Client Identification and Verification
Client identification and verification is a three stage process, which can be made much easier with the support provided by AMLCC.
In this edition of Compliance Matters we provide a quick revision of the key stages of this process and highlight how recent changes in law will affect you next year.
The Money Laundering Regulations require us to:
1. Identify our client and any beneficial owner(s): This is normally a quick and simple process. If your client is an individual or sole trader you immediately know who they claim to be and know there is no separate beneficial owner. If your client is a company or other entity with a simple share or ownership structure, again it is relatively quick to establish who the beneficial owner(s) are;
2. Consider risk: Again, this is relatively straight forward. For the purposes of money laundering, most clients will not be particularly high risk and the documentation available takes you through the process of identifying specific risk factors.
3. Verify the client (and where relevant beneficial owner(s)) by ‘documentary evidence’.
For corporate clients and other entities, it is the third stage which is the most time consuming. It may be necessary to conduct searches at Companies House to confirm the company you act for is registered. Normally you then need to verify beneficial owners or persons with control (this would normally be significant shareholders and directors). This may be done by obtaining evidence directly (seeing their passport, driving license etc.) Alternatively, this may be supplemented or replaced with electronic verification such as that provided via AMLCC.
This electronic verification works by interrogating a wide range of independent data sources to enable users to reach a decision instantly. It carries out a comprehensive check on the individual’s electronic footprint and produces a detailed report.
However, sometimes it is stage 1 above, which is the most complex. For example, where your client is at the foot of a complex group structure you may have to trace the structure though several layers to establish whether or not ultimate beneficial owners exist which you need to verify.
How you identify these distant beneficial owners will become easier from April 2016, however, in the build up to this, additional obligations will be laid on company directors and their advisors.
Register of persons with significant influence over UK companies
Although it may sound innocuous, The Small Business, Enterprise and Employment Act, which received Royal Assent earlier this year will have a practical impact on all accountants. The Act is a wide-ranging piece of legislation, and it is important to remember that despite its name, it will impact companies of all size. It makes a number of changes to company law, most which are outside the scope of Compliance Matters. However, it also creates a requirement for all UK companies to maintain a register of every individual who has, directly or indirectly, significant control over the company and for some of this information to be filed on public record at Companies House.
The definition of what constitutes ‘significant control’ is still to be fully defined, but it will catch persons having control of more than 25% of the company or controlling by other means more than 25% of the voting rights of a company.
Where a company is owned by one or more individuals, the process of capturing and filing the information is straight forward. The data will already be contained on the register of members. However, where the company is part of a wider structure, the directors of the company will be obliged to make enquiries to their shareholders, and their shareholders’ shareholders until it is ascertained who the individuals with ‘significant control’ are.
For example, your company is 40% owned by a small group of individuals. From the register of members it is clear that none control more than 25% so no action needs to be taken. However, the other 60% belongs to another company. The directors of the company (perhaps assisted by you) will need to ascertain whether anyone controls more than 25% of that company. This process will continue up the structure until the identity of those individuals with ‘significant control’ are identified, or it is confirmed that no one meets the definition.
In the case of a trust in the chain of ownership, the trustee will normally be regarded as the beneficial owner, but the beneficiaries may be considered beneficial owners in certain circumstances.
People who meet the definition of a person with ‘significant control’ will be legally obliged to co-operate with the company, as will anyone else who holds information likely to be useful in identifying such persons. As those in the regulated sector acting for the company, such accountants and lawyers, might be expected to have the relevant knowledge, they may be exposed to numerous requests of this nature. Failure to respond appropriately is an offence. Breaches of these provisions by the officers of the company will also be a criminal offence.
Companies will be required to establish and keep the register from January 2016 and to file this information with Companies House (together with the new annual check and confirm process which will replace the annual return) from April 2016. Information will need to be updated annually.
Although the onus is on the directors of the company rather than their accountant to provide the information, it is highly likely that you will become involved in the process of collecting and filing the information. However, once this information is freely available, it is likely to make the process of identifying ‘beneficial owners’ of new clients for anti-money laundering purposes easier as more information will be on public record.
Published August 2015