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What conveyancing solicitors need to know about sanctions

With the recent events in Ukraine, it is important for all conveyancing professionals who work with Russian clients to monitor the situation closely to avoid falling foul of the requirements of sanctions and anti-money-laundering (AML) rules.

This is because the UK government has imposed a new round of economic sanctions on Russia and Russian citizens that could affect how you do business if you are not careful enough.

To help, here is our guide about complying and safeguarding yourself and your firm against potential consequences.

economic sanctions on Russia

 The UK is ramping up its response to the Ukrainian crisis.

Without a doubt, the UK is ramping up its response to the Ukrainian crisis, cracking down on Russian oligarchs and imposing sanctions on Russian individuals in the UK.

Firstly, different sanctions must be considered. The UK has its sanctions, the US has different ones and the EU yet others. You can sign up for UK government sanction list updates.

Depending on what you are trying to do for a client, you will need to understand which sanctions are relevant to you. For most conveyancers, this means looking at the UK sanctions list. However, for clients moving money in US dollars, the US sanctions list must be checked because banks will be following these if the client is moving dollars through the banking system.

The real impact for conveyancers is that when you are acting for someone who has been sanctioned by the UK, you will be prevented from working with them without getting a licence.

It is now an offence, and even if you have a licence already, you might not be able to move the money through the client’s account because your bank would need to get a licence too, which they might not want to do.

The law sets the following restrictions applying to conveyancing firms:

 

  • You may not receive monies from any persons on the sanctions list. However, some exemptions allow you to make an application for a licence to the Office of Financial Sanctions Implementation (OFSI). Firms can apply for a licence to receive fees for legal services provided.
  • You may not make payments to any persons on the sanctions list, even if the payment is legitimate.
  • You may not make funds available to any persons on the sanctions list.
  • You may not assist any persons on the sanctions list with dealing with their economic resources.

Someone who has been sanctioned may, nonetheless, transfer their assets to another person, subject to obtaining a licence from the government to do this. The licence will show the government what the sanctioned people are doing.

Most conveyancers working in smaller firms will have little or nothing to do with Russian oligarchs and PEPs who are being regularly added to the sanctions list and therefore no change to their daily conveyancing activities.

However, conveyancers, law firms and accountancy practices that were working with sanctioned people when they were free to do so now need to make sure they have policies and procedures to deal with the changes in the law. Liability for breaches of certain financial sanction rules or requirements is now absolute. The consequence of a breach could be a fine by the OFSI or criminal liability. Therefore, it is sensible for conveyancers to check clients against the OFSI link provided at the time of onboarding and again before exchange or completion.

Sanctions, conveyancing and what the regulators say

economic-sanctions-uk

Conveyancers should expect more supervision activity from their regulators and strong disciplinary action for non-compliance.

Indeed, the Solicitors Regulation Authority (SRA) has already said that although a client may not have been sanctioned when they first worked together with a conveyancer, they could have been added to the sanctions list before work has been completed. The SRA states:

“Your firm must have appropriate policies in place to ensure you comply with sanctions legislation, including carrying out regular and appropriate checks of sanctions lists. We expect you to take your responsibilities under the regime to safeguard the UK and protect the reputation of the legal services industry seriously.

“The financial sanctions regime prevents law firms from doing business or acting for listed individuals, entities… (without a licence). Firms should check the financial sanctions lists before offering services or undertaking transactions for clients. If an individual is on the sanctions list and subject to an asset freeze, firms may not deal with those funds or make resources available to that person.”

You must make sure your firm’s policies and procedures are up to date and ensure your conveyancing solicitors follow them.

Random inspections may take place to check on compliance by conveyancing firms

Random inspections may take place to check on compliance and potential money-laundering issues. If issues are found, disciplinary procedures will follow.

This could be informal and include a compliance plan, or, more seriously, you might be referred to the Solicitors Disciplinary Tribunal or the equivalent of the Council for Licensed Conveyancing. We have yet to see how this will play out.

