Although the UK regulatory bodies, including Companies House, have tightened their compliance requirements, solicitors are under obligation to comply with AML regulations and required to undertake their own AML checks to prevent financial crimes. This applies to all Clients (new or long-standing/existing). Solicitors cannot assume that the Company’s legal structure or business activity etc. has not changed since the last time they acted for the Company. Therefore, your solicitor will have to redo or update the checks and monitor the risk every time they undertake a new matter for that client. As Companies are non-natural entities, this process can be prolonged and more complex than checks carried out on a private Client (individual).

In order to eliminate any risk and ensure compliance, your solicitor may take the following steps:

STEP 1: Identify and verify the Company information

The main source of information is Companies House and information provided by the Client Company. Additionally, your solicitor may order a Company’s report via an online provider.  Aside from the obvious information such as the Company legal name, Company registration number, registered office, date of incorporation, your solicitor would need to know what the Company business activity is and what sector the Company is involved in. If the Company was not incorporated in the UK, enhanced due diligence would have to be undertaken by your solicitor and if there is a language barrier, your solicitor may not be able to act for the Company. This list is not exclusive.

STEP 2: Understand the Company ownership structure

It is crucial for your solicitor to understand the Company ownership structure and who controls the Company i.e. who is a Director(s), Shareholder(s), Person with significant control (‘PSC’) and, if applicable, any other members/entities. If the Company is set up, run and owned (controlled) by one-person, due diligence may be simpler and your solicitor can take instructions from that person. 

Otherwise, the Company’s Resolution is necessary to approve any property transaction. Your solicitor would need to establish who is to be appointed by the Company to deal with the transaction and sign all legal documents. To speed the process, the Company may wish to issue their Resolution on the headed paper at the outset of the transaction confirming their instructions to their solicitor.

STEP 3: Who owns what? Identify Beneficial Owners of the Company/chain of ownership

If there is more than one person who runs and owns the Company, your solicitor needs to understand the relationship between the members/entities of the Company and establish any Beneficial Owners of the Company.

Under regulation 5 of the Money Laundering Regulations 2017, a “Beneficial Owner” is:

• Any individual who exercises ultimate control over the management of the body corporate;
• Any individual who ultimately owns or controls (in each case whether directly or indirectly) more than 25% of the shares or voting rights in the body corporate; or
• Any individual who controls the body corporate.

If the Company is an overseas Company, 25% plus threshold may vary as it is based on jurisdiction (sometimes as low as 10% or even 5%).  

STEP 4: Identify any Ultimate Beneficial Owners of the Company

An Ultimate Beneficial Owner can be an individual who ultimately owns or controls a Company even if they are not the formal owners and their name may not appear on official documents. Solicitors must establish who the real natural person behind the transaction is.

In many cases a PSC and an Ultimate Beneficial Owner are the same person, but this is not always the case.

Ultimate Beneficial Owners may hold shares through nominee entities. A nominee entity would be a person or organisation that holds assets on behalf of another party. This can be done for safety reasons, but it needs to be disclosed to your solicitor. Companies House list the nominees as registered Shareholders with no indication that they are nominees (share certificates are issued in the nominees’ names).

An example of an Ultimate Beneficial Owner would be an individual who controls a trust when the shares are held by a trust in the UK, the trustees will be shown as Shareholders. Their relationship is defined by a declaration of trust which is not available to the public. If the Company’s owner is acting as a trustee, your solicitor may need to request information about the trust. The beneficiaries are currently not allowed on the UK public register unless they are PSC or registrable Beneficial Owners owned by a trust on the Register of Overseas Entities (ROE).

Solicitors need to trace ownership back to any Ultimate Beneficial Owner of the entity who is a natural person. Supplying your solicitors with this information at the outset of the matter will speed the process.

STEP 5: Conduct AML/Know Your Client checks on the identified Beneficial Owners/Ultimate Beneficial Owners

Beneficial Owners can pose different levels of risk. Those classed as being in low risk may only require a relatively straightforward check using ID to determine who they are and their role in the Company. But those considered to be high-risk may require enhanced due diligence. When the Client Company is buying a property, your solicitor needs to understand source of funds of the Company and will require evidence/proof of funds.

There are other aspects that your solicitor may need to consider when carrying out AML checks for instant risks associated not only with the Client Company but the transaction itself. Your solicitor needs to assess the nature of the transaction, whether the transaction is consistent with the Company’s profile and financial position, geographical location. Cryptocurrency transactions are increasingly monitored under AML frameworks.  

AML checks are part of real estate transactions and cannot be omitted. Incomplete or inaccurate information provided by the Client Company or disclosed at Companies House may hinder enhanced due diligence and delay the transaction. At John Hodge Solicitors we will assist you with these complicated procedures and ensure that you understand what information is required at the outset of the transaction.

Next Steps: Get in touch

If you would like to discuss your Conveyancing matter then please don’t hesitate to reach out to our team of legal experts at John Hodge Solicitors, conveniently located throughout the South West, with offices in Bridgwater, Bristol, Clevedon, Wedmore, Weston-super-Mare and Yatton.

You can contact us either:

• by email
• via our website
• by calling us on 0800 097 8611