The LSA further provides that, in carrying out its functions, the LSC may, by written instrument, delegate to any committee of the LSC or other person any of its functions under the LSA or any other Act (section 5(3) LSA). Additionally, pursuant to section 6 of the LSA, the LSC has the power to do everything reasonably incidental or conducive to carrying out its functions under the LSA.
As set out in Legislation Gazette No. 17 dated April 19, 2024, the Anti-Money Laundering Regulations (AMLRs) were amended and updated to reflect, amongst other things, the repeal and substitution of Reg. 55B of the AMLRs, which provides that the LSC or its delegate is the assigned Supervisory Authority for firms of attorneys at law conducting Relevant Financial Business (RFB).
Pursuant to section 5(3) of the LSA and via a written instrument of delegation dated July 19, 2024, the LSC delegated its functions in the role of Supervisory Authority for firms of attorneys at law, to Legal Services Supervisory Authority (“LSSA”)
The LSSA falls within the remit of the Financial Action Task Force’s (FATF) definition of an SRB.
The FATF defines an SRB as, “a body that represents a profession (e.g. lawyers, notaries, other independent legal professionals or accountants), and which is made up of members from the profession, has a role in regulating the persons that are qualified to enter and who practise in the profession, and also performs certain supervisory or monitoring type functions. Such bodies should enforce rules to ensure that high ethical and moral standards are maintained by those practising the profession.”
By virtue of the LSA, the POCA and the AMLRs, the LSC or its delegate is the designated Supervisory Authority for firms of attorneys of law that engage in or assist other persons in the planning or execution of RFB, or otherwise act for or on behalf of such persons in RFB. This designation aligns with the FATF’s definition of an SRB as the LSC is a body made up of members from the legal profession that has a role in regulating the persons that are qualified to enter and who practise in the profession and performs certain supervisory or monitoring type functions.
Pursuant to its powers under the LSA, the LSC created a non-profit company, namely, the LSSA, to which it delegated its functions in the role of Supervisory Authority for firms of attorneys at law. The establishment of the LSSA falls within the ambit of the powers of the LSC as section 6 of the LSA empowers the Council to do everything reasonably incidental or conducive to carrying out its functions under the LSA.
Notably, the decision taken by the LSC to delegate its powers to the LSSA is also in alignment with the provisions of both the LSA (section 5(3)) and the AMLRs (Reg.55B(c)).
In the circumstances and particularly due to the fact that the LSSA is created and owned by the LSC, all members of the Board of Directors of the LSSA are also from the legal profession, the LSSA is the body to which the LSC has delegated its supervisory functions and because the creation and operations of the LSSA falls within the remit of the LSA and the LSC’s powers therein, it is reasonable to conclude that the LSSA is an SRB.
Pursuant to Reg. 55B of the AMLRs, the LSC or its delegate is the designated Supervisory Authority for firms of attorneys at law that engage in or assist other persons in the planning or execution of relevant financial business, or otherwise act for or on behalf of such persons in relevant financial business.
- the sale, purchase or mortgage of land or interests in land on behalf of clients or customers;
- management of client money, securities or other assets;
- organisation of contributions for the creation, operation or management of companies;
- management of bank, savings or securities accounts; and
- the creation, operation or management of legal persons or arrangements, and buying and selling of business entities.
- a body corporate, association, partnership or limited liability partnership of attorneys who are admitted to practice law in the Islands; or
- an attorney admitted to practice law in the Islands who is in independent practice as a sole proprietor or who provides legal services to an employer other than the Government.
In essence, this includes all attorneys at law, including sole practitioners, in house counsel, law firms (partnerships) and body corporate carrying on business consisting of the provision of professional services such as are provided by individuals practising as attorneys, save and except those employed by the Government.
Pursuant to section 2 of the LSA “in-house counsel” means an attorney-at-law who provides legal services solely to the attorney-at-law’s employer (including a statutory authority that is an employer) or to other entities that are part of the same group of entities as the employer.
Reg. 2 of the AMLRs defines “firm” of attorneys at law as —
- a body corporate, association, partnership or limited liability partnership of attorneys who are admitted to practice law in the Islands; or
- an attorney admitted to practice law in the Islands who is in independent practice as a sole proprietor or who provides legal services to an employer other than the Government.
As per Reg. 2(ii) above, in-house counsel (providing legal services solely to his employer), falls within the remit of firms of attorneys at law under the AMLRs.
