Know Your Client - Long Distance

Know Your Client - Long Distance

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I know that most of you have this cracked but I provide business coaching and consultancy services and I have always been able to see all the original documents so that I meet my requirememts under the ICAEW rules.

I have now started a offfering a six week telephone based marketing coaching program and I am having enquiries from around the UK.

The nature of the assignment means that I won't be meeting them so I am looking for other ways to achieve the Know Your Client requirements.
Paul Simister

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David Winch
By David Winch
04th Jul 2008 17:35

Very similar ideas

Steve

I think we have very similar ideas here. We are saying the approach will vary depending upon the circumstances. I do deal with some firms for whom it is fairly routine to have a client transferring millions of pounds between a Caribbean tax haven and an African country. They absolutely have to be on their toes in relation to PEPs and other money laundering issues around bribery and corruption (amongst other things).

Take a couple of more mundane examples though.

An accountancy firm in, say, Otley in Yorkshire has two clients. One is a local bricklayer about whom everything suggests that he has lived and worked locally all his life. Another is a Turkish national running a local fast food takeaway.

In terms of PEP these two present quite a different profile. No-one (I hope) would suggest that an online check of a PEP database needs to be made annually in the case of the bricklayer. On the other hand, the Turkish client is considerably more likely to be a PEP.

In terms of general money laundering risk these two again have different profiles.

The bricklayer represents a risk of tax evasion primarily. The Turkish client is more likely than the bricklayer to be connected to illegal drugs and so one would be alert to excessive income appearing from his business. (It is believed that as much as 80% of illegal heroin entering the UK passes through Turkey.)

In both cases one would be concerned about unexplained wealth.

In other words, think about the risks in relation to each client and address them.

David

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By AnonymousUser
03rd Jul 2008 16:46

Thanks Stephen and David
for your clarification.

I assume that one checks for PEP on a risk sensitive basis, i.e. if there is every indication that someone is an 'average joe' with nothing to do with the political world, a risk sensitive approach would suggest that no PEP search is required. This was one of the areas the AMLSearch chap mentioned, and that I absolutely had to check everyone every year for it.

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By steveoneill
04th Jul 2008 14:47

Sorry for being picky
David

I am going to agree on one hand and disagree on another. This is an area which is widely misunderstood in the accountancy sector. We are just as much at risk from PEP’s as any other sector. In most cases this silly idea, which is unique to the accountancy sector, of asking clients whether they are a PEP, is an absolute waste of time.

The nature and scope of a particular firm’s business will generally determine whether the existence of PEP’s in their customer base is an issue for the firm, and whether or not the firm needs to screen all customers for this purpose. So for example an accountancy firm, like the one my offices are next to, whose client base in predominately high net worth individuals, operating various entities, covering audit, tax planning, forensic and insolvency take the view that all clients should be screened, and yes we get report matches occasionally. Smaller firms who do say the average sole trader and smaller business will not have the need to screen all clients. However it is appropriate that their resources were focused on products or transactions that are characterised by a high risk of money laundering such as significant cash businesses. But once you are in that regime with your client you must apply your ongoing monitoring requirements according to the risk you have assessed. However this is where it gets trickier, it does not mean we must rush to an electronic database, but rather “make enquiries ‘of’ (not with) the client, including our ongoing basis of monitoring”. Therefore in a lower risk in the higher risk category internet searches or relevant published reports may suffice, if you need to enquire further or there is a high likelihood of firms having PEP’s as customers then PEP databases may be the only way of mitigating the risk.

Information which is in our procession (asking the client!) or publicly known can only be used when ascertaining whether someone is a known close associate.

So as regard to ongoing monitoring of a client that is in that potential higher risk category if you are a smaller firm then the firm should have regard for public information therefore on your annual review of your risk assessment or when changes in circumstances dictate, do a couple of relevant internet searches on the client make a note and have done.

