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Are you accurately declaring whether your work is in or out of scope? Julie Norris and Charlotte Judd consider the key provisions of the MLRs and their application to ‘real property’ transactions
Completing the Authorisation to Practise (AtP) Declaration form in March each year will be an all too familiar task for practising barristers in England and Wales. The standard declarations about income, insurance and so on can generally be completed with minimal effort. The declaration as to whether you are currently undertaking, have current instructions, or in the preceding 12 months have undertaken work which falls within scope of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs – as amended), requires an altogether more conscientious approach by barristers and (where the AtP process is centralised), chambers alike.
Breach of the MLRs can give rise to potential criminal, civil and disciplinary consequences; it clearly matters to understand if any of your instructions fall within scope, and what measures you must take to ensure compliance, if they do.
This article summarises the key provisions in the MLRs and considers real property transactions in more detail, to illustrate the finely balanced judgements that need to be made when deciding if work is in or out of scope.
By way of (a very) high-level summary, if you are not involved in work concerning:
the MLRs do not apply to you.
Generally speaking, the majority of work that barristers undertake will fall outside the scope of the MLRs. Most that is, but not all.
The MLRs apply to ‘relevant persons’ acting in the course of business carried on by them in the United Kingdom (Regulation 9) who fall into a number of finite categories, including the following (which are most relevant to counsel): (1) tax advisers; (2) independent legal professionals; and (3) TCSPs (see Regulation 8 and the exclusions detailed in Regulation 15). Taking each in turn:
Tax adviser is (very) broadly defined as being a firm or sole practitioner who, by way of business, provides, ‘material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services’ (Regulation 11(d)). The ordinary and natural meaning of the word ‘advice’ is the provision of an opinion, guidance or suggestion about what someone should do or how they should act in a particular situation and/or the provision of information to someone. It is not necessary that the tax advice is the only service offered or that any remuneration received is for tax advice and nothing more.
An independent legal professional (see Regulation 12(1)) is a firm or sole practitioner who, by way of business, provides legal or notarial services to other persons, when participating in financial or real property transactions concerning:
a. the buying and selling of real property or business entities;
b. the managing of client money, securities or other assets;
c. the opening or management of bank, savings or securities accounts;
d. the organisation of contributions necessary for the creation, operation or management of companies; or
e. the creation, operation or management of trusts, companies, foundations or similar structures.
A person will be considered to be participating in a transaction if they assist in the planning or execution of the transaction or otherwise act for or on behalf of a client in the transaction; this is an important component to the definition, and one to which we return, below.
A TCSP (Regulation 12(2)) is a firm or sole practitioner who, by way of business, provides the following services to other persons:
a. forming a firm (any entity that, whether or not a legal person, is not an individual and includes a body corporate and a partnership or other unincorporated associations: see Regulation 3);
b. acting, or arranging for another person to act –
(i) as a director or secretary of a company;
(ii) as a partner of a partnership; or
(iii) in a similar capacity in relation to other legal persons;
c. providing a registered office, business address, correspondence or administrative address or other related services for a company, partnership or any other legal person or legal arrangement;
d. acting, or arranging for another person to act, as –
(i) a trustee of an express trust or similar legal arrangement; or
(ii) a nominee shareholder for a person other than a company whose securities are listed on a regulated market.
Note that being instructed in relation to a trust does not in and of itself mean that you are acting as a TCSP within the meaning of the MLRs.
For all those practising on the margins of work in scope of the MLRs, you need to be alert to any emerging ancillary work that brings you within scope. For instance, if you are advising on proposed litigation in relation to a tax assessment and you are asked to provide advice in connection with the client’s tax affairs.
In navigating the MLRs and assessing their application, the Legal Sector Affinity Group (LSAG) Anti-Money Laundering Guidance for the Legal Sector 2023 (Part One) is essential reading, and in particular Part 2a of that guidance, which is specific to barristers and advocates. While barristers are not required to follow this guidance, the Bar Standards Board (BSB) says doing so will make it easier to, ‘account to regulators and others for your actions’ and that compliance with the guidance will be taken into account in their role as a MLR supervisory authority. The BSB has also said any deviation from the guidance may result in the barrister having to justify any such decision.