Reg. 2 of the AMLRs defines “connected person” as, in relation to a person carrying out RFB where the person is a body corporate, partnership or unincorporated body —
-
- a manager of the body corporate, partnership or unincorporated body;
- a director, secretary or senior executive of the body corporate, partnership or unincorporated body, regardless of job title; or
- the natural person who ultimately owns or controls the body corporate, partnership or unincorporated body and includes —
- in the case of a legal person, other than a company whose securities are listed on a recognised stock exchange, a natural person who ultimately
owns or controls, whether through direct or indirect ownership or control, ten per cent or more of the shares or voting rights in the legal person; - in the case of a legal person, a natural person who otherwise exercises ultimate effective control over the management of the legal person; or in the case of a legal arrangement, the trustee or other person who exercises ultimate effective control over the legal arrangement.
- in the case of a legal person, other than a company whose securities are listed on a recognised stock exchange, a natural person who ultimately
Whilst the obligations under the AMLRs mostly relate to attorneys at law who conduct RFB, there are some obligations which extend to attorneys at law who do not conduct RFB.
Pursuant to Reg. 55A of the AMLRS, all firms of attorneys at law are designated as DNFBPs.
Further, Reg. 53AA provides that DNFBPs are required to produce information to the SA where the SA by notice in writing requires a DNFBP to provide documents, statements or any other information as the SA may reasonably require to determine if the DNFBP is carrying out RFB. In such circumstances, the DNFBP is required to comply with the notice within the period and manner specified. A person who fails to comply with a notice under Reg. 53AA contravenes the AMLRS and is liable:
- on summary conviction, to a fine of five hundred thousand dollars, or on conviction on indictment, to a fine and to imprisonment for two years; or
- to the imposition of an administrative fine. A person who provides false or materially misleading information to a SA whether knowingly or recklessly contravenes the AMLRS, which may result in the imposition of an administrative fine (Reg. 55O).
Compliance Programme Obligations:
It is essential for attorneys at law conducting RFB to have a Compliance Programme. In so doing, it is necessary to:
- designate an AML Compliance Officer who will be the POC with the LSSA- this must be someone at the managerial level of the firm;
- ensure that measures set out in the AMLRs are adopted.
Applying a Risk-Based Approach (RBA):
Attorneys at law conducting RFB are required to take appropriate steps to identify, assess and understand their ML/TF/PF risks relative to:
- clients;
- the country or geographic area in which the client resides or operates;
- their products, services and transactions; and
- their delivery channels e.g. non-face-to-face interactions, use of intermediaries.
Risk assessments must be kept documented and kept up to date. Additionally, you are required to implement policies, controls and procedures to efficiently manage and mitigate identified ML/TF/PF risks.
You must have mechanisms in place to provide the aforesaid information to LSSA.
(See. Part 3 AMLRs)1
Due Diligence (CDD, SDD, EDD):
An Attorney at law conducting RFB shall not keep anonymous accounts or accounts in fictitious names.
You are required to undertake customer due diligence (CDD) measures when:
- Establishing a business relationship;
- carrying out a one-off transaction valued more than ten thousand dollars ($10,000.00) (one off or smaller linked transactions);
- carrying out a one-off transaction that is a wire transfer;
- there is a suspicion of ML/TF/PF;
- there are doubts about the veracity or adequacy of previously obtained customer identification data.
This obligation extends to identifying clients, persons acting on their behalf and beneficial owners as well as verifying the identity of those persons using reliable, independent source documents, data or information. Further, you are required to verify that a person acting on behalf of a client has received proper authorisation to do so.
In relation to a business relationship, you are also required to:
- understand and obtain information on, the purpose and intended nature; and
- conduct ongoing due diligence including:
- scrutinizing transactions to ensure that they align with your knowledge of the client, their business and risk profile, including their source of funds; and
- ensuring that documents, data or information collected under the CDD process is kept current and relevant.
You may apply simplified due diligence (SDD) measures where you have identified and assessed a low level of risk in conducting your risk assessment. Notably, your finding of low risk will only be valid if the finding is consistent with the findings of the national risk assessment or the LSSA, whichever is most recently issued.
Where the ML, TF or PF risks are higher, you have an obligation to perform enhanced due diligence (EDD).
In circumstances where you are unable to undertake the due diligence measures set out in the AMLRs, you shall not commence business relations or carry out any transactions, or terminate the previously established business relationship Additionally, you should consider filing a suspicious activity report (SAR) with the Financial Reporting Authority (FRA). A SAR should also be filed where there is reasonable belief that satisfying ongoing CDD requirements will tip off a customer or an applicant for business (in such an event, the CDD shall not be completed).
(For detailed information on your Due Diligence obligations, please see Parts 4, 5
and 6 of the AMLRs.)
Record Keeping:
Attorneys at law conducting RFB are required to maintain record-keeping procedures which must entail that the following records be kept for at least five (5)
years:
- Evidence of CDD obtained.
