Knowing Your Client (KYC)

Money Laundering Statement

Alexander Reece Thomson LLP Due Diligence Policy Statement

Date: 6 June 2019

DESIGNATED PARTNER / COMPLIANCE OFFICER / E THICS CHAMPION
Elected: Nigel M Lenson

1. STATEMENT OF POLICY

Alexander Reece Thomson LLP ("ART") will only conduct business with reputable clients, business partners, agents, vendors and suppliers who provide legitimate business activities and whose funds are derived from legitimate sources.

ART is required to implement a due diligence procedure and to take reasonable steps to ensure that the Company does not engage with parties associated with:

• money laundering;
• terrorism;
• bribery and/or corruption.

Bribery, corruption, money laundering and terrorist financing are illegal and unethical. ART’s integrity and reputation can be severely damaged by failing to detect business relationships and transactions that place the firm at risk.

Knowing who you are doing business with is a significant first step in countering money laundering and terrorist financing. Know your client (KYC) or customer due diligence (CDD) requirements are now common and are a legal and regulatory requirement in the UK.
ART must, therefore, have a thorough understanding of those with whom it seeks to do

business. It is essential that a party's identity be obtained and verified; that an appropriate level of due diligence be conducted; and that any suspicious activities or transactions are detected and reported.

Typical examples include using the proceeds of crime to purchase a legal asset such as real estate, held in the name of an individual or a more complex structure, such as a legal trust or a group of companies. The asset is held onto and eventually either used for lifestyle purposes or sold and converted into cash. This is how criminals recycle their proceeds and why firms and individuals are exposed to high risk in the property and real estate sectors.

It is possible that more than one of these activities can take place in a single transaction. The Partners and Employees of ART must accordingly be vigilant for this kind of activity both inside and outside the firm and with whom we may do business with, such as clients and third-party introducers, and have the procedures in place to identify, monitor, report and prevent it.

2. GENERAL SCOPE OF POLICY

This Policy is applicable to all of ART’s partners, members, employees, consultants and temporary employees hired through agencies (collectively "Employees").

3. EXCEPTIONS

Exceptions to this Policy can only be granted by ART’s Compliance Office (the Designated Partner), who will confer with the firm’s legal representatives where necessary.

4. ROLES AND RESPONSIBILITIES

The Partners of ART are responsible for complying with this Policy including the implementation of specific processes, procedures and/or other mechanisms by which this Policy is implemented and complied with.

It is further the responsibility of ART’s Partners to ensure that all relationships and contracts are subject to appropriate due diligence and other relevant activities in accordance with this Policy. It is the responsibility of all ART’s Partners and Employees to identify suspicious behavior both during the due diligence process and the life of the business relationship with a client, business partner, agent, vendor or supplier.

Employees are required to immediately report questionable conduct and/or Red Flags (see below) to the Compliance Officer who, if appropriate, will file a suspicious activity transaction report with the authorities.

Employees are required to complete due diligence training on a regular basis based on their roles and responsibilities.

5. GENERAL DUE DILIGENCE REQUIREMENTS

A. A RISK BASED APPROACH TO DUE DILIGENCE

ART’s policy requires that a risk-based approach to due diligence be applied. The risk assessment process and action plan must be specific and relevant to the nature of the business being conducted.

For a risk-based approach, a useful starting point may be to consider 'the three Ws'
– who you act for, what you are doing and why you are being asked to do something – when assessing risks to your business.

Within a risk-based approach, a greater level of resource is devoted to higher risk areas, which will have been identified using a risk assessment.

A risk-based approach will involve planning to use resources in a proportionate way to target the risks in a firm. This involves assessing bribery, corruption, money laundering and terrorist financing risks before forming the plan accordingly.

Assessments of risk can be relatively simple identity checks or can involve deeper investigations where circumstances require (e.g. where there is a concern over the background associations of an introducer, or where the KYC documents are not provided when asked for and without a reasonable explanation).

