CLIENT DUE DILIGENCE (CDD) – EXTENDED GUIDE

The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020

Amending The Money Laundering, Terrorist Financing & Transfer of Funds (Information on the Payer) Regulations 2017

The following details are an abridged version of the Guidance and should be treated as such. It covers CDD in some detail and briefly touches upon PEPs and Trusts. The Guidance Notes, LSAG CDD Guidance 2021 is available on the intranet. However if you need further guidance and support on any aspect please contact the Compliance Helpdesk in the first instance.

CURRENT EXCEPTIONS REGARDING USUAL ID (JULY 2021)

• Online Employment Settlement Agreements – SmartSearch only

• Medical Accident Group Limited – SmartSearch only

• Company Secretarial work – no ID required

• Online Family services – no ID required

• PCP Car Claim matters – SmartSearch only

(The above will be reviewed as part of the current AML review and are therefore subject to change) We need to ensure that we carry out enhanced due diligence (EDD) where:

• A transaction is complex or unusually large, or there is an unusual pattern of transactions outside the scope of what would be viewed as normal activity within the practice or normal activity of the client; or

• The transaction or transactions have no apparent economic or legal purpose; and

• Any other activity or situation which the relevant person regards as particularly likely by its nature to be related to money laundering or terrorist financing.

In all of the above circumstances clearance to continue with the case must be approved by the MLRO.

Identification and Verification Identification of a client or a beneficial owner is simply being told or coming to know a client’s identifying details, such as their name and address. Verification is obtaining some evidence which supports this claim of identity. Client Due Diligence (CDD) involves assessing the money laundering/terrorist financing (ML/TF) risk posed by a client and transaction on a risk sensitive basis and includes:

• Verifying the identity of clients on the basis of documents or information obtained from a reliable source which is independent of the client.

• Identifying where there is a beneficial owner who is not the client and taking reasonable measures to verify the identity so that you are satisfied that you know who the beneficial owner is. This includes taking reasonable measures to understand the ownership and control structure of a legal person, trust, company, partnership, foundation or similar legal arrangement.

• Assessing and obtaining information on the purpose and intended nature of the business relationship or transaction.

• Ongoing monitoring The consideration of risk influences the degree of investigation and verification that may be required in relation to these four aspects of CDD. As well as the three circumstances detailed on page 1 there are additional factors we need to consider when assessing whether a client or matter is high risk therefore requiring Enhanced Due Diligence:

• Whether the person is a beneficiary of a life insurance policy where the retainer bears direct relevance to the policy

• Whether the person is seeking residence/citizen rights in exchange for investments in that EEA state

• Whether the person is involved in the trade of oil, arms, precious metals, tobacco products, cultural artefacts, ivory and other items related to protected species and other items of rare scientific value, historical, cultural, archaeological and religious significance

• If either the client or counterparty to a transaction is ‘established in’ a high-risk third country (see section on page 5)

Copies must be kept of all documents used in Client Due Diligence and you must be able to explain and demonstrate the steps undertaken to verify the client and the sources of funds and wealth. When inspecting documents, you should be alert to documents which are obviously forged or have been tampered with but you are not expected to be an expert or to attempt a “forensic” examination of documents.

Timing of CDD CDD must be carried out at the outset of the new matter and our case management system will lock all financial transactions on any matter where CDD has not been completed within 21 days of the matter being opened. During the initial 21 days, preparatory work may be carried out but no transactions may be made with or for the client through any bank account until CDD has been completed. Neither must any other business transaction be carried out, so for example exchanging contracts in a conveyancing matter before the completion of CDD, or incurring any professional obligations such as giving an undertaking.

For existing clients, CDD must be renewed when the practice has any legal duty in the course of the calendar year to contact a client under International Tax Compliance Regulations 2015 or to review information:

• Relevant to their client risk assessment or, where appropriate, the practice/matter risk assessment; or

• Concerning beneficial ownership information of the client, including information which helps them understand the ownership or control structure of any entity that is the beneficial owner of the client.