- Account files and business correspondence, and results of any analysis undertaken.
- Details relating to all transactions carried out by the attorney at law, which should be sufficient to permit reconstruction of individual transactions so as to provide, if necessary, evidence for prosecution of criminal activity.
Additionally, you are required to ensure that all CDD information and transaction records maintained are available without delay upon request by competent authorities.
(See Reg. 31 and 32 of the AMLRS)
Reporting and other obligations:
Reg. 53A: You have an obligation to produce documents, statements or other information requested by the LSSA in the exercise of its supervisory functions.
Reg. 55F: You have an obligation to register with the LSSA which includes the submission of:
- a declaration that you carry on or intend to carry on business as an attorney at law;
- in the case of a body corporate, the name, country of incorporation, date of incorporation and registered office of the body corporate;
- in the case of a partnership or limited liability partnership, the name, country of formation, date of formation and registered office of the partnership;
- in the case of a person that is not a corporate body, partnership or limited liability partnership, the name and address of the person;
- the principal business address in the Cayman Islands, telephone number and e-mail address;
- copy of your practising certificate, operational licence and/or recognised body certificate as applicable;
- name and date of appointment of the AMLCO, MLRO and DMLRO;
- information identifying the ownership and control structure of the firm of attorney at law, including information on the beneficial owners of the and all connected persons; and such other information as the LSSA reasonably considers appropriate.
Reg. 55M: Attorneys at law conducting RFB has a duty to allow site visits by the LSSA in the exercise of its function. This includes allowing an employee of the
LSSA to:
- enter and inspect the premises;
- observe the carrying on of business;
- inspect any recorded information found on the premises and to take copies of, or extracts from, any such information apart from those falling within the remit of Legal Professional Privilege; and
- ask any person on the premises for an explanation of any recorded information or to state where it may be found.
Reg. 55MA: You have a duty to notify the LSSA of any change in:
- your risk assessment;
- information previously requested by the LSSA to determine if you were conducting RFB; and
- information submitted to the LSSA in respect of registration no later than thirty days after the date on which the change occurs
All attorneys at law conducting RFB are required to appoint a Money Laundering Reporting Officer (MLRO) and a Deputy MLRO (DMLRO). The MLRO and DMLRO must be employed at managerial level.
The MLRO and DMLRO are responsible for receiving reports of any information or other matter which gives rise to —
- a knowledge or suspicion or reasonable grounds for knowing or suspecting that another person is engaged in ML, TF or PF; or
- a knowledge or suspicion or reasonable grounds for knowing or suspecting that the transaction or attempted transaction relates to ML or TF.
Where such a report is received, the MLRO or DMLRO shall consider same together with all other relevant information to determine whether the matter gives rise to the reported knowledge or suspicion. Where the MLRO or DMLRO, based on the report made, knows or suspects or has reasonable grounds for knowing or suspecting that another person is engaged in ML, TF or PF, they shall disclose same to the FRA.
(Also see section on Due Diligence Obligations.)
The LSSA will implement the sanctioning framework under the AMLRs including remediation action, administrative fines and cooperation with LEAs and other authorities where necessary.
Legal Professional Privilege (LPP) protects certain confidential communications between an attorney at law and client from disclosure. “Legal Professional Privilege is a single internal privilege, whose sub-heads are legal advice privilege and litigation privilege…”- Three Rivers District Council v Governor and Company of the Bank of England (No 6) [2004] 3 WLR 1274.
Legal advice privilege:
Legal advice privilege protects communications, between a legal professional and a client for the purpose of that communication and are privileged if they are both:
- confidential, and
- for the dominant purpose of seeking legal advice and legal assistance from a legal professional or providing it to a client
Litigation privilege:
Litigation privilege protects communications between a legal professional or their clients and any third party for the purpose of obtaining advice or information in connection with existing or reasonably contemplated litigation. For litigation privilege to apply these communications must be for the sole or dominant purpose of litigation, for any of the following:
- for seeking or giving advice in relation to it,
- for obtaining evidence to be used in it, or
- for obtaining information leading to obtaining such evidence.
There are certain exceptions to the application of LPP. The main one is the “iniquity exception”, by virtue of which no LPP arises if a lawyer’s assistance is sought to further a crime, fraud or equivalent conduct. Additionally, a client may opt to waive LPP.
AMLRs:
A person is not required under Reg. 53A(1) or (3) to provide or produce information, or to answer questions, which the person would be entitled to refuse to provide, produce or answer on grounds of LPP in proceedings in the Grand Court, except that an attorney-at-law may be required to provide the name and address of the attorney’s client.