No problem. Back in 2008 Solo posted about it. The 2007 Regulations don't apply to patent and trademark agents. I was therefore surprised by the IPREG advice page. In August they took advice from Mr James Ramsden, a junior counsel, who opines that the Treasury is wrong (as is SOLO). Brave man! I was alerted to this development by the report at the back (page 655 to be precise of the recently arrived CIPA Journal on the webinar in September. Personally I would have made it front page news as we know from the secret diary that no-one reads these features. Webinars are of course for CPD points getters not for any useful information. There is also a summary published clandestinely on the CIPA web site in October here.
The consequence of Mr Ramsden being right and me being wrong is (amongst other things) that all solos now need to become nominated officers to submit Suspicious Activity Reports (SARs). The National Crime Agency has a nice on line interface for enabling us to pursue our new career as a nark. Under the law as I understand it, if someone asks me to participate in a dodgy transaction, I can just say no. I have no further obligations. Yes you do need to be aware of the possibilities of money-laundering and now that we all have client accounts, we may be tempted by suggestions that we use them to facilitate interesting trades that our clients have in mind. Don't do it. Just say No. Client accounts are for managing credit risk in a way that is fair to the client.
The reason why the Treasury were wrong apparently is that we are independent legal professionals who by way of business provide legal services to other persons, when participating in financial transactions concerning the managing of other assets (where the other assets are patents and trademarks). Me thinks he is stretching it. We do manage patents and trademarks but participating in financial transactions concerning their management? I don't think you can have had in mind the payment of renewal fees as a financial transaction. Managing assets means looking after an investment portfolio, a load of houses - something of that ilk, not keeping a database of renewal dates. Probably you should read the opinion yourself. Paragraph 17 to 22 are the knub of it.
Under the 2007 regulations, I only have to do client identification procedures when I am establishing a business relationship to participate in these strange financial transactions. Therefore, it seems to me that I had better not even get close to doing that.
Since IPREG took counsel's advice in August, one would have hoped that they have managed to engage with the FCA (Financial Conduct Authority not Crime Agency) and work out who is the supervisory authority for us.
ITMA recently conducted a survey to find out how many members had held money in an escrow account as part of an assignment exercise. Was that what they thought managing assets meant? An independent legal professional that is involved in financial transactions concerning the buying and selling of business entities is caught by the Money Laundering Regulations. However a trademark is not a business entity. A business is a business entity and the business might include a trademark but it would be remarkable if the trademark agent acted in the sale of the business entity just to get the trademark. If something like that comes along, pass it on to a business solicitor.
I am also confused by the Statement from CIPA and ITMA that you can see here. The first paragraph while true does not seem to support any assertion. Are they asserting that we don't need client accounts or that we should not be covered by the 2007 Regulations. The next paragraph bemoans the fact that we are not covered and some people (not many) have had difficulty getting client accounts (as to which see my earlier post). Hopefully someone who knows will provide an illuminating comment. Maybe it could be you!
Hi Barbara, thanks again for interesting post
ReplyDeleteI think the problem is this whole schedule 3 thing, IPREG is not on it.
So whilst we have a client account, perhaps we shouldn't according to banking rules because we are not regulated by an organisation on the list in schedule 3.
Could IPREG get on the list?
If not, would "IPREG-only regulated persons" be breaching banking and HMRC regulations by having a client bank account.
The purpose of schedule 3 is to define those organisations whose members do money-laundering to such a high standard that another party such as a patent agent can rely on their verification processes s17(2)(b)(ii). The schedule also tells you that these bodies are supervising authorities for their members s23(1)c. It is clear from the absence of IPReg that they weren't meant to be a supervising authority and that was for the very good reason that patent and trademark agents are not covered by the regulations. The final purpose of schedule 3 is uder s32(1) deals with who can make registers of folk covered by the regulations. Therefore, you will see that the fact that some banks allegedly use it to decide who can qualify for there client account is entirely because it is a convenient list. There is nothing that says the banks can't open client accounts for anybody who asks for one. They have to go through their own money-laundering procedures to verify who you are and that is quite sufficient. Asd you can see they are quite onerous. This is why many members of the profession already have client accounts and good relationships with their banks even though the deposits in those client accounts may be very small.
ReplyDeleteNo problem
Thanks Barbara, I don't think what state above is widely known. I was certainly confused about why our bank allowed us a client account, when we are not regulated under sch 3.