Requirement to Cease Transactions If the matter has been locked by our case management system it can only be overridden on the express authority of the MLRO. If the situation persists, it will probably be necessary to terminate the relationship with the client. In such circumstances, you must liaise with the Compliance Helpdesk before taking any action. In particular, if we are holding any money belonging to the client, you may not refund or return it to the client without the express permission of the MLRO.

Verifying the Identity of Clients

It is the policy of the firm that the identities of all clients are verified. Clients will have their identities verified regardless of the type of work they wish us to carry out.

Individuals (including Executors or administrators of estates) – UK residents – Face to Face To satisfy CDD we require valid government photographic ID which confirms full name and address or full name and date of birth together with a further document, less than 3 months old, to verify the clients address. Copies of documents inspected must be made and certified as true copies, with copy photographs being certified as a true likeness. It is important that the copies are of good quality so that the detail can be read and photographs clearly seen. Photocopies of official documents should be in black and white. For all high-risk matters a SmartSearch is required in addition to the photographic and address evidence. The firm has carried out a risk assessment and has determined work in the following areas is classed as high risk:

• Company

• Trust

• Property including residential and commercial

The following sources may be used for verification of UK-based clients. All address evidence needs to be current (date of issue within last 3 months).

• Current signed passport

• Current photo card driver's licence. Old style paper licence is acceptable as address verification

• Current EEA member state identity card

• Current identity card issued by the Electoral Office for Northern Ireland

• Residence permit issued by the Home Office

• Firearms certificate or shotgun licence

• Photographic registration cards for self-employed individuals and partnerships in the

construction industry

• Original notification letter confirming the right to benefits

• Council tax bill if issued within the last 3 months

• Utility bill or statement, or a certificate from a utilities supplier confirming an arrangement to pay services on pre-payment terms. Utility bills include gas, electric, satellite television, landline phone bill but NOT a mobile phone bill or TV licence. If an on-line document is produced as evidence it can only be accepted if a SmartSearch is also carried out and it returns a ‘Pass’.

• Bank, building society or credit union statement or passbook containing current address. This

does not include a credit card bill or statement nor on-line bank statements.

• Confirmation from an electoral register that a person of that name lives at that address

• A recent original mortgage statement from a recognised lender

• Professional's letter addressed to them at their current address including GP, Hospital, other solicitor, accountant

• Local council or housing association rent card or tenancy agreement

• HMRC self-assessment statement or tax demand • House or motor insurance certificate if issued within the last 3 months

• Video Conference call – obtain copy of photo ID as detailed above from client then call them

to verify the person holding the original of the photo ID evidence. • Electronic verification via SmartSearch for all high-risk clients.

• If your client is an HCR employee you do not need to identify them but will need to identify

the other party if a joint client

Non face-to-face UK clients Please note that where a client is an individual and they are not physically present for identification purposes, you must take this into account when assessing whether there is a high risk of money laundering or terrorist financing and the extent of any Enhanced Due Diligence measures you should take. You can accept certified ID only from a bank, firm of accountants, independent legal professional or estate agents. You can also video conference call the client if you hold a copy of their photo ID. If you require further guidance on this please email the Compliance Helpdesk. The Post Office document checker service is not acceptable. The client may also have an option of using an electronic identification process to identify them,

using biometrics, which may also verify their address. This process has to be secure from fraud and

misuse and has to provide an appropriate level of assurance that the person claiming a particular

identity is in fact the person with that identity. If this process is used it does not replace the need

for a SmartSearch.

Individuals - Persons not resident in the UK Where you meet the client you are likely to be able to see the person's passport or national identity card. If you have concerns that the identity document might not be genuine, contact the relevant embassy or consulate. If they are resident abroad, the client's address may be obtained from:

• An official overseas source

• A reputable directory

• A person regulated for money laundering purposes in the country where the person is resident who confirms that the client is known to them and lives or works at the overseas address given.

If documents are in a foreign language you must take appropriate steps to be reasonably satisfied that the documents in fact provide evidence of the client's identity. When you do not meet the client, you should consider the reason for this and whether this represents an additional risk which should be taken into account in your risk assessment of the client and the extent of the CDD measures you apply. See EDD section below if a client or counterparty to a transaction is ‘established in’ a high risk third country.

