Money Laundering: Don’t make it easy for the criminals

Amy Bell
Amy BellAmy Bell Compliance Ltd

Amy Bell, compliance consultant, solicitor, and director of Teal Compliance, discusses three red flags to watch out for with money laundering.

Office buildings in a city

Firms are going through a period of considerable disruption, which will last for an, as yet, unknown length of time.

As well as disruption to how we provide services to clients, financial disruption in the economy means that transactions using the services of lawyers are also likely to be disrupted.

One part of the economy which is unlikely to be disrupted is the world of illicit finance. With law enforcement estimates in the 2017 National Risk Assessment of at least £24bn in illicit finance flows, there is still a lot of money to go around the system.

Criminals may seek to take advantage of the situation to launder money through law firms. Watch out for these three red flags:

1. Difficulties in supplying you with client ID

Client due diligence (CDD) gives you assurance that you know who you are acting for and usually where your client is located. Usually, law firms will ask to see the original documents, or certified copies. Given that it will be difficult for legitimate clients to attend at your firm’s office(s) or another firm’s office to do this, your firm will need to think about how you can comply.

Be mindful that criminals impersonating a client may say that they are unable to provide original documents, and may try to get you to skip parts of your CDD process or send you copies of documents, which would make it more difficult to identify forgeries. A potential solution here would be using a combination of seeing copy documents and verifying them as authentic using electronic verification.

2. Difficulties in providing you with source of funds and wealth documentation

Some criminals may use the current situation as an excuse for not being able to provide you with source of funds or wealth information, such as bank statements or other support documents. They may claim that the information is somewhere they can’t access at the moment, such as in their now temporarily closed office or at their parents’ house.

Obviously, this could be the case for a legitimate client too, but consider how likely their explanation is. You may find you need to look at documents which have been downloaded, rather than the originals, and if you are, consider whether there are any signs that they might be forgeries.

3. Pressure to take on matters which would usually fail your matter risk assessment

One way in which I saw criminals try to target law firms during the last recession was to instruct firms on seemingly big deals, hoping that the firm would be so focused on the fees it could earn rather than the risks, that the criminal would sail through the firm’s CDD checks. It is more important than ever therefore that lawyers carry out thorough matter risk assessments, being aware of the red flags for money laundering, such as unusually complex client ownership structures, or large amounts of cash.

Your money laundering reporting officer (MLRO) might want to review your firm’s risk assessments at this time to be satisfied that you are correctly identifying risks. I’ve seen some firms require MLRO or compliance review and sign-off of high-risk matters.

It is clear that firms will be expected to apply their client due diligence processes thoroughly, even in these challenging times.

Views expressed in our blogs are those of the authors and do not necessarily reflect those of the Law Society.

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