When looking at money laundering warning signs, an instruction that is unusual for your firm is high on the list and should ring alarm bells. Many firms are training fee earners to ask all new clients: 'so why did you select our firm?'.
This question not only helps assess this risk posed by new clients, but also helps gauge the effectiveness of marketing activities and the firm's reputation in the markets in which it operates.
Unfortunately, money launderers adapt and stay up-to-date with the risk mitigation strategies employed by firms. Therefore many are ready for this question and have a simple set of responses which on the face of it seem plausible, and can seem difficult to challenge.
The Law Society's Practice Advice Service frequently receives calls from MLRO's seeking reassurance about unusual clients who come up with plausible reasons for selecting the firm.
Standard responses include:
- A friend suggested you
- I drive past your firm on my way to work
- I found you on Google
- The person I want to sue is based near your firm
- You have a reputation as experts in this type of work
The last response in particular can be very flattering to hear, but may be worth closer examination and a realistic assessment of the likely reach of your firm's reputation, particularly if the prospective client is from overseas.
In the February edition of the AML e-alert we highlighted a concerning trend: firms being approached by foreign clients to undertake debt recovery, with the debtor making full payment before client due diligence was even undertaken.
This scenario raises concerns over whether this is sham litigation as a front for money laundering and whether the client account is being used without a real underlying transaction.
Since that story was issued, the Practice Advice Service has received more than ten calls from small to medium sized law firms who have been approached by people purporting to represent companies based in China seeking to recover debts in the UK .
Several calls referred to debts related to industrial machinery and more recently to oil barrels. The clients had all approached the firms by email and while client due diligence was still being undertaken, a bankers draft arrived in the solicitor's office from the debtor to pay the debt.
While these may have been legitimate transactions, they did present a number of warning signs as highlighted in our article.
Each of these firms had asked the question: why did you instruct my firm? The answers were consistently that they had been found on the internet and had a good reputation for this specific type of debt recovery work.
A number of the firms stopped to consider this later statement. While they decided that they did have a good reputation for litigation work in their local area, they simply did not undertake debt recovery for overseas clients in this particular industry or for the level of debt being undertaken.
This 'too neat' answer, designed to flatter, made them all the more wary about taking on the retainer.
When encouraging fee earners to ask the question 'Why?' of a client, ensure they understand the importance of critically examining the answers they receive.
International work is a growth area for law firms of all sizes in the UK . Legitimate opportunities should not be passed over merely because it may be harder to assess the credentials of potential clients
The Law Society's International Division is here to help UK firms to be better placed to make the most of international opportunities and to better understand foreign clients and the jurisdictions they are being instructed from.
Finally, as MLRO, you can apply to register on the Law Society's AML e-forum and receive updates of the emerging issues we are seeing on our Practice Advice Service. To register please email: antimoneylaundering@lawsociety.org.uk