Gifts Donors and Anti Money Laundering

The rise in gifted deposits has without doubt created further work for conveyancers.  Not only is there a need to check the nature of the contribution and to take steps to ensure a lender is aware of the gift, a conveyancer is also  obliged to consider exposure to liability under the anti money laundering legalisation.    

On the face of it the donor of the gift is not a client, there is no retainer. This raises the question of whether the legislation can be said to impose an obligation.  Interesting the Legal Sector Affinity Group Anti-Money Laundering Guidance for the Legal Sector ( March 2018) contains no reference whatsoever to the donation of gifts and of any requirements in relation to the donation of funds towards the purchase of a property. 

The customer due diligence (‘CDD’) obligation clearly only relates to a person who retains a conveyancer to undertake a service which is regulated under the The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 ( ‘Regulations’).  Strictly speaking a donor is not a client, and would not on the face of it be covered by Regulation 27 of the Regulations, that requires CDD to be applied when establishing a business relationship. Logically this must be correct,  The Donor has no direct relationship with the conveyancer, there is no retainer to provide a service, and the only connection is the existence of a relationship between the client and the donor.  

In fact, there is a duty on the conveyancer to advise the donor to seek independent legal advice before gifting the funds.  Clearly, if independent advice is sought the legal advisor would need to carry out CDD on the donor before providing that advice.  The same would apply if the contributor was looking to acquire a beneficial interest in the property to be purchased and sought separate legal advice for that purpose. 

So the starting point is there is no obligation on a conveyancer to undertake CDD on a donor unless with reference to Regulation 27 there is a suspicion of money laundering or terrorism funding.   

It could also be argued that if the donor is to send the funds directly into the conveyancer’s client account and the amount is £15,000 or over that this could be viewed as an ‘occasional transaction’, in which event there would be a need to undertake CDD on the donor. 

The more tricky question is whether there is a need to undertake a source of fund and wealth check on the donor where no suspicion of money laundering exists.  There is clearly an obligation to make checks on the funds to be used by a client to purchase a property as well as on the general wealth of the client.  But the question is does that obligation extend to checking where the donor has acquired the funds and  whether the amount of funds made available fits with the profile of the donor?  Again, the Guidance is not very helpful and has little if anything on what checks should be made. 

If a client says funds are coming from Granny then clearly there is a need for the client to produce evidence that is so, and to see a bank statements showing the money leaving Granny’s account and being credited to the clients account.  

If the funds are to be paid directly into the client account then there would be a need to make sure the source of those funds is checked and verified.   I mention that CDD would also need to be performed.    

The Guidance makes reference to ‘Know Your Client’ and of the need to capture information which will allow a conveyancer to create a profile of the client to assess the whether there is a fit between this and the nature and size of the transaction.  The difficulty with a donor is that as he or she is not your client it might be difficult without asking the right questions to carry out this assessment.  There are also data protection to consider and the related practical difficulties  in relation to privacy notices. 

There are some interesting academic questions surrounding the application of the Regulations  in relation to gift donations and the answer may be that conveyancers should be insisting that a donor instructs an independent advisor and requests that adviser to confirm that all CDD and AML checks have been undertaken.   

In the absence of that step, it seems the safest solution would be to always carry out CDD on donors as well as checks on the source of funds and wealth.  We treat a donor in the same way as the client and have  created a ‘pack’ which we send the donor to provide a privacy statement, to explain what is required, and to obtain the information we need to make sure that can carry out adequate checks on the donor’s funds and wealth.  

This may be viewed as excessive, but with the presence of some serious  crime sanctions for non compliance it is far better in my mind to be over cautious. 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com