Non face-to-face clients – Persons not resident in the UK Certified ID evidence must be provided for a client who is an individual and who is not physically present for identification purposes. The ID must be certified by a reputable institution, such as a bank

or firm of lawyers. The name and address of the institution providing the certification should be noted and checked by reference to a professional directory. An electronic search via SmartSearch must be carried out. You can also verify your client's identity using video conferencing software – obtain a copy of photo ID as detailed above from the client then video call them to verify the person holding the original of the photo ID evidence. The client may also have an option of using an electronic identification process to identify them,

using biometrics, and verify their address. This process has to be secure from fraud and misuse and

has to provide an appropriate level of assurance that the person claiming a particular identity is in

fact the person with that identity. If this process is used it does not replace the need for a

SmartSearch.

Enhanced Due Diligence (EDD) in relation to high risk third countries EDD and ongoing monitoring are required when either the client or counterparty to a transaction is ‘established in’ a high-risk third country. This means a country which has been identified by the European Commission in delegated acts as adopted in the 5MLD as a high-risk third country. The High Risk and other Monitored Jurisdictions List can be found on the intranet. Note: If you find that this applies to one of your clients do not proceed until correct EDD has been carried out and the Compliance Helpdesk gives you the clearance to continue. A client or counterparty is to be treated as ‘established in’ a country, where any of the following apply:

• It was incorporated in the country;

• It has a principal place of business in the country;

• (If a financial or credit institution) its principal regulatory authority is based in the country or

• (If a natural person) being resident in, but not merely because they were born in the country. Where applicable the first payment in the retainer should be paid from an account in the client’s names.

Clients unable to produce standard documentation If it is decided that a client has a good reason for not meeting the standard verification requirements you must attempt to satisfy yourself as to the identity of the person and build up a “picture” of them from other available information. You can accept:

• Elderly clients – letter from their GP

• Clients in care homes – letter from the manager

• Clients without permanent residence – letter from a householder named on a current council tax bill or a hostel manager, confirming temporary residence

• A refugee – letter from the Home Office confirming refugee status and granting permission to work, or a Home Office travel document

• An asylum seeker – registration card and any other identification they may hold, or a letter of assurance from a community member such as a priest, councillor etc.

• A student or minor – birth certificate and confirmation of parent’s address or confirmation of address of the school or higher education institution

• A person with mental health problems or mental incapacity – medical or social workers, hostel staff or deputies or guardians appointed by court can help locate documents or confirm a client’s identity

Never underestimate the power of the internet. Many people, even elderly people, can be found by a search in Google or Facebook. An established online persona with plenty of interaction may well be a good indicator of an individual’s bona fides to help build up the “picture” of the client. Occasionally we may have to accept other forms of ID, especially photo ID, such as a bus pass. It is important to form a ‘know your client’ picture with these clients where we will be happy to accept non-standard ID as we understand their profile. Guidance must be sought from the Compliance Helpdesk in relation to any matter where standard documents are not available.

Clients’ representatives When instructed by a representative on behalf of an individual, such as an attorney acting under a Power of Attorney, you must identify both the client and the representative as individuals and obtain evidence of the representative’s authority to act on behalf of the client. ID for the representative is also required and should be certified and retained by us.

Politically exposed persons (PEPs) We do not need to conduct extensive investigations to establish whether a person is a PEP. Our risk profile suggests that it is low risk therefore we can ask clients whether they fall within any of the PEP categories listed below. Where they say no we can reasonably assume the individual is not a PEP unless we become aware of, or suspect, they may be a PEP. Who is a PEP? A person who has been entrusted within the last year (or for a longer period if you consider it appropriate to address the risks in relation to that person) with one of the following prominent public functions by a community institution, an international body, or a state, including the UK:

• Heads of state, heads of government, ministers and deputy or assistant ministers • Members of parliament or similar legislative bodies

• Members of governing bodies of political parties

• Members of supreme courts, of constitutional courts, or any judicial body whose decisions are not subject to further appeal, except in exceptional circumstances

• Members of courts of auditors or of the boards of central banks

• Ambassadors, charges d'affaires and high-ranking officers in the armed forces

• Members of the administrative, management or supervisory bodies of state-owned

enterprises

• Directors, deputy directors and members of the board of equivalent function of an international organisation

