There have always been risks attached to practising law, but as legal services have evolved and where many law firms are now large, global practices, they face the same concerns as other multinational corporations including the challenge of dealing with anti-money laundering and the effects of sanctions. Although large law firms are most at risk by the nature of their global client base, both these issues apply equally to all law firms.

There is a distinction between the two regimes. The sanctions regime prevents the use of financial resources by or for the benefit of a designated person, entity or regime; it is irrelevant that the funds and purpose of the transaction are legal.

The anti-money laundering (AML) regime is aimed at disrupting the flow of the proceeds of crime. AML requirements should be familiar to most law firms but according to a survey carried out by the Law Society, 48 per cent of respondents said that they did not check their clients against sanctions lists. Having AML procedures in place is not enough to ensure compliance with the sanctions regime and politically exposed persons (PEPs) under the AML regime should not be confused with targets under the sanctions regime; PEPs are not necessarily subject to financial sanctions.

This article concentrates on sanctions, summarising the requirements and pointing to the resources that are freely available to help minimise the associated risks.

Types of sanctions

There are various different types of sanctions ranging from comprehensive economic and trade sanctions to more targeted measures such as arms embargoes, travel bans, or financial or diplomatic restrictions. There are however two main types of sanctions: UK financial sanctions which extend to all individuals and entities subject to UK jurisdiction and which are also known as “asset freezing” regulated by HM Treasury, and trade sanctions, administered by the Department for Business, Innovation and Skills (BIS) which mainly affect importers and exporters in international trade. The latter obviously apply to those lawyers who have international clients doing trade around the world and more information can be found out about these at www.gov.uk/sanctions-embargoes-and-restrictions.

For international trade deals you should also note that there are potential provisions in the OFAC sanctions regime of which you should also be aware (see http://sdnsearch.ofac.treas.gov).

Financial sanctions can include the prohibition of fund transfers to certain countries, individual or entities. Concerns focus around property and financial assets of any kind including deposits, balances on account, letters of credit, bills of lading, performance bonds, conveyancing retainers or indeed any transaction that results in financial benefit.

Financial sanctions in force in the UK apply to individuals, entities and governments, who may be resident in the UK or abroad. They are used to combat terrorism and their aim is to prevent targeted individuals or entities from dealing with their funds and accessing financial services. They are backed by civil and criminal penalties and Parliament has specifically included lawyers within the group of professionals required to take steps to prevent money launderers and terrorist financiers making use of their services. Compliance is not always straightforward and nor is knowing where to go to ensure that you are following the latest sanction information.

Implementation

The international sanctions regime is implemented in the UK through the Terrorist Asset-Freezing etc Act 2010, the Terrorism Act 2000 and various statutory instruments and EU regulations. The latter are published in the Official Journal. EU law takes precedence over existing UK law, which must be amended if it is found to conflict with EU law. In most cases a statutory instrument is effected in the UK to introduce the measures ahead of the EU adopting a regulation introducing the measures into EU law. If UN imposed measures are given effect by an EU regulation, a statutory instrument would still be required to introduce any penalties resulting from a breach of the regulation.

Checking individual clients

You should apply a risk based approach to checking your clients against the sanctions lists. You can check directly against the publicly available lists listed below or through those lists that are commercially available. You should also be able to ascertain whether key beneficial owners or the intended recipient of funds from a transaction you are undertaking are subject to the restrictions.

Obtaining a licence

You must not proceed with a transaction where a client or the intended recipient of funds from the transaction is identified as a designated person without a licence from the HM Treasury Asset Freezing Unit although you can of course choose to decline instructions from that client.

You must:

• suspend the transaction pending the advice from the Asset Freezing Unit,
• contact the Asset Freezing Unit to seek a licence to deal with the funds, and
• consider whether you have a suspicion of money laundering or terrorist financing which requires a report to the National Crime Agency (NCA).

You must not:

• return funds to the designated person without the approval of the Asset Freezing Unit or NCA.

The Asset Freezing Unit has the power to grant licences exempting certain transactions from the financial restrictions. Requests are considered on a case-by-case basis, to ensure that there is no risk of funds being diverted to terrorism.

For more information on the Asset Freezing Unit and obtaining a licence see the HM Treasury website at www.gov.uk/sanctions-embargoes-and-restrictions.

There are UK nationals on the list, so you may still be at risk even if you only act for local clients. The regimes list is a useful indicator in assessing risk, but it is only effective where it is apparent in the retainer that a person or entity may have some connection to the relevant regime. Due to the width of prohibited activities, it is often difficult to exclude types of retainers from the risk assessment.

Resources

Here is a useful list of sources to check when looking for information on sanctions:

HM Treasury

HM Treasury maintains a consolidated list of targets that are subject to financial sanctions that are effective in the UK. This includes all persons and entities designated as targets by the UN, EU and UK.

• Financial sanctions – consolidated list of targets. There is a choice of document format. This is the main page on financial sanctions.
• Consolidated list of financial sanctions target lists. This is searchable PDF Document.
• Financial sanctions: regime-specific lists and releases. A document series that contains details of all regimes currently subject to financial sanctions.

The consolidated list is updated on the same day as a sanction is added, deleted or amended. At present firms need to check the consolidated list of financial targets and the country/regime specific list. The Treasury does not have a web-based consolidated list search engine so firms must search the lists manually.

Contact the Financial Sanctions Unit at 020 7270 5454 for further information.

EU

• EU sanctions (via EEAS): Financial Sanctions in Force – Electronic list. Click on the current list view, which can take a while to load. It is searchable but using CTRL+F is probably easier. An RSS feed is available for the latest updates.
• Sanction information can also be found via Eur-Lex; find the appropriate Council Decision/Regulation on financial sanctions imposed on a country.

US

• US Treasury Sanctions page (OFAC). RSS feed available for updates.
• US Treasury: sanctions programs and country information.

The Law Society

See the Law Society guidance.

Loyita Worley is Director of Library Operations at Reed Smith LLP. She has worked in legal information, chairing and presenting at conferences and writing. She most recently edited the 2nd edition of the BIALL Handbook of Legal Information Management published in 2014.

Email lworley@reedsmith.com. Twitter @lmm10.