How lawyers can protect themselves when helping corporate clients on a property transaction

Lawyers have a pivotal role to play in combating financial crime. Conducting thorough anti-money laundering (AML) checks on corporate clients is crucial to protect law firms and their clients from fraud and money laundering.

But what should professionals consider when corporate clients are purchasing a property, and what is best practice to ensure they meet compliance requirements and mitigate risks?

There are six key considerations.

First, understand both your internal and external reporting obligations.

Lawyers should familiarise themselves with their reporting obligations under the AML regulations. This includes when and how to report suspicious activity or transactions involving corporate clients both internally and externally to their money laundering reporting officer (MLRO) and the National Crime Agency (NCA).

The NCA provides helpful guidance on when and how to submit a Suspicious Activity Report.

Second, develop processes, internal controls and policies.

Lawyers and law firms must develop a comprehensive Client Due Diligence (CDD) process for corporate clients with all necessary steps to verify identity, assess risk, and monitor ongoing transactions.

Firms should consistently apply CDD procedures across all client relationships and document the rationale behind risk assessments and decisions.

Once law firms have developed their controls and policies, they should regularly review and update these based on any changes to regulatory requirements, industry guidance and changes to the type of clients they work with.

Part of the processes should include how lawyers maintain detailed records of all AML checks conducted on corporate clients. These checks should document identity verification, beneficial ownership information, transaction records, escalations required, and any suspicious activity reports filed.

Third, embed the process.

As important as putting processes in place is ensuring teams follow these processes. Law firms should ensure their teams know the processes, accept them and ultimately follow them.

As a result, firms should provide comprehensive ongoing training to staff members on identifying, verifying and reporting suspicious activity related to corporate clients. Law firms should inform their lawyers of evolving AML risks and regulations through regular training sessions, updates, and communication channels.

The best way to get buy-in from staff following such training is to bring this to life using real-life stories and examples. Good sources for these stories include the National Crime Agency, Serious Fraud Office, SRA case studies and reliable media outlets like Solicitors Journal.

Fourth, establish client identity.

Although obvious, it is essential to identify the person or people behind the corporate entity purchasing the property.

This information should be obtained as soon as possible in the transaction, as the person the lawyers are dealing with may not be the transaction's ultimate beneficiary. To identify the ultimate beneficial owner (UBO), lawyers must examine the business's ownership structure.

There are various ways to achieve this, such as studying company registers, shareholder agreements, and ownership declarations to determine beneficial ownership. Lawyers may also ask the person they are dealing with to provide this information or obtain it from commercial registers.

However, lawyers should not solely rely on information within the register of Persons of Significant Control filled on Companies House. The accuracy, timeliness, and limited information provided by the PSC Register are all factors that limit its efficacy as the sole source of this critical information. Therefore, regulated entities must use a range of sources and take reasonable measures to verify the identity of beneficial owners as required by the MLR 2017.

To reduce the time it takes to gather this information, law firms might consider a technology platform that can access multiple data points in seconds and turn this raw data into an easy-to-read report.

Lawyers will still need to scrutinise such a report, but it can give firms a head start over other firms who may be trawling through various layers of ownership via a commercial register.

Fifth, verify the identity of owners or directors.

Once lawyers have identified who the client is, they will need to verify their identity.

When dealing with a corporation, this can be more difficult than a typical residential property transaction because the owners may not live locally, lawyers may not be dealing with that person directly, and there may not be a chance to meet them in person.

All of this increases the risk of fraud, so it is even more critical that law firms have robust measures. Here, using a certified ID service provider, lawyers can remotely verify the identity and address of owners and directors globally without relying on certified copies of documents.

It is worth noting that not all identity verification providers are the same, and there are some considerations to help distinguish between providers:

• Do the checks the provider is carrying out meet HM Land Registry’s Digital ID Standard?
• Do checks include AML screening? And does this screening cover negative sources such as fitness, probity, and regulatory warnings alongside Politically Exposed Persons (PEPs) and sanctions screening?
• Can lawyers use the tool to monitor their clients for any changes to their status throughout the transaction?
• Are checks easy and convenient for clients to complete? It can be helpful to check ID service provider's Trustpilot reviews
• Does the ID service provider offer support? And how prompt are responses?

Firms will also need to identify any other client risk factors. Again, an ID service provider can help. Some flags to look for include PEPs, sanctioned owners or directors, whether the client lives in a high-risk jurisdiction, and business activities in a sector that is cash-intensive.

As much as these checks protect the firm, using an ID service provider is also convenient, fast and convenient for clients. However, many owners and directors must verify their identity multiple times a year, creating needless duplication. However, some platforms provide the option to share AML reports between professionals.

Six, understand the nature of the transaction.

When working on behalf of a corporate entity to purchase a property, lawyers should conduct thorough due diligence to understand the purpose of the transaction and ensure it aligns with the stated business activities of the corporate client.

For instance, if a property purchase is ostensibly for investment purposes but the primary business is unrelated to real estate, further investigation may be needed. The question lawyers should always be looking to answer is: “does this make sense?".

By addressing these six considerations and implementing best practices and solutions, lawyers and law firms can enhance their effectiveness and contribute to the overall integrity of AML compliance efforts.

To help combat financial crime, lawyers must stay vigilant, remain informed of regulatory updates, and prioritise a proactive approach.