This means that as conveyancers, you will need to show you know your client and your client’s source of funds. This is critical when you are asked to provide proof that all the relevant checks have been conducted.

You will need to show that you have checked a client’s identity, proof of address and source of wealth. We strongly recommend that all conveyancing solicitors carry out know-your-customer checks using an electronic identity verification tool (of which there are many) that can check international sanctions lists, international lists of politically exposed people (PEP), and numerous other records. These checks are quick and easy to perform and the costs can be passed on to the client as a conveyancing disbursement.

Concerning source-of-wealth questions, you as a conveyancer must be able to show that you gave the issues proper consideration and kept a clear record of what you considered in making your decision on whether to proceed with the matter or not.

Keeping a record is critical as it will be evidence against allegations of breaches from regulators or law enforcement agencies. Therefore, firms must make sure they make it easy for conveyancers to record their considerations. Our firm deals with this by requiring our conveyancers to detail their checks and considerations on a case risk assessment form. Conveyancers should detail the checks they have made, how forthcoming the client was concerning source-of-wealth questions, details of their considerations, their understanding of their client’s risk profile, and their decision-making process, and end with whether they decided to proceed with the case or not. You should require a risk assessment form with the above details to be completed before the exchange of contracts or completion.

How to check the sanctions lists

sanctions list

As a conveyancer, you may be wondering how to check whether a client or a potential client can be checked against a government-imposed sanctions list.

Ensuring that you are anti-monetary-laundering compliant is easy because the UK government sanctions list can now be searched online quickly and easily.

You enter a name into the search function and the document tells you if they are sanctioned or not. A conveyancer can search the consolidated sanctions list published by the OFSI – Sanctions List.

However, you need to double-check that the person sanctioned is your client, to avoid being misled by false positives. To work out if the person on the list is your client, check their date of birth and do a Google search to find out who the person being sanctioned is and why they are on the list. You need to be aware that the sanctions list includes people with Russian names and people living abroad as well as people living in the UK.

Another issue is that the sanctions list is very fluid and regularly updated so this check is something you should consider doing regularly. Conveyancing solicitors should, depending on the risk profile of the client, consider repeating the sanctions check before exchange or completion.

The trick is to remain vigilant and be aware of policy changes from the UK, US and EU governments.

Sanctions evasion risk indicators

The SRA article on what you need to know about sanctions includes an interesting section about how to recognise when clients might be attempting to evade sanctions. This includes:

  • Requests to transfer properties from Russian national owners to dual-national family members.
  • Use of trust structures to hide the actual beneficial owners and persons with control of the properties.
  • Persons looking to transfer their properties and close their accounts in the UK.
  • Persons living in Russia looking to transfer funds to their UK accounts.
  • Russian persons of high net worth who are not on the UK sanctions list but are on other international sanctions lists and are transferring properties to family, relatives, or close associates in anticipation of being added to the UK sanctions list.
  • Russian entities that changed their name and address few days before the invasion of Ukraine.
  • Instances where the beneficial owners of properties or companies have been changed from Russian to other nationalities.

Your firm’s reputation

With the situation in Ukraine dominating the news every night, conveyancing firms need to consider their professional reputation.

While you may be checking the sanctions list and doing your due diligence, a third aspect of what to do with a client you have a rapport with but who has not been sanctioned and passes your diligence checks is to consider your firm’s reputation.

Should you work with a person or firm with strong Russian links you need to consider how that might look to the regulators and police and those in the industry. This is a fraught situation, but it is always better to be wise and wary than to have to deal with public fall-out. You would not want your firm’s name being discussed in Parliament!

All firms need to be confident and enthusiastic about their AML rules and remain vigilant about their clients’ activities. However, buying and selling property carry a high money-laundering risk, which means demonstrating a higher level of risk-based approach, a thorough risk assessment and effectively investigating the source of a client’s wealth.

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