Gap in AML Controls for Counterparty Transactions

27th January 2017

In the midst of the recent increase in transactional activity, Langham Hall has observed that both private equity and real estate fund managers may be exposed to a pronounced risk when selling or acquiring underlying assets to or from counterparties. This is because an appropriate level of Anti Money Laundering (AML) Customer Due Diligence (CDD) measures may not have been applied to the counterparties. Failing to do so can expose a manager to the legal, regulatory and reputational repercussions of unwittingly handling criminal property, including the proceeds of crime. 

Private Equity Managers

For private equity managers, the obligation to carry out AML CDD measures arises from sectoral guidance issued by the Joint Money Laundering Steering Group (JMLSG). This guidance requires that AML CDD measures be put in place to identify and verify the identity of transacting counterparties when a firm is making, managing or exiting private equity investments. JMLSG guidance extends this requirement to include any co-investors involved in a transaction.

Real Estate Managers

The expectation for real estate managers is perhaps more nuanced. JMLSG guidance recognises that AML CDD measures in real estate transactions may be carried out by the counterparty’s solicitor. However, it is important to note that solicitors are only obliged to do this to mitigate their own risks, which may differ markedly from the risks faced by a manager. In light of this, the JMLSG recommends that managers take additional steps to ensure that their risks are mitigated.

The Way Forward

As the industry continues to attract regulatory scrutiny, both private equity and real estate managers should remember that the FCA and UK courts will consult JMLSG guidance to decide whether a manager has breached the relevant provisions of the FCA Handbook or has committed an offence under The Money Laundering Regulations 2007 and The Proceeds of Crime Act 2002. Furthermore, the FCA has identified weak AML controls as a key concern in 2017 and have publicly committed to focusing more attention on smaller firms such as investment managers. As the saying goes, forewarned is forearmed; a number of our largest clients have appointed Langham Hall to carry out AML CDD measures on their counterparties. 

Langham Hall Offering

We are uniquely placed to help firms carry out AML CDD measures in line with JMLSG guidance. As one of the largest independently owned fund administrators of real estate, private equity, infrastructure and debt structures in Europe and a leader in the provision of AIFMD depositary services, we have an in-depth understanding of fund transactional activity, strategies and structures common in Europe, North America, the Caribbean, Africa and Asia. Furthermore, our AML CDD services are provided by a dedicated compliance team staffed by former MLROs, operational due diligence experts, former regulators and internal auditors with a proven track record of applying risk based solutions in a commercially sensitive manner. 

For more information about how we can help you, please contact: 

Marvin Hurlston - Compliance Officer      
T. +44 20 3597 4354
E. marvin.hurlston@langhamhall.com
___
Joe Hime - Head of Department    
T. +44 20 3597 7969
E. joe.hime@langhamhall.com
___
Marie Fitzpatrick - Business Development Director    
T. +44 20 3597 7909
E. marie.fitzpatrick@langhamhall.com