As outlined, the MLRs apply where a barrister, by way of business, provides legal services to other persons when participating in transactions concerning the buying and selling of real property. One grey area is that ‘real property’ is not defined in the MLRs; it is not clear if this includes all or just certain leasehold interests, for instance. Given the ramifications of getting the decision-making wrong, we suggest a cautious interpretation is wise in the circumstances, with all leasehold interests being classed ‘real property’, regardless of type or length.
Importantly, you are only considered to be participating in a transaction when assisting in the planning or execution of that transaction or otherwise acting for or on behalf of a client in the transaction.
The following principles may provide a useful starting point for barristers deciding if the real property work they undertake is in scope of the MLRs:
1. If you are (only) giving advice on a specific aspect of a transaction (and no more), even if the transaction is ongoing, this will generally be out of scope;
2. If you are advising on a dispute concerning an existing (or future) transaction, this is generally out of scope, even if the transaction is in train, as long as you do not assist in the planning or execution of the transaction itself or otherwise act for on behalf of a client in the transaction;
3. Advising on the following, where there is an existing interest, will likely be out of scope:
(a) a right of way;
(b) a restrictive covenant;
(c) the enforceability of a clause.
4. If you are giving advice on a specific aspect of a transaction and then go on to advise/assist in the transaction, for example by preparing a clause in an agreement in relation to the buying and selling of real property, this is likely to be in scope.
If you carry out work within scope of the MLRs, you must comply with the requirements as set out within those regulations, including:
The principles identified with respect to real property work above illustrate the complexity of decision making in this area; what is considered to be advising on an aspect of a transaction only, could very easily veer into participating in that same transaction. For such high-risk matters, the administrative burden of applying AML-compliant onboarding procedures from the outset might be considered advisable for the resulting security afforded when it comes to MLR compliance.
References and further information
The Legal Sector Affinity Group Anti-Money Laundering Guidance for the Legal Sector 2023 should be read in conjunction with Part 2a Specific Guidance for Barristers & Advocates. See also Bar Council guidance on Money Laundering and Terrorist Financing at barcouncilethics.co.uk and the BSB’s anti-money laundering guidance.
Julie Norris, Partner in Kingsley Napley’s Regulatory team, acts in the legal services sector, advising law firms, solicitors, and barristers on regulatory compliance, investigations, adjudication, enforcement, and prosecutions.
Charlotte Judd, Senior Associate in Kingsley Napley’s Regulatory Team, advises on predominantly legal services regulation, including representing law firms and their partners in all aspects of SRA investigations and any resulting disciplinary proceedings.
Completing the Authorisation to Practise (AtP) Declaration form in March each year will be an all too familiar task for practising barristers in England and Wales. The standard declarations about income, insurance and so on can generally be completed with minimal effort. The declaration as to whether you are currently undertaking, have current instructions, or in the preceding 12 months have undertaken work which falls within scope of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs – as amended), requires an altogether more conscientious approach by barristers and (where the AtP process is centralised), chambers alike.
Breach of the MLRs can give rise to potential criminal, civil and disciplinary consequences; it clearly matters to understand if any of your instructions fall within scope, and what measures you must take to ensure compliance, if they do.
This article summarises the key provisions in the MLRs and considers real property transactions in more detail, to illustrate the finely balanced judgements that need to be made when deciding if work is in or out of scope.
By way of (a very) high-level summary, if you are not involved in work concerning:
the MLRs do not apply to you.
Generally speaking, the majority of work that barristers undertake will fall outside the scope of the MLRs. Most that is, but not all.
The MLRs apply to ‘relevant persons’ acting in the course of business carried on by them in the United Kingdom (Regulation 9) who fall into a number of finite categories, including the following (which are most relevant to counsel): (1) tax advisers; (2) independent legal professionals; and (3) TCSPs (see Regulation 8 and the exclusions detailed in Regulation 15). Taking each in turn:
Tax adviser is (very) broadly defined as being a firm or sole practitioner who, by way of business, provides, ‘material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services’ (Regulation 11(d)). The ordinary and natural meaning of the word ‘advice’ is the provision of an opinion, guidance or suggestion about what someone should do or how they should act in a particular situation and/or the provision of information to someone. It is not necessary that the tax advice is the only service offered or that any remuneration received is for tax advice and nothing more.
An independent legal professional (see Regulation 12(1)) is a firm or sole practitioner who, by way of business, provides legal or notarial services to other persons, when participating in financial or real property transactions concerning:
a. the buying and selling of real property or business entities;
b. the managing of client money, securities or other assets;
c. the opening or management of bank, savings or securities accounts;
d. the organisation of contributions necessary for the creation, operation or management of companies; or
e. the creation, operation or management of trusts, companies, foundations or similar structures.