Middle ranking and junior officials are not PEPs. Only those in the UK that hold truly prominent positions should be treated as PEPs and the definition should not be applied to local government, more junior members of the civil service or military officials other than those holding the most senior ranks. In addition to the primary PEPs listed above, a PEP also includes a relative or close associate (RCA) namely:

• Family members of a PEP – spouse, civil partner, children, their spouses or partners, and parents

• Known close associates of a PEP – persons with whom joint beneficial ownership of a legal entity or legal arrangement is held, with whom there are close business relationships, or who is a sole beneficial owner of a legal entity or arrangement set up by the primary PEP.

When it is known that a client is a PEP we must establish the source of wealth and funds. Source of wealth is how the client came to have the funds in questions – via inheritance, house sale, or investment windfall whereas source of funds relates to from where the clients funds are received i.e. a UK bank account. Often their salary and source of wealth is publicly available on a register of their interests. If we are clear about the legitimacy of a client’s source of wealth the risk of money laundering is significantly reduced. As soon as it becomes clear a client is a PEP, or we suspect they are a PEP, a SmartSearch must be undertaken and the MLRO informed as a decision has to be made as to whether we can take on the PEP as a client or can continue acting. A central register is kept by the Regulatory and Practice Compliance Team in relation to all PEPs.

Designated Persons (Sanctioned Individuals) If an individual is a designated person, i.e., they appear on a sanctions list, we cannot act or must cease acting for them unless we have a licence from HM Treasury. If our online verification indicates that a client is on a sanctions list, you must inform the MLRO immediately and cease all work pending further instructions from the MLRO. You must not inform the client.

Organisational Clients

Before establishing a business relationship with a:

• Company (registered or unregistered as defined in the Unregistered Companies Regulations 2009(1))

• LLP or

• Scottish Partnership A practice must collect proof of registration or an excerpt from the relevant register.

Discrepancies on Registers We have a responsibility to report to Companies House, as soon as reasonably possible, any discrepancy found between information collected from the above Registers and information collated while undertaking the due diligence and monitoring required under the Regulations. Discrepancies may relate to: - A person listed as a PSC; a missing PSC; PSC exception; a PSC type; an address; a place of registration; a date of birth; a legal form; a company statement; It is not a discrepancy if we hold information that goes beyond or id of a different nature from that required for the register. Note: It is not a requirement for us to actively seek out such discrepancies and the responsibility to report does not apply where the information is subject to Legal Professional Privilege.

Partnerships, Limited Partnerships and Scottish Limited Partnerships and UK LLPs A partnership, other than in Scotland, is not a separate legal entity, so you must obtain information on the constituent individuals. Where partnerships or unincorporated businesses are:

• Well-known, regulated and reputable organisations, and

• With substantial public information about them, their principals, and controllers. The following information should be sufficient:

• Name

• Registered address, if any

• Trading address

• Nature of business.

Other partnerships and unincorporated businesses which are small and have few partners should be treated as private individuals. Where the numbers are larger, they should be treated as private companies. Where a partnership is made up of regulated professionals, it will be sufficient to confirm the practice's existence and the trading address from a reputable professional directory or search facility with the relevant professional body. Otherwise you should obtain evidence on the identity of at least the partner instructing you and one other partner, and evidence of the practice's trading address.

Companies (including some UK LLPs) A company is a legal entity in its own right but conducts its business through representatives. You must identify and verify the existence of the company. A company's identity comprises its constitution, its business and its legal ownership structure. Where a partnership is made up of regulated professionals, it will be sufficient to confirm the practice's existence and the trading address from a reputable professional directory or search facility with the relevant professional body. Otherwise you should obtain evidence on the identity of at least the partner instructing you and one other partner, and evidence of the practice's trading address. Where a company is a well-known household name, you may consider that the level of money laundering and terrorist financing risks are low and apply CDD measures in a manner which is proportionate to that risk. Where you commence acting for a subsidiary of an existing client, you may have reference to the CDD file for your existing client for verification of details for the subsidiary, provided that the existing client has been identified to the standards of the Regulations. You will also need to consider the identity and verify the identity of beneficial owners where you cannot apply simplified due diligence. If you have exhausted all means of being able to verify the beneficial owners and you have not succeeded, or you are not satisfied that the individual is in fact the beneficial owner, you must seek to verify the identity of a senior person in that body corporate responsible for managing it as its beneficial owner. This should only be used as a fall-back position and you must keep records in writing of all the actions you have taken to try and identify the beneficial owners.

