On-Going Customer Due Diligence
The Money Laundering Regulations 2007 require those subject to it (external accountants, tax advisers etc) not only to conduct Customer Due Diligence with new clients, but also to update the CDD of existing clients from time to time. In particular you are asked to note the need to scrutinise transactions in line with section 8 (2)a of MLR 7 (see below):
Ongoing monitoring
8 (1) A relevant person[1] must conduct ongoing monitoring of a business relationship.
(2) “Ongoing monitoring” of a business relationship means—
(a) scrutiny of transactions undertaken throughout the course of the relationship (including, where necessary, the source of funds) to ensure that the transactions are consistent with the relevant person’s knowledge of the customer, his business and risk profile; and
(b) keeping the documents, data or information obtained for the purpose of applying customer due diligence measures up-to-date[2].
(3) Regulation 7(3) applies to the duty to conduct ongoing monitoring under paragraph (1) as it applies to customer due diligence measures.”
The important thing to remember is the spirit of the legislation, which requires you to review the client’s business activities on an ongoing basis to try to ensure that you catch any changes which might give rise to suspicions. It is a good idea to talk this concept through with clients, as they too should review the business activities of any customers, especially those in cash-intensive businesses, even if you have been dealing with them for many years.
You should also be alert to the following:
- Changes in Strategy/Nature of the Business
- Change in Trading Relationships including new Geographical Connections, or connections with “High Risk” Jurisdictions
- Substantial Change in Income, or in source of income
- Changes in the Capital Structure/Funding
- Occasional Transactions – if suspicious
- Unusual, complex or uncharacteristically large Transactions
- Doubts have arisen on the veracity of previous details provided by Client eg identity/addresses etc.
- Other suspicions that Money Laundering may have taken place/may be about to take place (if there is no business relationship at this point, there is no requirement to make a SAR to SOCA)
The IFA suggests that there may be opportunities for normal physical repeat monitoring (i.e. keeping the records up-to-date) which might present themselves from time to time, such as:
- A change of owner’s, beneficial owner’s, major shareholder’s or director’s private address
- A change of business address
- Appointment of a new director
- The issue of a new Engagement Letter
It is important to comply with the legislation, even if you know the client very well or have dealt with him over many years. Failure to conduct CDD would be taken into account by the courts and used against you should there be a case of possible money laundering involving your client, and it would therefore be important both to update files and to ensure that you have a clear timetable for renewing CDD.
Our suggestion is that CDD should be renewed at least every two years with all clients; this can normally be as part of a routine client briefing meeting or, of course, whenever a new engagement is entered upon; it would probably be useful to include reference to this in your Engagement Letter to preclude having to explain the situation on every occasion (“The UK Money Laundering Regulations 2007 require us to renew Client Due Diligence on a regular basis, and we therefore intend to check the accuracy of our files with you at least every two years”).
Clients are now becoming used to providing passports and utility bills whenever dealing with banks, solicitors or financial professionals, but it is important to treat the procedure seriously and to act without delay on any suspicious matters.
[1] “relevant person” means you, as a professional accountant, tax adviser or any other activity included in the legislation
[2] This requirement means that you must retain records of CDD for five years beyond the termination of the business relationship
