Anti-Money Laundering

Criminals are guided by considerations with respect to opportunity and capability to clean the proceeds of crime. Solicitors need to manage this risk. The principal features of a proportionate response to money laundering would include: 

• internal procedures, systems and control (including staff awareness) that adequately reflect your risk assessment (who is my client, where have they come from, what are they asking me to do and where are the funds coming from);
• ensuring a rigorous client intake / matter policy exists to reflect the risk characteristics of the client; and
• ensuring that there are robust arrangements to monitor the risks.

Money laundering is the process of disguising the illegal or unlawful origins of money or property and disguising of ownership of illegal property to enable criminals to use and enjoy the funds without attracting government attention. It can take various forms and use a variety of methods. All the processes are designed to disguise the illegal or unlawful origin, particularly of cash. It takes place in three stages:

1. the direct or indirect placement of funds generated by crime into the financial system
2. separating illicit proceeds from the source by disguising the audit trail to provide anonymity
3. laundering the proceeds back into the community through various means to make the money appear legitimate.

Areas of concern can be:

• fictitious buyers (introduced by third parties and not known to the solicitor);
• payment of deposit directly to the seller (particularly if the deposit seems excessive for the transaction);
• purchase funds seem suspect or are coming from an unusual mix of sources or an unrelated third party;
• proposals to provide substantive amounts of cash;
• purchase of property using a corporate vehicle where there is no good commercial or other reason); and
• tax issues.

Client due diligence refers to assembling facts and information about a client that enables the solicitor to assess the extent to which the client may expose a law firm to a range of risks. These risks include money laundering. A law firm needs to know their client for a number of reasons:

• to comply with the requirements of Commonwealth and State legislation or regulations;
• to assist the law practice to be reasonably certain that the client is who they are and is appropriate to render legal services to;
• to assist the law practice to guard against fraud, either identity fraud or impersonation; and
• to identify in a continuing client relationship, changes in the client or if unusual events are occurring.

Knowing the client enables the law practice to better market its offering and it is also good business.

We live in a world where many transactions can occur where the parties to those transactions may never meet. As part of our client intake procedures we should consider whether we are comfortable in acting. Matters to consider are:

• have I acted for the client in the past? – what is the length and strength of the relationship?
• does the client live in a high risk jurisdiction?
• does the client live in a country which has strong anti-money laundering legislation?
• does the jurisdiction have unacceptable level of corruption?
• is the jurisdiction a ‘tax haven’?
• does the client act in a high cash turnover business?
• what type of business is my client engaged in?

These factors will assist in informing your decision as to whether you should act or not.

When verifying a client’s identification document, you should:

• be reasonably satisfied that the document is genuine;
• if the document contains a signature, ensure that the signature is consistent with the client’s;
• if the document contains a photograph, be satisfied that the client exhibits a reasonable likeness to the person;
• if the document is foreign, consider obtaining a translation of the document by an accredited translator;
• sight the original and current document;
• check to ensure the document is current; and
• retain a copy of the client’s identification documents.

In designing management polices for anti-money laundering it will be necessary to think about the way a client does business and how that may create problems for the law practice. Matters to address are:

• is there a significant part of the client’s business conducted via the internet, from an overseas jurisdiction or otherwise without face to face contact;
• does the client’s business operate through indirect relationships ie: an intermediary;
• where are the funds coming from (the source of the funding); and
• how are funds to be transferred.

Clubs or associations will usually be medium money laundering risks. A solicitor when drafting a policy dealing with client due diligence for such organisations should consider:

• the scope of the association’s purpose;
• the association’s activities;
• the association’s geographical spread; and
• identification of the office holders and registered address.

Documents that may assist with verification include:

• the association’s constitution;
• bank statement, audited and financial statements; and
• review of digital presence (if any).

Where a practice maintains a trust account, part of an anti-money laundering policy should ensure that appropriate systems and procedures are in place to reduce the risks of:

• fraudulent or dishonest behaviour (both inward and outward focusing);
• compliance breaches with the Legal Profession Act 2007 (Qld) and its regulations;
• exposure to disciplinary action; and
• reputational damage.

As a result, you should ensure that trust record keeping is detailed and up to date and you should understand both the source of client funds and where funds are to be paid out.

A policy that is designed by a practice to address the issues of anti-money laundering should cover the following:

• a policy statement that sets out the intention of the firm to comply with statutory obligations;
• the scope of the policy – what procedures apply to those who work in the practice, whatever role;
• what is the threat posed by money laundering;
• the general obligations of those handling financial transactions;
• recordkeeping (including detailed and up to date trust record keeping);
• a specific policy on handling cash including placing a dollar limit on how much cash can be accepted (if any); and
• review of the practice’s policies and procedures.

Legal firms when preparing a policy dealing with anti-money laundering need to develop a framework that addresses the following issues:

• if the firm is of a sufficient size, a director or partner should be appointed as the compliance officer;
• a risk assessment of all areas of practice that the firm works in;
• a review of the terms of business in the client service agreement;
• internal reporting processes;
• customer due diligence procedures both for new and long standing clients;
• record-keeping procedures; and
• staff training.