Public companies listed in the UK – Listed on a regulated market (London Stock Exchange). You must obtain and verify:

• Its name

• The company number or other registration number, and

• The address of the registered office and, if different, principal place of business. You must also obtain confirmation of the company’s listing on the regulated market such as:

• A copy of the dated page of the website of the relevant stock exchange showing the listing

• A photocopy of the listing in a reputable daily newspaper

• Information from a reputable electronic verification service provider or online registry.

For a subsidiary of a listed company you will also require evidence of the parent/subsidiary relationship. Such evidence may be:

• The subsidiary's last filed annual return

• A note in the parent's or subsidiary's last audited accounts

• Information from a reputable electronic verification service provider or online registry

• Information from the parent company’s published reports, for example, from their website.

You are still required to conduct ongoing monitoring of the business relationship with a publicly-listed company to enable you to spot suspicious activity.

UK Public companies not listed on a regulated market You must obtain and verify:

• Its name

• The company number or other registration number, and

• The address of the registered office and, if different, principal place of business.

• The law to which it is subject and its constitution

• The full names of the board of directors (or equivalent management body) and senior persons responsible for its operations.

• Information about the beneficial owners of the company, and

• Take reasonable measures to determine and verify the law to which it is subject or the names

of its directors and senior persons. Verification sources may include:

• A search of the relevant company registry (such as Companies House)

• A copy of the company's certificate of incorporation

• A SmartSearch

Private and unlisted companies in the UK and Private Overseas companies

Private companies are generally subject to a lower level of public disclosure than public companies. In general however, the structure, ownership, purposes and activities of many private companies will be clear and understandable. You must obtain and verify:

• The name • The company number or other registration number • The address of the registered office and principal place of business

You must take reasonable measures to determine and verify:

• The law to which it is subject and its constitution • The full names of the board of directors (or equivalent management body) and senior persons

responsible for its operations. Sources for verifying corporate identification may include:

• Certificate of incorporation • Details from the relevant company registry, confirming details of the company and of the

director/s and their address • Filed audited accounts • Information from a reputable electronic verification service provider.

You must identify any beneficial owners (someone who ultimately owns or controls, directly or indirectly, through share holdings or other means more than 25% of the shares or voting rights in the body corporate) and obtain at least their name and record any other identifying details which are readily available. Consider the risk profile and business structures to assess what verification is required. UK companies not listed on a regulated market are required to provide information about their identity on request, including their articles of association or other governing documents and information about beneficial owners. If you have exhausted all possible means of being able to identify and verify the beneficial owners and you have not succeeded, or you are not satisfied that the individual is the beneficial owner, you may treat the senior person who is responsible for managing it as its beneficial owner. You must keep records in writing of all the actions you have taken to identify the beneficial owners. Note: Private and unlisted overseas companies Obtaining CDD material for these companies can be difficult, particularly regarding beneficial ownership. Money laundering risks are likely to be lower where the company is incorporated or operating in an EEA state or a country which is a member of FATF. The company's identity is established in the same way as for UK private and unlisted companies. Where you are not obtaining original documentation consider, on a risk-sensitive basis, having the documents certified by a person in the regulated sector or another professional whose identity can be checked by reference to a professional directory.

Public Overseas Companies If listed on a regulated market or is a majority-owned subsidiary of such a company: You must obtain and verify the:

• company name

• company number or other registration number

• address of the registered office and, if different, principal place of business

If the company is unlisted: You must obtain and verify the:

• company name

• company number or other registration number

• address of the registered office and, if different, principal place of business You must also take reasonable measures to determine and verify the:

• law to which it is subject and its constitution

• full names of the board of directors (or equivalent management body) and senior persons responsible for its operations

• obtain information about the beneficial owners of the company A “Regulated market” is

(a) Within the EEA, the meaning given by Article 4.1 (14) of the Markets in Financial Instruments Directive, but basically operates in the same or a similar way to the London Stock Exchange, which itself is a regulated market within the definition of the Article 4.1(14).

