By Legal Futures Associate SearchFlow
Every property lawyer knows that carrying out an Anti-Money Laundering (AML) check before taking on a client is crucial to ensure compliance.
Property transactions continue to be a key target for criminals seeking to launder illicit funds. As a result, property lawyers must maintain robust AML controls and adopt a risk-based approach to compliance throughout every transaction.
Given the SRA’s continued focus on anti-money laundering compliance and ongoing enforcement activity across the legal sector, below is a helpful reminder of the essential details you need to know before carrying out an AML check.
What is a risk assessment?
There are three key AML risk assessments that conveyancers should complete: a Practice-Wide Risk Assessment (PWRA), a Client Risk Assessment, and a Matter Risk Assessment. Together, these form the foundation of a risk-based approach to compliance and help firms demonstrate to regulators that they have identified, assessed and managed money laundering risks effectively. The Practice–Wide Risk Assessment considers the overall risks faced by the firm, taking into account factors such as its client base, services, delivery channels and geographic exposure.
The Client Risk Assessment focuses on the specific risks associated with an individual client, including their identity, source of funds and any characteristics that may indicate a higher level of risk. Meanwhile, the Matter Risk Assessment examines the risks linked to a particular transaction, considering factors such as the nature of the property, the transaction structure, funding arrangements and any unusual circumstances. These assessments should work together, with the findings from each informing the level of due diligence and ongoing monitoring required throughout the matter. The SRA demands that regulated firms can produce the risk assessment upon request.
What is an AML search?
An Anti-Money Laundering search (or AML for short) is a compliance check carried out against a person, through a Personal AML Risk assessment, or a company, through a Non-Personal AML Risk Assessment, to confirm they are who they say they are.
There are three types of AML searches – simplified, standard, and enhanced.
Simplified due diligence is typically for ‘low risk’ work or transactions and requires a risk assessment, documentary evidence of the client’s identity and address, and electronic screening of financial sanctions, specially designated nationals and politically exposed persons data.
Regulation 37(3) of the Money Laundering Regulations 2017 sets out a list of factors to be considered in determining whether a situation poses a lower risk of money laundering or terrorist financing. If you decide to use simplified due diligence, you must provide a reason and obtain and document the evidence you analysed to make this decision.
Standard due diligence is covered under Regulation 28 of the Money Laundering Regulations 2017. The measures required to complete an AML check will vary depending on the type of client involved. This level of due diligence should be applied to low-risk matters (where simplified due diligence is not applicable) and medium-risk matters.
Enhanced due diligence, on the other hand, is typically for high-risk work or transactions. Regulation 33(1) of the Money Laundering Regulations 2017 sets out circumstances in which enhanced due diligence measures must be applied. It includes any transaction or business relationship involving:
- A person established in a high-risk third country
- A politically exposed person (PEP) or a family member or known associate of a PEP
- Any other situation that presents a higher risk of money laundering or terrorist financing (for example, sanctions)
Regulation 33(6) also sets out a list of factors you must consider when assessing whether there’s a higher risk of money laundering. However, it is vital to look at each client individually, as even if a client does not meet one of the above criteria, they may still require an Enhanced Due Diligence check.
An Enhanced Due Diligence check requires, as a minimum, that you examine the background and purpose of the transaction and increase the monitoring of the ongoing business relationship. Regulation 33(5) gives a non-exhaustive list of ways you can conduct EDD.
In many firms, AML checks are now supported by digital verification technology that combines identity verification, sanctions screening, politically exposed person (PEP) monitoring and ongoing risk assessment into a single workflow. These solutions can help improve efficiency while maintaining a comprehensive audit trail.
What is a PEP or Sanction?
A politically exposed person (PEP) is someone who has been appointed to a high-profile position within the last 12 months, such as a head of state, head of government, government minister, high-level judicial bodies, as well as the families of those who fill these positions. A complete list of roles considered to be high-profile positions can be found here.
Whilst a PEP designation does not automatically indicate wrongdoing, it does suggest that additional scrutiny and Enhanced Due Diligence may be required as part of a risk-based assessment. Each case should be considered on its individual circumstances.
The UK government defines sanctions as restrictive measures that can be put in place to fulfil a range of purposes, including complying with UN and other international obligations, supporting foreign policy and national security objectives, as well as maintaining international peace and security, and preventing terrorism.
Sanction checks ensure you do not become involved with sanctioned entities so you can avoid the risk of non-compliance penalties and protect your firm’s reputation in the process.
