Client accounts and the application of the Money Laundering

Client accounts and the application of the Money Laundering

Regulations 

On 5 January 2015, representatives of CIPA met with colleagues from ITMA and the Legal Services Board to discuss the introduction of IPReg’s new Code of Conduct on the 1st January this year and the publication by IPReg of a statement that the Money Laundering Regulations 2007 apply to patent and trade mark attorneys.

CIPA has received feedback from members that some banks were refusing to open ‘on trust’ client accounts because the application of the 2007 Money Laundering Regulations meant that they could only do so for ‘reliable persons’ listed in Schedule 3 of the Regulations. This is a separate issue from IPReg declaring that the Money Laundering Regulations apply to patent and trade mark attorneys.

Client accounts

The Legal Services Board suggested that CIPA should publish guidance for its members indicating that invoicing for fees and disbursements in advance does not require the establishment of ‘on trust’ client accounts as clients have no future claim over such monies.

Rule 11 of the Code of Conduct states:

In the event that a regulated person receives money from a client, other than by way of payment of fees or disbursements incurred but including money on account for fees or disbursements paid up front, they should ensure that such money is held on trust for the client in an account which is entirely separate from the regulated person’s or the firm’s professional business accounts.

It is clear that, where a client settles a regulated person's invoice for services, which may or may not include charges for anticipated fees or disbursements in relation to those services, and the client has no claim over the monies paid to settle the invoice, this shall not constitute monies held on account on behalf of a client and the regulated person shall not be accountable for such monies under Rule 11. CIPA advises its members to issue invoices for all services provided to a client, including anticipated fees and disbursements. Monies received in settlement of such invoices will not be subject to Rule 11 and will not require the establishment of an account held on trust for the client.

Where a regulated person receives monies from clients over which the client will have a future claim, as might arise from holding money in escrow for the assignment of intellectual property assets, for example, such monies will need to be held in an account held on trust for the client under Rule 11. The Institutes are aware that some banks will only open ‘on trust’ client accounts where the regulated profession is included in the Schedule 3 list of reliable persons as described in Paragraph 17 (2) (b) of the Money Laundering Regulations 2007. Patent and trade mark attorneys are not listed in Schedule 3 and this may result in problems with some banks opening such an account.

IPReg has recognised that regulated persons may encounter difficulties in immediately complying with Rule 11 and has committed to assist all patent and trade mark attorneys who are experiencing problems in establishing on trust client accounts. CIPA wishes to help IPReg identify the potential scale of the problem should regulated persons need to hold monies on trust for clients but where banks are not allowing the establishment of a client account due to the application of the Money Laundering Regulations. Please inform Lee Davies, Chief Executive of CIPA, immediately if you encounter any such problem. This will allow us to gain an appreciation of the number of firms affected and to take steps to address the issue.

As an alternative to establishing a client account to hold monies on trust, it may be advisable to make an arrangement with another regulated person, such as another firm regulated by IPReg or firm of solicitors which has an account held on trust for clients.

Further advice in the form of frequently asked questions (FAQs) will be provided in response to feedback from CIPA’s members.

Money Laundering Regulations 2007

IPReg has published a statement that the Money Laundering Regulations 2007 apply to Patent and Trade Mark Attorneys. This statement is based on the opinion that, in the course of providing legal services, Patent and Trade Mark Attorneys fall within the scope of the Regulations, because they participate in transactions involving the management of client assets. CIPA takes the position that IPReg does not have the statutory competence to determine whether or not the 2007 Money Laundering Regulations apply to patent and trade mark attorneys. This is a matter for the Treasury and, ultimately, the Courts.

In 2009 the Treasury determined that the patent or trade mark-related activities carried out by patent or trade mark attorneys are not within the type of transactions envisaged in Money Laundering Regulations and that it was not a natural construction to talk of managing clients' patents and trade marks in the context of managing financial transactions. The Treasury stated that it did not expect that patent and trade mark attorneys will ordinarily need to be registered or regulated under the Money Laundering Regulations. There has been no material change to the Money Laundering Regulations or the regulation of patent and trade mark attorneys since this determination by the Treasury.

Following the publication of this statement by IPReg, CIPA sought leading Counsel’s opinion. The full text can be found here. CIPA believes that the application of the Money Laundering Regulations to patent and trade mark attorneys would place both professions in a position of weakened competitiveness in Europe and further afield, where competitors are not subject to this increased and unnecessary burden of regulation.

CIPA has requested that the LSB intervene in this matter and that, if progress is not forthcoming, the matter would be escalated through other channels.