(b) Outside the EEA, a regulated financial market which subjects companies whose securities are admitted to trading to disclosure obligations which are equivalent to those in the EEA.

If a regulated market is located within the EEA there is no requirement to undertake checks on the market itself. Under a risk-based approach you may wish to simply record the steps taken to ascertain the status of the market. Consider a similar approach for non-EEA markets that subject companies to disclosure obligations which are contained in international standards equivalent to specified disclosure obligations in the EU. Consult the register on the European Securities and Markets Authority website. Evidence of the company's listed status should be obtained in a manner similar to that for UK public companies. Companies whose listing does not fall within the above requirements should be identified in accordance with the provisions for private companies.

Trusts (including Foundations)

UK common law trusts are used extensively in everyday situations and therefore often pose a limited risk of money laundering or terrorist financing. However, because they exist to separate legal and beneficial ownership(s) they can pose a high risk and therefore require a high level of understanding as to whom the client is, the nature of the trust and who its beneficiaries are. This often means that identifying and verifying all concerned can be extensive and goes far beyond what is generally required as ID. It is vitally important that the solicitor responsible for the matter is clear in their instructions to others that will be carrying out the necessary checks and updates of the associated Trust Register. The details below form a small part of the actual full regulations and guidance surrounding trusts therefore, if in doubt, please ask a relevant Trust Partner or the Compliance Helpdesk for further guidance. Who is the client? Trusts, including express trusts, do not have legal personality. As such, you cannot take on a trust as your client. When advising in relation to a trust your client may be the either:

• The settlor

• The trustee(s)

• The protector(s) or

• One or more of the beneficiaries. Determining which of the settlor, the trustee(s), the protector(s) or one or more of the beneficiaries is/are your client(s) will involve an analysis of the person to whom you owe your duty of care and who will receive the benefit of your advice. Where an express trust has yet to be established and you are providing tax or transactional advice to a prospective settlor in anticipation of creating a trust your client will usually be the settlor. If acting for the settlor identify and verify them as an Individual. You will also need to understand the settlor's net wealth and the nature and extent of the assets that will be settled on the trust. The information and documents you obtain will depend on whether your client is an individual person or an entity. If the settlor is an entity you will also need to understand its beneficial owner. If your client is represented by an intermediary identify and verify the intermediary's identity and authority to act on behalf of your underlying client. Understanding and identifying a trust’s beneficial owners: If you go on to advise a settlor on trust affairs once the trust has been established, and whenever you are instructed by someone involved with an existing trust to advise in relation to it, you must identify the beneficial owner ‘of a customer’. This could be the settlor, the trustees, the beneficiaries (or class of beneficiaries) and any individual who has control over the trust. Although your client will not actually be the trust (because a trust does not have legal personality). If instructed in relation to an existing trust:

• Obtain and verify the identity of your client (which as above may be the settlor, trustee(s), protector(s) or beneficiary(ies));

• If there are multiple trustees (or protectors) obtain and verify the identity of two;

• Identify and verify each beneficiary (subject to conflicts issues), unless their benefit from the trust has not yet been determined in which case identify them by class - see below note

• If your client (whether the settlor, trustee(s), protector(s) or beneficiary(ies)) is an entity,

identify its beneficial owner;

• Where your client has had a trust funding role, understand your client’s net wealth and the source of funds which were contributed (or which were used to acquire assets which were contributed) to the trust;

• Understand the nature and extent of the assets settled on the trust; and

• Understand and record the identity of the (non-client) settlor, trustee(s), protector(s), and/or

beneficiary(ies) and any person who otherwise has control of the trust, as trust beneficial owners.