ReplyDeleteSorry to trouble you with another question, what do you know about the Fidelity Insurance Requirement of the new rules (I have come across some vague reference to a compensation bond from CIPA/Pamia am very confused how this would work or where it would fit in.
Excellent question. Fidelity insurance covers dishonesty by your employees. My Hiscox office policy gives me £25k cover which is adequate. No employeees then what. PAMIA may cover you provided all the directors did not collude. Will try to get more comments
ReplyDeletePAMIA will not cover loss of client money when the loss was due to dishonesty on the part of all directors of the company. That makes sense really - how could it ever be possible to ensure that you are compensated for your own dishonesty? Thus, fidelity insurance would seem to be impossible for sole practitioners. Which leaves "other compensation arrangements" as the only option for solos... but I'm not sure what other arrangements could possibly be similar or equivalent to fidelity insurance. It will be interesting to see what IPReg have to say about this.
DeleteIndeeed PAMIA and no other insurer will ever insure against the dishonesty of the insured himself. We can however rely on PAMIA to cover "your practice for all monies held by you for or on behalf of your clients" as they have confirmed to me. That deals for example with an identity fraud or an employee of my office management company (heaven forefend) that managed to do a spot of embezzling
DeleteBarbara, thank you for taking the time to disseminate this information. I have looked at the SoloIP blog post from 2008 where you refer people to the HMRC website (https://www.gov.uk/money-laundering-regulations-who-needs-to-register).
ReplyDeleteIt makes me wonder whether we need to register with HMRC under the Money Laundering regulations then. IPReg are saying that we need to comply with money laundering legislation. HMRC say that your business needs to be monitored by a supervisory authority if Money Laundering Regulations apply to your business type. They also say that you don’t need to register with HMRC for a business covered by the Money Laundering Regulations if you’re already supervised by a designated supervisory authority. IPReg is not a designated supervisory authority though from the list provided on the HMRC website so registration with HMRC would appear to be necessary to comply with new rule 11.
Has anyone contacted HMRC to ask them what their position is? I am not aware of IPReg advising us to register with HMRC - I wonder if anyone has taken this step?
HMRC is the supervisory authority for a selected group but they I not cover independent legal professionals so they are no good. The absence of an authority is my best argument that Ransden is wrong and the 2011 CIPA Guidance still correct. The presence of a shiny new client account might be considered to raise the risk that we will be targeted by criminals as a soft touch so it's important to be aware but that is I think the extent of our duty
DeleteSo we will be in breach of the new code of conduct as soon as it comes into force and there is nothing that we can do about it? It does seem a complete waste of time.
DeleteI dont think so. You are informed of and aware of the money laundering regulations. You are not expressly superverised by them so that much of the administrative burden does not exist. If IPREG take a different view then I say they should have taken steps to become a supervisory authority but in my opinion they dont need to and it would be an excessive and disproprotionate use of their limited resoruces
DeletePerhaps the financial transactions which concern Mr Ramsden are IP assignments - maybe he is worried that one criminal could register a TM (e.g. CrimesRUs) and then instruct a hapless IP attorney to handle the assignment of that TM to his mate for an inflated sum which is laundered by passing through the attorney's client account.
ReplyDeleteMy experience though is that IP assignments are usually for a nominal consideration because of the need to register the assignments and because clients normally wish to keep the value of the transaction off the public record. Maybe Mr Ramsden is concerned that we will be complicit in the laundering of that nominal one pound sterling as it passes through our client account. Surely people have better things to do with their time rather than worry about that?
An assigment could be used to launder money but its not a business we are in. Furthermore only lawyers in the business of selling business entities are caught by Reg 3(9) so doing an assignment and even facilitating the transfer of the consideration does not bring you within the scope of the regulations. To be on the safe side let the parties deal with the money transfers though
DeleteI did wonder about contacting HMRC to see if they would regulate us but decided better persons than I at CIPA and IPREG must have thought of this and done it.
ReplyDeleteI took a brief look at HMRC rules a few days ago and I agree with Barbara, HMRC would not want or be able to supervise us. As previous poster pointed out .... IPREG are saying that we need to comply with money laundering legislation, but does not say we need to be supervised. I had thought we needed to be supervised to meet banking regulations for client accounts but it seems not if what Barbara says above is correct, that banks just use sch 3 as a tool to vet potential client account holders.
