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  1. Point in time
    2005-02-14

ML 3.1 The duty

Purpose and meaning of "client"

ML 3.1.1 G

The purpose of this chapter is to ensure that relevant firms carry out the identification of clients. The chapter also makes clear that relevant firms must not, in general, carry out relevant regulated activities, or agree to do so, for a client or potential client unless the relevant firm has taken reasonable steps to check that client's identity. In this sourcebook "client" is defined differently from elsewhere in the Handbook and relevant firms should take care to ensure that they use the correct definition. There are special provisions in this chapter for cases where the person with whom the relevant firm has contact is acting for another. Broadly, the relevant firm has to enquire into the identity of both persons, unless a relevant exemption enables it to focus solely on the person it is actually in contact with.

Meaning of "transaction"

ML 3.1.2 G

"Transaction" in this sourcebook includes the giving of advice, and thus has a wide meaning throughout this sourcebook. Certain sorts of transaction are exempted from these requirements. These include cases where the transaction is of relatively small value or the person has been vouched for by another person who can be relied on to have carried out these checks himself. But the various exemptions from the requirement are all subject to the overriding condition that there is nothing in place to put the relevant firm on enquiry ("knowledge or suspicion") in the money laundering context.

Identification of the client: the duty

ML 3.1.3 R
  1. (1)

    A relevant firm must take reasonable steps to find out who its client is by obtaining sufficient evidence of the identity of any client who comes into contact with the relevant firm to be able to show that the client is who he claims to be.

  2. (2)

    If the client with whom a relevant firm has contact is, or appears to be, acting on behalf of another, the obligation in (1) is to obtain sufficient evidence of both their identities.

  3. (2A)

    If the client, or the person on whose behalf he is acting, engages in money service business and is registered with the Commissioners of the Customs and Excise, sufficient evidence of identity must include the registered number, within the meaning given by regulation 9(2) of the Money Laundering Regulations, of the client or the person on whose behalf he is acting.21

  4. (3)

    This rule is subject to the exceptions in ML 3.2.

ML 3.1.4 G

[deleted]2

Financial exclusion

ML 3.1.5 G

The guidance in ML 3.1.5 G to ML 3.1.7 G aims to help relevant firms ensure that, where people cannot reasonably be expected to produce detailed evidence of identity, they are not denied access to financial services. Although a relevant firm must always take reasonable steps to check who its client is, relevant firms will sometimes be approached by clients who are at a disadvantage, or who otherwise cannot reasonably be expected to produce detailed evidence that helps to confirm identity. An example could be where a person does not have a passport or driving licence, and whose name does not appear on utility bills.

ML 3.1.6 G

If a relevant firm has reasonable grounds to conclude that an individual client is not able to produce detailed evidence of his identity and cannot reasonably be expected to do so, the relevant firm may accept as identification evidence a letter or statement from a person in a position of responsibility who knows the client that tends to show that the client is who he says he is, and to confirm his permanent address if he has one.

ML 3.1.7 G

Examples of persons in a position of responsibility include solicitors, doctors, ministers of religion, teachers, hostel managers and social workers.

Identification of the client: timing

ML 3.1.8 R
  1. (1)

    A relevant firm must comply with the obligation in ML 3.1.3 R (1) as soon as reasonably practicable after it has contact with a client with a view to:

    1. (a)

      agreeing with the client to carry out an initial transaction; or

    2. (b)

      reaching an understanding (whether binding or not) with the client that it may carry out future transactions.

  2. (2)

    If the client does not supply evidence of identity within the time scale in (1), the relevant firm must:

    1. (a)

      discontinue any regulated activity it is conducting for him; and

    2. (b)

      bring to an end any understanding it has reached with him;

    unless in either case the relevant firm has informed the National Criminal Intelligence Service (NCIS).

ML 3.1.9 R

Nothing in ML 3.1.8 R (2) requires a relevant firm to continue with a transaction which conflicts with its obligations, if any, in relation to rights of a third party.