Note on beneficiaries: If you decide not to note individual beneficiaries named in the trust deed or any associated document on the basis that you have assured yourself that their benefit from the trust has not yet been determined, you should identify any named class of beneficiaries, by its description. For example:

• Grandchildren of [X] • Charity [Y]

When considering the identity of those in whose main interest a trust is set up or operates and there are several classes of beneficiary, consider which class is most likely to receive most of the trust property. For example:

• Where a trust is for the issue of [X], then the class is the issue of [X] as there is only one class

• Where a trust is for the children of [X], if they all die, for the grandchildren of [X] and if they all die for charity [Y], then the class is likely to be the children of [X] as it is unlikely that they will all die before the funds are disbursed

• Where a discretionary trust allows for payments to the widow, the children, their spouses and

civil partners, the grandchildren and their spouses and civil partners then all interests are equal and all classes will need to be identified.

When in doubt about which class has the main interest, you should identity all classes. If the beneficial owner is an entity: You will need to understand who its ultimate beneficial owners are, depending on the entity's status (e.g. whether it is a company or a charity).

The extent of the reasonable measures you take to identify the ultimate beneficial owner of one of the trust’s defined ‘beneficial owners’ will depend on its role in relation to the trust. The ultimate beneficial owner of a settlor, protector or sole beneficiary entity should be fully investigated. As a trustee has no beneficial interest in the trust assets, you need not, in the absence of any suspicions, identify the ultimate beneficial owner of a professional trustee entity. It may not be necessary to identify the ultimate beneficial owner of an entity beneficiary where it is one of many discretionary beneficiaries. However, where you act in relation to a discretionary trust, if you decide against noting in your CDD the names of individual beneficiaries who are named in the trust deed or any associated document on the basis that their benefitting from the trust has not yet been determined, you will need to seek regular updates from your client, on when and whether beneficiaries’ interests in the trust will be or have been determined. The wider approach, involving noting all beneficiaries and potential beneficiaries named in the trust deed and any associated document at CDD outset, may therefore be preferable.

Taxable Relevant Trust If you act as (as opposed to for) a trustee of a taxable relevant trust you will need to maintain accurate and up to date records of all beneficial owners and potential beneficiaries of the trust. If you form a business relationship in your role as trustee with a relevant person, which could be an advisory relationship with your practice (if it is subject to the Regulations), you will need to inform the relevant person that you are acting as a trustee and on request provide the relevant person with information identifying the trust’s beneficial owners and potential beneficiaries. That obligation lies on (external) trustees of relevant trusts who enter into transactions in relation to which you or your practice are required to apply CDD or who form a business relationship with you or your practice (if you are subject to the Regulations). This should assist you in your compliance with AML obligations and is another reason why it makes sense to extend your due diligence in relation to a relevant trust's beneficial owners also to cover potential beneficiaries. Otherwise, from a reputational risk and advisory perspective, as law enforcement authorities may gain access to information not only about the trust’s beneficial owners but also names of those individuals who are referred to in any document from the settlor, such as a letter of wishes, relating to the trust, it is likely to be prudent to note such wider information in your records where you act for any client in relation to a relevant trust, and, indeed where you act in relation to any trust. Check LSAG guidance on the intranet

Charities and Churches and Places of Worship Charities may take a number of forms. In the UK, you may come across five types of charities:

• Small • Registered • Unregistered • Excepted, such as churches • Exempt, such as museums and universities

UK Registered Charities and Churches/places of Worship registered as a charity or registered as a building of worship: For large registered charities please record:

• Full name

• Registration number

• Place of business

• Charitable status from HMRC For smaller/obscure Charities please also verify and identify (as a business structure):

• The full names of the board of directors (or equivalent management body) and senior persons responsible for its operations.

• Information about the beneficial owners of the company Details of registered charities can be obtained from:

• The Charity Commission of England and Wales. • The Office of the Scottish Charity Regulator. • The Charity Commission for Northern Ireland. • The General Register Office (GRO) • The headquarters or regional organisation of the denomination or religion

Overseas Charities: Other countries may also have charity regulators which maintain a list of registered charities which we can use to verify the identity of an overseas charity.

Schools and colleges Schools and colleges may be a registered charity, a private company, an unincorporated association or a government entity and should be verified in accordance with the relevant category. The Department of Education maintains lists of approved educational establishments which may assist in verifying the existence of the school or college.