So if we have a client account, a customer due diligence policy and checklist, up to date Ts and Cs that deal with interest, and fidelity insurance (still unsure about this as yet), and have trained our staff (easy if you are a solo, or near solo) then we are good to go!
Anyone else sorted out fidelity insurance?
Seems that unbeknowst to mortal members, CIPA and ITMA have been arguing the toss with IPReg and do not wish to join my unseemly public discussion. It seems that SOLO may not be the only lawyer who thinks money-laundering regs don't strictly apply to 99.99% of our business. Will further opinions be published? Hopefully IPReg will be seeing the light soon and encouraging banks to appreciate that although the the patent agent is not the beneficial owner of the contents of its client account, on a risk sensitive basis and taking into account the small balances involved and the likelihood that they are held to pay imminent invoices rendered by the holder of the account rather than to be paid out to third parties, their obligations under the 2007 regulations to do customer due diligence are appropriately satisfied
ReplyDeleteUnfortunately, this does seem to demonstrate what can happen if you ask for counsel's opinion on a matter of law. If IPReg have asked a specialist lawyer's opinion on whether or not the regulations apply and that specialist says they do then it will be an uphill struggle to persuade them otherwise.
ReplyDeleteHowever, the opinion, particularly paragraphs 48-52 would seem to indicate that actually the imposition of the money laundering regs should not be particularly onerous.
From the advice paragraphs 50-53:
In many if not most cases Patent and Trade Mark Attorneys can rely upon Regulations 13 and 17 – Simplified due diligence or reliance upon another regulated professional .
The administrative burden will be: record keeping, policies, procedures and training. For a sole practitioner the existence of a money laundering and anti-terrorist compliance file and basic awareness of the JMLSG Guidance Notes will ordinarily suffice.
There is no requirement for Patent and Trade Mark Attorneys to register under Regulation 22.
I don't think it's enough to say that we can always rely on regulation 13. That's fine for a listed company but many of our clients are start-ups or even individuals so if you say the regulations apply (which they don't) then you have to do your due diligence or only work for those who are introduced to you by a solicitor or accountant or rely on the fact that the particular transaction is not within the scope of the regulations (which it generally isn't). The administrative burden alone is disproportionate and for that reason the original guidance seemed sensibly risk-based. Indeed, these regulations made life easier for most solicitors who are not dealing with the activities listed in regulation 3 (9).
ReplyDeleteThe advice indicates that it was meant to be depressing, damaging to our businesses and generally overburdening us with regulation (that's how I interpret paragraph 54). Surely IPReg should be seeking support from the legal services board before making problems for the regulated people.
I guess that as we haven't heard anything more from you, CIPA or IPREG that nothing has come of the lobbying mentioned in your post of 19 December 2014 and that the new rules are in force.
ReplyDeleteLooking again at paragraphs 17-20 of Counsel's opinion, I believe that he has misunderstood regulation 3(9) or stretched its meaning unreasonably. The list of transactions (a) to (e) in 3(9) are characterised as being "financial or real property transactions"; we do not deal with those. "Client assets" is mentioned in 3(9)(b) as a 'catch all' to cover other equivalents to monies and securities. It is a stretch to call an IP asset a financial instrument! In context managing "client assets" would appear to mean managing financial transactions. Furthermore, the reference to "real property transactions" implies that the intention was to exclude intellectual property transactions. For these reasons, it is absurd to conclude that regulation 3(9) covers our work.
Counsel and IPREG refer to the NCA definition of "criminal property" to support their argument but that definition is not mentioned in regulation 3(9) so it is difficult to see its relevance.
In the November CIPA Journal, CIPA said that further guidance on the money laundering regulations is being developed by the Joint Business Committee of CIPA/ITMA and that policy/procedure templates will be published by IPREG in due course. Do we know when these are likely to be made available?
I share your disappointment on the lack of communications. However it appears that the Legal Services Board have met with somebody and may be reaching out to IPReg to discuss their view. In short IPReg might be "persuaded" to our opinion and all will be back to status quo.
DeleteCIPA has now published a notice here that says they agree with me and have taken another counsel's opinion who modestly admits that as counsel he cannot provide a definitive answer. Look for his opinion here
ReplyDelete