ML 3.2 The exceptions

ML 3.2.1 R
  1. (1)

    This section sets out circumstances in which:

    1. (a)

      the duty in ML 3.1.3 R (1) (Identification of the client: the duty) need not be complied with; or

    2. (b)

      the relevant firm is required to take reasonable steps to establish the identity of a person for whom the client is acting.

  2. (1A)

    None of the rules in this section applies if the relevant firm:

    1. (a)

      knows or suspects; or

    2. (b)

      has reasonable grounds to know or suspect;

    in accordance with (2) that the client or the person on whose behalf he is or appears to be acting is engaged in money laundering.

  3. (2)

    The relevant firm will be taken to know or suspect or to have reasonable grounds to know or suspect as set out in (1A) if any member of the staff handling the transaction or potential transaction or managerially responsible for it knows or suspects or has reasonable grounds to know or suspect.1

When the duty to identify does not apply

ML 3.2.2 R

The duty in ML 3.1.3 R (1) (Identification of the client: the duty) does not apply if:

  1. (1)

    the client is also:

    1. (a)

      a credit institution or financial institution covered by the Money Laundering Directive; or

    2. (b)

      an authorised professional firm; or

    3. (c)

      is regulated by an overseas regulatory authority (see ML 3.2.7 R) and is based or incorporated in a country (other than an EEA State) whose law contains comparable provisions to those contained in the Money Laundering Directive; or2

  2. (2)

    the transaction is:

    1. (a)

      a one-off transaction with a value of less than euro 15,000; or

    2. (b)

      is one of a number of transactions which are related and, when taken together, have a value of less than euro 15,000; or

  3. (3)

    with a view to carrying out a one-off transaction, the client (other than a money service operator) is introduced to the relevant firm by a person who has given the relevant firm a written assurance that in all such cases he obtains and records identification evidence, and:

    1. (a)

      the person who has given the written assurance is a credit institution or financial institution covered by the Money Laundering Directive, or an authorised professional firm, or an entity undertaking comparable activities in an EEA State; or

    2. (b)

      the person is regulated by an overseas regulatory authority (see ML 3.2.7 R) and is based or incorporated in a country (other than an EEA State) whose law contains comparable provisions to those contained in the Money Laundering Directive; or1

  4. (4)

    the proceeds of a one-off transaction;

    1. (a)

      are to be payable to the client but are then to be invested on his behalf;

    2. (b)

      are to be the subject of a record; and

    3. (c)

      can thereafter only be reinvested on his behalf or paid directly to him; or

  5. (5)

    when the transaction concerns a long-term insurance contract:

    1. (a)

      taken out in connection with a pension scheme relating to the client's employment or occupation, if the policy contains no surrender clause and cannot be used as security for a loan; or

    2. (b)

      where the premium is a single payment of no more than euro 2,500; or

    3. (c)

      where the premium payments do not exceed euro 1,000 in any calendar year.

ML 3.2.3 G

A relevant firm is expected to take reasonable steps to determine whether or not the client falls within the exceptions in ML 3.2.2 R (1) and ML 3.2.2 R (3)(b).

ML 3.2.4 R

[deleted]2

Where the client is acting for another person

ML 3.2.5 R

Where the client acts, or appears to act, other than in the circumstances covered by ML 3.2.2 R (1) and ML 3.2.2 R (3) for another person, the relevant firm must take reasonable steps for the purpose of establishing the identity of that person.21

ML 3.2.6 G

[deleted]2

Relevant overseas regulatory authorities

ML 3.2.7 R

An overseas regulatory authority is relevant for the purposes of ML 3.2.2 R (3)(b) and ML 3.2.5 R if it falls within section 82 of the Companies Act 1989 (Request for assistance by overseas regulatory authority), in so far as it exercises the kind of regulatory functions described in that section.