A person will be considered to be participating in a transaction if they assist in the planning or execution of the transaction or otherwise act for or on behalf of a client in the transaction; this is an important component to the definition, and one to which we return, below.
A TCSP (Regulation 12(2)) is a firm or sole practitioner who, by way of business, provides the following services to other persons:
a. forming a firm (any entity that, whether or not a legal person, is not an individual and includes a body corporate and a partnership or other unincorporated associations: see Regulation 3);
b. acting, or arranging for another person to act –
(i) as a director or secretary of a company;
(ii) as a partner of a partnership; or
(iii) in a similar capacity in relation to other legal persons;
c. providing a registered office, business address, correspondence or administrative address or other related services for a company, partnership or any other legal person or legal arrangement;
d. acting, or arranging for another person to act, as –
(i) a trustee of an express trust or similar legal arrangement; or
(ii) a nominee shareholder for a person other than a company whose securities are listed on a regulated market.
Note that being instructed in relation to a trust does not in and of itself mean that you are acting as a TCSP within the meaning of the MLRs.
For all those practising on the margins of work in scope of the MLRs, you need to be alert to any emerging ancillary work that brings you within scope. For instance, if you are advising on proposed litigation in relation to a tax assessment and you are asked to provide advice in connection with the client’s tax affairs.
In navigating the MLRs and assessing their application, the Legal Sector Affinity Group (LSAG) Anti-Money Laundering Guidance for the Legal Sector 2023 (Part One) is essential reading, and in particular Part 2a of that guidance, which is specific to barristers and advocates. While barristers are not required to follow this guidance, the Bar Standards Board (BSB) says doing so will make it easier to, ‘account to regulators and others for your actions’ and that compliance with the guidance will be taken into account in their role as a MLR supervisory authority. The BSB has also said any deviation from the guidance may result in the barrister having to justify any such decision.
As outlined, the MLRs apply where a barrister, by way of business, provides legal services to other persons when participating in transactions concerning the buying and selling of real property. One grey area is that ‘real property’ is not defined in the MLRs; it is not clear if this includes all or just certain leasehold interests, for instance. Given the ramifications of getting the decision-making wrong, we suggest a cautious interpretation is wise in the circumstances, with all leasehold interests being classed ‘real property’, regardless of type or length.
Importantly, you are only considered to be participating in a transaction when assisting in the planning or execution of that transaction or otherwise acting for or on behalf of a client in the transaction.
The following principles may provide a useful starting point for barristers deciding if the real property work they undertake is in scope of the MLRs:
1. If you are (only) giving advice on a specific aspect of a transaction (and no more), even if the transaction is ongoing, this will generally be out of scope;
2. If you are advising on a dispute concerning an existing (or future) transaction, this is generally out of scope, even if the transaction is in train, as long as you do not assist in the planning or execution of the transaction itself or otherwise act for on behalf of a client in the transaction;
3. Advising on the following, where there is an existing interest, will likely be out of scope:
(a) a right of way;
(b) a restrictive covenant;
(c) the enforceability of a clause.
4. If you are giving advice on a specific aspect of a transaction and then go on to advise/assist in the transaction, for example by preparing a clause in an agreement in relation to the buying and selling of real property, this is likely to be in scope.
If you carry out work within scope of the MLRs, you must comply with the requirements as set out within those regulations, including:
The principles identified with respect to real property work above illustrate the complexity of decision making in this area; what is considered to be advising on an aspect of a transaction only, could very easily veer into participating in that same transaction. For such high-risk matters, the administrative burden of applying AML-compliant onboarding procedures from the outset might be considered advisable for the resulting security afforded when it comes to MLR compliance.
References and further information
The Legal Sector Affinity Group Anti-Money Laundering Guidance for the Legal Sector 2023 should be read in conjunction with Part 2a Specific Guidance for Barristers & Advocates. See also Bar Council guidance on Money Laundering and Terrorist Financing at barcouncilethics.co.uk and the BSB’s anti-money laundering guidance.
Are you accurately declaring whether your work is in or out of scope? Julie Norris and Charlotte Judd consider the key provisions of the MLRs and their application to ‘real property’ transactions
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