With sanctions regimes subject to frequent change, firms should ensure screening is undertaken using up-to-date data sources and that monitoring continues throughout the life of the transaction where appropriate.
If your client is a PEP and you’re concerned about this, you can discuss this with your Money Laundering Reporting Office (MRLO.)
There is also extensive guidance issued by the SRA on sanctioned persons and what to do if a client becomes sanctioned.
Knowing your client: What can be used as identity and address documentation?
All solicitors have a duty under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 to identify and verify the identity of their client.
As per the Legal Sector Affinity Group AML guidance, identification verification should “be completed on the basis of documents or information which come from a reliable source, independent of the client… You need a reliable source(s) to verify your client’s identity, which is independent of the client e.g. a passport or driver’s license, or, in the case of a corporate entity, evidence of registration from the relevant registry or reputable company services provider. You are permitted to use a wider range of sources when verifying the identity of the beneficial owner and understanding the ownership and control structure of the client.”
The Law Society advises that it is essential to know which documents can be accepted as evidence of identity and recommends using an electronic third-party verification solution as part of the process. As a result, many firms now outsource identity verification to specialist providers, particularly to support remote onboarding and streamline client due diligence. These solutions can offer faster verification, improved audit trails and a more efficient client experience while helping firms meet their compliance obligations. For proof of address, utility bills and mortgage statements are commonly accepted, while identity documents such as a photo driving licence and current bank statements may also be used to support an AML check.
AML obligations do not end once a client has been onboarded. Firms are expected to carry out ongoing monitoring throughout the transaction, remaining alert to changes in a client’s risk profile, sanctions status, source of funds information or transaction activity that may require further investigation.
If you’re unsure whether a particular form of documentation meets the requirements, it’s advisable to consult your search provider. If you’re handling your own CDD, consider speaking with your compliance officer or reviewing guidance set out by the Solicitors Regulation Authority for further assistance.
Understanding Source of Funds and Source of Wealth
Verifying a client’s identity is only one part of the AML process. Conveyancers are also expected to understand the origin of the funds being used in a transaction and, where appropriate, how a client’s overall wealth has been accumulated.
Depending on the risk profile of the matter, this may involve reviewing supporting evidence such as bank statements, inheritance documentation, gifted deposit evidence, investment records or proceeds from previous property sales.
Taking a proportionate and risk-based approach to source of funds enquiries can help firms identify potential red flags and demonstrate compliance with regulatory expectations.
Who can carry out an AML search?
AML searches can be carried out by any staff members who have received proper training in Anti-Money Laundering procedures and are usually assessed by the firm’s Money Laundering Reporting Officer (MRLO) or designated compliance officer.
Regulation 24 of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 provides that relevant people and agents are made aware of the law relating to anti-money laundering and terrorist financing and regularly given training in how to recognise and deal with transactions and other activities or situations which may be related to money laundering, terrorist financing or proliferation financing. In addition, a record must be kept of the training provided.
In addition, firms must keep a record of all AML training provided. The SRA expects relevant employees to receive regular AML training and supports firms through guidance, thematic reviews and compliance resources. Regular refresher training can help staff keep pace with emerging fraud typologies, sanctions developments and changes in AML regulation, ensuring they remain confident in identifying, escalating and managing potential risks.
Compliant and Non-Compliant results: What does this mean?
If a check is returned as Compliant, you will typically not need to take any further action, as the provider has found nothing of concern regarding the individual or company.
However, if the check is returned as Non-Compliant, the provider has found potential risk factors regarding the individual or company, such as the individual appearing on a sanctions list or other alert data source; you will need to assess the potential risk you may face with that particular client. To aid you in determining any possible risks, contact your search provider for further details as to why the check has returned as Non-Compliant. You can also ask your client for further identity information to help confirm or rule out whether the match to the sanctions or alert data is accurate.
A Non-Compliant result may also be returned when insufficient independent data is available to confirm the person’s identity.
If you are unsure of whether to proceed with a client’s case, speak to your firm’s Money Laundering Reporting Office (MRLO.)
Final considerations
As financial crime risks continue to evolve, effective AML compliance remains essential for conveyancing firms. Robust risk assessments, thorough due diligence procedures and ongoing monitoring can help firms meet regulatory expectations while protecting clients, transactions and reputations.
SearchFlow has several resources to help you manage risk, including an AML best practice guide. In addition, SearchFlow provides a comprehensive fraud and ID dashboard to help firms manage client risk in a transparent and organised way, making file management and auditing efficient and auditable.