So in some ways I agree with you, that risk from PEP’s to many accountancy firms will be down to the high risk assessed clients only, forget the others, do not waste your time, however where you have that higher risk client internet searches rather than asking the client is the way. However many accountancy firms should adopt full screening services for all or most of their clients.

Steve O’Neill

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By AnonymousUser
04th Jul 2008 10:41

Thank you David.
I, and I am sure many others on here, sincerely appreciate your taking the time to share your expertise with us.

Have a great weekend
FG :)

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David Winch
By David Winch
03rd Jul 2008 19:17

PEPs

I think one has to see the requirements in relation to PEPs in context (bearing in mind the definition of a PEP). That includes bearing in mind the broad span of businesses (including banks, money transmitters, bureau de change, etc) for whom the MLR were written.

The vast majority of UK accountancy firms will never ever act for a PEP. There should not be a need for an unwieldy and expensive system for dealing with an issue that, in all probability, will never arise.

One method of ascertaining whether a client is a PEP is simply to ask the client if they have any connection personally, or through close family or close business connections, with an overseas government or national or international body (such as the United Nations or EU Commission). If the answer is "No" make a note of that and move on.

I really cannot see that for the 'average Joe' there is any need to do more than that to cover the PEP point unless information comes to you suggesting there has been a relevant change in relation to that client.

Obviously if Joe's son marries Hillary Clinton's daughter then that is a relevant change (Hillary being a member of the US Senate). It won't happen a lot!

Don't forget that these PEP rules were brought in to tackle massive corruption / theft of public monies overseas. We are talking, for example, about people taking and hiding massive bribes in relation to the award of arms contracts or oil exploration licences. So we are (in relation to PEPs) thinking in terms of one million pounds and upwards, in my view.

If you spot 'average Joe' having in excess of one million pounds going into his bank account I think (in the case of the vast majority of accountancy firms) that will be sufficiently unusual to trigger some thoughts of money laundering whether or not you have identified Joe as a PEP.

OK there may a risk that on a strict reading of the MLR you have not complied with the letter of the law and maybe failed to recognise that Joe became a PEP somewhere down the line and his file should have been treated differently. But if you have spotted the underlying ML issue and acted appropriately on that I really do not think there is a problem.

David

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By steveoneill
03rd Jul 2008 13:17

PEP's/Sanction alerts are the cause of this confusion
Regulation 14(4),(5),(6) A PEP is defined as "an individual who is or has any time in the preceeding year etc"

The JMLSG in 5.5.29 for ongoing monitoring states "Firms should remember that new and existing customers may not initially meet the definition of a PEP, but may subsequently become one during the course of a business relationship, Firms should be alert as far as practicable relating to possible changes in the status of its customers with regard to political exposure."

So with ongoing monitoring being able to demonstrate PEP compliance to a supervisor does mean you have annually checked for "any time in the preceeding year." according to your risk policy.

FSA regulated firms run all clients through screening processes every 12 months, and higher risk clients every month. The accountancy sector has not got to grips with this ever moving target of PEP's and sanction listings. In discussions I have been a party to, the CCAB point of view should be that this ongoing monitoring of clients should be of "a manual nature", whatever that means.

We are looking, inconjuction with CallCredit at an annual service of reverifying clients including screening services at around 85p per client per year.

For the smaller user for new clients we offer a pay as you go basis for CallML reports where we produce the reports, resolve any queries with the help line staff and offer AML advice on the verification and get it to you in PDF format for £9.95 per report., so a complete service. The CallML report can verify all passports, driving licenses and major banks statements such as currect accounts, credit cards, mortgages etc.

Steve O'Neill
Business Tax Centre Ltd

http://www.btc-nw.co.uk

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David Winch
By David Winch
03rd Jul 2008 12:12

Checking ID every year

I have to say that I do not think it is necessary to re-confirm the ID of a client simply because 12 months (or more) have passed and you are picking up the file again.

