Anti-money laundering & countering financing of terrorism.
As anyone who has attempted to open a bank account or invested funds through an investment manager in recent years will attest, such activities are no longer the relatively straightforward exercise that they used to be. The provision of detailed information regarding the identity of the account holder is now required.
These changes have been brought about by the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (“the AML/CFT Act”), which has been in force for “phase one” entities such as banks, casinos and other financial institutions for some years. Phase two of the legislation is due to come into effect from 1 July 2018, with the result that from that date lawyers will be required to comply with the requirements of the AML/CFT Act.
As its name suggests, the purpose of the AML/CFT Act is to prevent money laundering and the financing of terrorism. Generally speaking, money laundering is the process by which criminals attempt to conceal the true origin of the proceeds of their activities by placing the proceeds of crime into the financial system (“placement”), creating complex layers of financial transactions to disguise the source of the funds (“layering”) and then integrating the laundered funds into the legitimate economy (“integration”). Terrorist financing relates to activities that provide funding to individual terrorists or terrorist groups.
How are lawyers affected?
The AML/CFT Act requires that lawyers must do a number of things to help combat money laundering and terrorist financing and to notify the Police where such activities are suspected. This is because it is considered that the services that law firms offer are attractive to those involved in money laundering and/or the financing of terrorism.
The AML/CFT Act places obligations on lawyers (and other professionals) to assess the risk that they may face from the activities of those involved in money laundering and the financing of terrorism and to identify and report potentially suspicious activities. In order to assess these risks, lawyers are required to obtain and verify a range of information from both prospective and existing clients as part of a process that is known as “customer due diligence”. Essentially, customer due diligence requires a law firm to undertake certain background checks before providing services to clients and to take reasonable steps to verify the information provided.
What does this mean for clients?
In order to meet our legal obligations, we will need to obtain and verify certain information from clients including clients’ full names, dates of birth and addresses. To confirm such information, documents such as a driver’s licence or passport confirming clients’ identities will be required, together with documents showing clients’ addresses, such as bank account statements and the like. In the case of clients who are companies or trusts, further information about the company or trust and the persons associated with it (such as directors, shareholders, trustees and beneficiaries) is also required.
In addition to obtaining information about clients’ identities and addresses, we may also need to request information about the nature and purpose of the proposed work that we are undertaking. For example, we may need to obtain information concerning the source of funds for a particular transaction. In many cases, the types of information required is not vastly different from the information that is required already in transactions involving the sale and purchase of real estate, particularly for individuals. However, in future we may ask clients for more information about the transaction itself than in the past. In the case of companies and trusts, which are perceived to be particularly susceptible to the activities of those involved in money laundering, more detailed information than we currently obtain from clients is likely to be required.
What happens if the required information is not provided?
Unless clients provide the required information, it is likely that we will be unable to act. As the AML/CFT Act applies to everyone, the obligation to obtain and verify information will apply to both new and existing clients, including those clients who have been with us for many years.
Where to from here?
We are required to implement a compliance programme, which we are currently in the process of developing and which will be finalised in the coming months. It is intended that this compliance programme will cause the minimum of inconvenience to clients whilst at the same time ensuring that we meet the legal requirements imposed on us under the AML/CFT Act.
Finally, whilst these changes have been imposed on the legal profession by legislation, we consider the changes are also likely to have the added benefit of assisting us to get to know our clients and their businesses better, which will in turn assist us to provide the high standard of service that we aim to provide.