firms may be at relatively low risk under these provisions (but not immune), but the same cannot be said of ECCTA; under section 196 firms could be guilty of fraud and other economic crimes where a ‘senior manager’ is deemed to have committed those crimes, and under section 1999 for failure to prevent fraud. It is clear from the number of dishonesty cases in the Solicitors Disciplinary Tribunal that this risk is not illusory, even in the best-run firms.
Firms should be considering what policies and procedures and training are appropriate. We can assist.
Links to the above can be found on www.legalrisk.co.uk/News and further resources on www.legalrisk.co.uk/AML.
ECCTA also introduced changes to company law and registration of information at Companies House.
A website has been launched containing useful information. See also the Addendum to the Legal Sector Affinity Group Guidance.
Europol has published a report, Cryptocurrencies: Tracing the Evolution of Criminal Finances. This identifies the areas of criminal activity and money laundering in which use of cryptocurrency is predominant with case studies.
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