Clubs and Associations Many of these bear a low money laundering risk, but this depends on the scope of their purposes, activities and geographical spread. If the Club or association is unknown obtain the following identification:

• Full name • Legal status • Purpose • Any registered address • Names of all office holders

Documents which may verify the existence of the club or association include:

• Any articles of association or constitution • Statement from a bank, building society or credit union • Recent audited accounts • Financial statements presented to the annual general meeting • Listing in a local or national telephone directory

Government agencies and councils The money laundering and terrorist financing risks associated with public authorities vary significantly depending on the nature of the retainer and the home jurisdiction of the public authority. It may be simple to establish that the entity exists, but where there is a heightened risk of corruption or misappropriation of government monies, greater monitoring of retainers should be considered. The following information may be relevant when establishing a public sector entity's identity:

• Full name of the entity • Nature and status of the entity • Address of the entity • Name of the home state authority • Name of the directors or equivalent • Name of the individual instructing you and confirmation of their authority to do so • Extract from official government website

It will usually be appropriate to apply simplified due diligence to UK public authorities and to some non-UK public authorities, particularly those in the EEA.

Nature and Purpose of Clients’ Transactions Part of CDD is understanding the nature and purpose of a client’s intended transaction and forming a judgement as to whether it “fits” with the profile of the client. Questions to ask yourself include:

• Does the transaction seem logical for the client to be involved in – is its purpose logical and legitimate?

• Why is the client using me / this firm?

• Does it seem reasonable that the client should have the level of apparent wealth (see below on verifying the source of funds and wealth)

• Is the transaction very complicated and if so, is that necessary?

Monitoring – Renewal/refresh of ID and verification of address You must update ID when:

• You become aware of any changes to the clients identification information. This will include a change of name, address or business or when their photo ID expires;

• Where there is a legal duty in the course of the relevant calendar year to contact the client for the purpose of reviewing any relevant information relating to the beneficial owners(s); or

• Where there is a duty under directive 2011/16/eu (relating to administrative cooperation on tax matters).

Verifying the Source of Funds and Source of Wealth to be used in Clients’ Transactions Wherever client funds are to be used in a transaction, you must ensure that you understand where they are coming from (source of funds) and how they came by them (source of wealth). If a client’s transaction is being funded in whole or in part by a third party (other than under a mortgage or other commercial and documented lending facility), you need to understand why and whether and to what extent the funds are repayable. It is not generally sufficient to rely on the client’s explanation for the source of wealth; you must have a clear understanding of it, backed up by appropriate documentary evidence. Understanding the source of funds (SoF) and source of wealth (SoW) is also necessary for ongoing monitoring purposes, where the aim should be to ensure that the reason for the business relationship between the firm and the client and the transactions undertaken on the client’s behalf, are commensurate with what one could reasonably expect from that client, given the client’s particular circumstances. Don’t overlook obvious “red flags” such as a young client who appears unusually wealthy or someone who appears unusually well paid for the nature of the work they do. Also, matters where the intended source of funds changes. You should establish where funds coming into the firm’s bank account, either electronically or otherwise, will be coming from and pass this information to the accounts department. The accounts department must, whenever possible, check that the funds do in fact arrive from that origin and notify the lawyer concerned immediately if the source is different to that notified.

Meaning of Source of Funds This refers to the origin of the particular funds or assets which are the subject of the business relationship between the firm and its client and the transactions the firm is required to undertake on the client’s behalf. The SoF is generally easier to establish than the source of wealth but this should not simply be restricted to knowing from which bank or financial institution the funds may have been received. The information obtained should be substantive, relevant and able to establish the fund’s origin and the method/circumstances under which the funds were acquired.

Meaning of Source of Wealth SoW refers to the origin of the entire body of wealth (i.e. total assets) of the client:

The information that should be obtained should give an indication as to the volume of wealth the client would reasonably be expected to have, and provide a picture of how it was acquired. Although you may not have specific information or details about all the client’s assets, it may be possible to gather general information from commercial databases or other open sources. Establishing the SoW is especially important in relation to clients who are PEPs.

See - Establishing Source of Wealth & Source of Funds