AML insolvency Q&A
By Steven Wood, Practice Support Specialist (Insolvency)
1 June 2023
With the importance of Money Laundering and Terrorist Financing (MLTF) growing every year, insolvency practitioners (IPs) have an important role to play in ensuring their services are not used to further or assist a criminal purpose.
In order to aid our IPs in fulfilling their obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), we have set out a series of questions and answers covering some of the recurring AML-related queries we have received from our IP community.
Full guidance for IPs is available in the CCAB Anti-Money Laundering and Counter-Terrorist Financing Guidance for the Accountancy Sector (CCAB guidance) and in particular Appendix F – Supplementary Anti Money Laundering Guidance for Insolvency Practitioners.
Q. At what point should I carry out Customer Due Diligence (‘CDD’)?
A. Per Regulation 30 of the MLRs, CDD should be undertaken before the establishment of a business relationship or the carrying out of a transaction. IPs should conduct CDD prior to consenting to act on an insolvency appointment.
On the rare occasion it is not possible to complete the CDD procedures before taking office, IPs should gather sufficient information to allow them to form a general understanding of the identity of the debtor, company officers or beneficial owners of the entity, including information about what the business did and where it traded, in order that the risk can be assessed before completion of full CDD procedures.
IPs should then complete their CDD procedures as soon as is practicable on appointment (within five working days is considered the maximum reasonable period).
More detailed guidance is available in paragraphs F3.1 to F3.7 of the CCAB guidance.
Q. What about a Court appointment or appointment by the Accountant in Bankruptcy? Can I rely on the order of appointment?
A. Some reliance can be placed on the court order or the award of bankruptcy to evidence the identity of the insolvent as part of risk-based CDD procedures.
However, any such reliance does not remove the need to consider the identity of the beneficial ownership of the entity or remove the need to consider whether money laundering activity may have taken place. The IP will also need to consider the potential risks that may arise throughout the course of the appointment. Other information will still need to be obtained to assess those risks properly.
More detailed guidance is available in paragraphs F3.8 to F3.9 of the CCAB guidance.
Q. Do I need to undertake CDD on recipients of dividends/distributions?
A. A dividend or distribution payment does not form a business relationship, so CDD is not usually required.
However, a risk-based approach should be considered and the list produced by the Office of Financial Sanctions Implementation should be checked to ensure payments are not made to parties subject to sanctions.
More detailed guidance is available in paragraph F3.20 of the CCAB guidance.
Q. Is CDD required on the purchasers of an insolvent entity’s assets?
A. In insolvency appointments where the IP becomes vested of the assets of the debtor, (bankruptcy in England & Wales and Northern Ireland and sequestration and trust deeds in Scotland), asset sales are conducted by the IP as principal. In such cases, the IP, being themselves a relevant person within the regulated sector, should apply the occasional transaction provisions and conduct CDD on the purchasers of assets for transactions amounting to 15,000 euros or more, whether as a single transaction or a series of linked ones.
When appointed as a liquidator, administrator, administrative or other receiver, or supervisor of an Individual Voluntary Arrangement (IVA) or Creditors Voluntary Arrangement (CVA), an IP’s business relationship is with the debtor or the entity over which they have been appointed, not with the purchasers of their assets. In such cases, CDD is not required to be undertaken on the purchasers of assets.
Where required the IP may authorise an agent to carry out CDD on their behalf, although the IP will remain fully responsible for compliance with the CDD requirements. Any authorisation or arrangements with agents to complete CDD on behalf of the IP should be documented in writing.
More detailed guidance is available in paragraphs F3.15 to F3.18 of the CCAB guidance.
Q. Is there a difference between appointments over unregulated and regulated entities?
A. Where an IP is appointed over an unregulated entity, the nature of the business of the debtor or entity does not change with the appointment of an IP. Therefore, if the insolvent entity was not within the regulated sector prior to the appointment, it would not become a regulated entity simply by virtue of an IP being appointed. An IP should however consider and keep under review whether the insolvent entity trades in goods by way of business such that it could become a High Value Dealer (HVD) as a result of undertaking cash transactions over 10,000 euros thereby requiring supervision by HMRC.
Where an IP is appointed over an entity in the regulated sector then that entity remains subject to the AML regime. The entity’s supervisor should be informed of the appointment and the requirement for the regulated entity to have in place and operate its own MLTF systems and controls remains unchanged. If the insolvent entity is required to make a Suspicious Activity Report during the course of the IPs appointment, then the IP should also report the suspicion through their own MLRO.
More detailed guidance is available in section F4 and paragraph F5.11 of the CCAB guidance.
Q. Is ongoing monitoring of business relationships required in insolvency cases?
A. In a formal insolvency where trading has ceased, it is likely that ongoing CDD may only be required in cases where the office holder becomes aware of suspicious activity or is concerned about the veracity of previous CDD information.
Where trading is continuing under the control of the IP, ongoing CDD should be undertaken to the extent dictated by the risk level identified. Additional CDD will also be required where the IP becomes aware that the previous CDD information was incorrect or is no longer up to date.
More detailed guidance is available in paragraphs F3.12 to F3.14 of the CCAB guidance.
Q. Is CDD required when I am appointed as a Court Reporter?
A. Where a court reporter assignment is undertaken by an accountant or IP then this is regulated activity under the MLRs. We consider that the Court is the client in a court reporter assignment and there should be an appropriate assessment of risk which will also include the nature of the appointment and the IP. The risk assessment should be documented and CDD carried out in accordance with your firm’s MLTF policies and procedures. We would not necessarily anticipate that detailed identification checks be carried out on the IP given that they are separately a regulated individual for AML purposes. Ordinarily, referencing to the Insolvency Service’s Register of Insolvency Practitioners or the IP’s RPB membership register will be sufficient. It is also not necessarily a requirement to carry out such checks on each individual assignment where a court reporter is frequently appointed to report on cases involving the same IP. In such circumstances, an initial identification check, refreshed periodically and held centrally may be sufficient as long as this is cross-referenced on the risk assessment and CDD for each assignment.
Q. Do I need the written consent of an individual prior to carrying out an ID check via an electronic source?
A. Where an electronic source is used to verify an individual’s identity, the check will leave a footprint on the individual’s credit file. This is not the same as a credit check footprint and has no negative impact on the credit file. The check will simply be shown as an 'identity search', which is effectively a light footprint, showing that an anti-money laundering search has taken place.
An individual’s permission is not required to carry out the check, but they must be informed that the check is to take place.
Resources:
CCAB Anti-Money Laundering and Counter-Terrorist Financing Guidance for the Accountancy Sector 2022
ICAS Anti-Money Laundering Supervision 1 April 2021 to 5 April 2022