Sometimes a transaction will include other professionals. In some limited cases, the fact that a buyer or seller has already been ‘on boarded’ by a lawyer or accountant may indicate that a lighter touch may be applied when carrying out steps as CDD. This is acceptable, but the firm encourages a risk- based approach to each case.

The amount of due diligence and documentation required may vary depending upon factors such as:

  • the type and relationship of the party or professional;

  • the nature and extent of the contemplated relationship;

  • the nature of the contemplated transaction;

  • the risk profile of the country or sector in which the transaction is contemplated;

  • local law requirements for the country in which the relevant Company entity is operating; and

  • whether there is a need to carry out Enhanced Due Diligence (EDD), such as where there is a

  • Politically Exposed Person (PEP) involved in the ownership or funding chain.

Buying pens from an office supply Company, for example, would not require formal, documentary due diligence whereas engaging a party to help obtain a necessary licence or permit from a foreign government agency would.

Other professionals in the purchase/sale cycle may also be targets for money launderers. Just because a lawyer, financier, estate agent or other surveyor are involved in the chain, this does not mean the customer, client or the transaction are legitimate.

We must keep in mind that:

  • Ultimate responsibility for risk assessment of the client and the resultant actions taken by the firm in respect to them can never be outsourced to another party;

  • Red-Flags (see below) for money laundering ought not to be ignored;

For legal entities (as opposed to individuals), due diligence should be completed for both the entity and the Primary Owner of the entity (being the entity or individual with a majority ownership interest in or control over major operational decisions affecting the client. business partner, agent, vendor or supplier.)

Updated due diligence should be conducted as appropriate during the life of the ART’s relationship with the client, business partner, agent, vendor or supplier.

B. ENHANCED AND SIMPLIFIED DUE DILIGENCE

Customer Due Diligence (CDD) involves collecting standard evidence to verify the identity of different types of clients. Examples include companies, trusts, special purpose vehicles, partnerships and charities.

Requirements to carry out CDD vary from country to country, but always comprise the following elements:

  • identify the transacting party/parties;

  • verify the identification is valid; and carry out additional checks where necessary, according to certain risk factors.

In certain situations, Simplified Due Diligence (SDD) will be sufficient and means that full CDD is not needed. In a situation assessed as having a low risk of money laundering, applying basic verification may be appropriate. Evidence of the client’s status may suffice for an SDD, such as a check on the local company register, the status of a company, or evidence of listing on the stock exchange.

Enhanced Due Diligence (EDD) will need to be applied in situations where more checking and monitoring is required to complete the client profile, requiring continued review of the client or the transaction.

Some applicable laws provide when either SDD or EDD need to be utilised and this is expected to be followed. In the UK, for instance, applying SDD is now no longer an automatic option in any situation and we need to always be alert to Red Flags (see below) that may indicate money laundering risks are elevated and deeper due diligence needed.

Source of funds and source of wealth checks are also closely aligned to the money laundering risks inherent in a transaction or from client activity. Firms need to understand how a transaction is being funded and consider whether the size and commercial sense of a particular deal matches the funding information obtained. Some situations will warrant a check on the source of funds, such as where the source of wealth is clearly not matching the commercial factors. Information such as bank statements, trust deeds or evidence of a bonus payment may be needed and in turn may bring about further questioning.

We need to be mindful of the need to refresh CDD on our existing clients or customers from time to time. Revisiting the information every three years may be appropriate in many situations.

Risks can arise when low risk clients are taken on for a particular matter and remain ‘in the system’ for a much riskier transaction that follows later. The risk is then that we do not elevate its due diligence because the client has already passed internal, lower-threshold checks. It is our best practice to gather up-to-date identification documentation at the commencement of each new transaction, or at regular, frequent intervals if engaged in an enduring business relationship with the client (as can be common in commercial transactions).

C. INFORMATION GATHERING

Following performance of a risk assessment, information gathering may require a variety of activities including but not limited to interviews, completion of questionnaires, submission of documentation, review of publicly available information, site visits, credit checks and declarations.