I do think you have an ongoing responsibility to be alert to any changes or developments relating to your business relationship with the client. It may be that something has happened which will cause you to want to re-confirm ID (for example, where you are notified of a new and different address for the client you will want to ensure that the notification is genuine and that MIGHT involve a fresh online ID check).

But it is, in my view, something to consider on a risk-sensitive basis.

David

P.S. If you want to post a link on AWEB the easiest way is simply to put the http:// before the www bit. That way AWEB will miraculously recognise it as a link when the post has been submitted! Example http://www.mlrosupport.co.uk. If you want you can then edit your previously submitted post to delete the http:// where it appears - you will see it now appears TWICE, you should delete the SECOND appearance. Then you will get www.mlrosupport.co.uk

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By AnonymousUser
03rd Jul 2008 11:28

Steven
It's www.amlsearch.co.uk

My html knowledge is on holiday so you'll have to cut and paste, sorry! :)

Edit: It's also linked properly in David's post a couple below mine.

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By AnonymousUser
03rd Jul 2008 11:24

Who do you use Faerie girl?
Could you give a link please?

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By AnonymousUser
03rd Jul 2008 11:06

AML Search
If I have to ID a client whom I have not met, I use AML Search. £5.88 (inc VAT) per person. Instant result.

However I was advised by their customer service rep that I am obliged to do an electronic search for every client, every year I do their accounts, even if I meet them in person and get satisfactory ID at the time. This is in direct contradiction to the advice from the barrister at the AAT who is working on their new AML policy, who said that was not the case at all, it is risk based, and electronic searching is only necessary if that is the way your risk sensitive approach takes you.

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David Winch
By David Winch
03rd Jul 2008 11:04

PAS advice

Paul

I think that for 99.99% of practices the advice which you received (to cover every client) would be good advice. I give much the same advice to solicitors although a lot of the time the work that solicitors do for their clients falls outside the regulated sector.

However I think your activities might put you in the 0.01% of accountancy firms for whom it would be sensible not to do CDD on every client. The reason is that the customers of your coaching services are not, in any real sense, clients of your accountancy practice.

Is it likely that you will be asked to provide accountancy / tax / audit / insolvency advice to any of these customers, or is this an entirely separate activity of yours in reality?

David

P.S. You could also check out AML Search www.amlsearch.co.uk

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By netaccounting
03rd Jul 2008 10:57

online verification
Paul
we use a company called Veriphy as they were very reasonable for small volumes, but I was also very impressed with equifax and they probably would have been my first choice but they were not as cost effective for the smaller volumes we put through.
Both have good websites that explain the services and if you call equifax they can log you in remotely and "walk" you through their service.
Hope this helps.
Christine

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By AnonymousUser
03rd Jul 2008 10:37

Thanks for the information
David and Christine

Thanks for such quick answers.

I discussed this issue when I had my practice assurance visit from the ICAEW last year and the advice I received was that it would be best practice to do it for every client.

That hasn't been a problem when I have acquired new local business coaching clients since it is a simple procedure and I do visit their premises at least once.

I can see shades of grey on this and the next step is to turn it into a small group training seminar which is even further from the "accountancy" concept.

Christine, which online service do you use? I have received emails and mailshots from various people but I don't know the good from the bad?

Paul

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David Winch
By David Winch
03rd Jul 2008 10:04

Do the MLR apply?

Paul

You will be subject to the Money Laundering Regulations 2007 when you are engaged in an activity which falls within the 'regulated sector' (as defined in the MLR).

Have a look at Reg 3, especially 3(1) and 3(7).

I cannot see that marketing coaching is an activity which falls within the 'regulated sector'. On that basis the MLR do not apply to it and there is no statutory requirement to carry out customer due diligence (such as confirming ID) in connection with this activity.

David

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By netaccounting
03rd Jul 2008 09:49

On line verification
We use an electronic verification method using one of the companies who check all the databases that comply with MLR. It's not particularly expensive and you have an answer in seconds. We have had some minor issues using this where we have had to return to clients for more information but on the whole it works well.

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