Money Laundering ID Check

What the ML Regs require in relation to initial ID verification

The ML Regs require that you carry out Client Due Diligence (CDD). See Regs 5 & 6 in particular.

That is an ongoing process throughout your relationship with the client (see Reg 8) - but an important part of it is the initial verification of the client's identity.

You do need to form an initial view as to the money laundering risk associated with this client and the work you are being asked to do. The following notes are for engagements which you assess to present a normal ML risk. If the client / work is higher risk then you will need to do more initial CDD.

The client here is the trading subsidiary. So initially you need to ID the company and doing a search at Companies House to confirm the company's name, number and registered office address is a good start. You will also obtain details from that search of the names of the directors and (very probably) confirmation of share ownership as at the date of the last Annual Return. If the company has actually been dissolved without the directors realising (which is not unheard of) or is in an insolvency procedure you will find that too.

You can do all this online and the cost is peanuts. Retain the info (either electronically or print it off) as evidence of your ID check.

The point about the Directors is that when someone turns up at your office saying "I am Fred Smith and I am a director of Trading Ltd" you will have confirmed that Fred Smith is a director of the company before discussing the affairs of Trading Ltd with him.

OK so far?

You also need to satisfy yourself that you know who the beneficial owners are. Reg 6 defines 'beneficial owner' (at some length) and it includes anyone owning more than 25% of the shares in a company.

So the beneficial owners of the trading subsidiary are the Investment Subsidiary and its owner the PLC.

In this case (if all these are UK based) I would simply do a Companies House search on the Investment Subsidiary and the PLC.

If the PLC is a quoted company then you can readily confirm that online.

I assume there are no 'beneficial owners' of the PLC. But if there are (i.e. holders of more than 25% of the shares in the PLC) then you need to know about them.

What if it is 'higher risk' for ML?

In that case I would ask for personal ID from a couple of key directors and anything further you think appropriate depending on what particular ML risk you are seeking to address.

In fact many firms will routinely ask for personal ID from a couple of key directors of limited company clients (and I have nothing against that at all) - and of course you have to do this if the individuals concerned are themselves your clients in a personal capacity.

In any event, retain the ID information you obtain.

If the information becomes out of date or circumstances change, then update the ID information (which may involve doing further searches etc).

Of course, as auditors of the company you will also need to gather a lot of information about what the company does, its management structure, etc etc. This will also inform your judgement of the ML risk during the life of your business relationship with the client. If you perceive an ML problem at some time in the future you can properly apply all your knowledge about the client to addressing questions such as, 'Do I need to make a report to the firm's MLRO about such-and-such'.

We now have a 'Money laundering and crime' discussion group on this site. Come and join us!

David Winch

Thank You

David, thank you for your very comprehensive reply